FLIR Systems, Inc.
Q4 2008 Earnings Call Transcript

Published: 6 Feb 2009

[Operator:]

Good morning. My name is Pamela, and I will be your conference operator today. At this time, I would like to welcome everyone to the FLIR Systems Fourth Quarter and Full Year 2008 Financial Results Conference Call. I will now turn the call over to Mr. Wit Davis, Senior Vice President, General Counsel and Secretary of FLIR Systems. Sir, you may begin.

[Wit Davis:]

Good morning, everyone. Before we begin this conference call, I need to remind you that other than statements as to historical facts, the statements made on this conference call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are based on our current Securities Litigation Reform Act of 1995 and are based on our current expectations. Words such as expects, anticipates, intends, believes, estimates and variations of such words and similar expressions are intended to identify such forward-looking statements. All of these statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the press release we issued earlier today for a description of factors that could cause actual results to differ materially from those forecast. The forward-looking statements we make today speak as of today and we do not undertake any obligation to update any such statements to reflect events or circumstances occurring after today. Let me now turn the call over to Earl Lewis, Chairman and CEO of FLIR Systems. Earl?

[Earl Lewis:]

Thank you, Wit, and thank you all for joining us this morning. We are very pleased with our performance in 2008. We recorded our eighth straight year of record revenue, operating income and earnings per share, and we achieved the highest operating income margins in our company's history. For all of 2008, revenue increased by 38%. We earned $1.28 a share, an increase of 44% compared with 2007. A full year operating margin was 26.4%, nearly 2 points above our previous high. And we again set record for cash flow from operations. We reached $218 million or 107% with net income. Backlog for the end of the year were $663 million, a 69% increase from the end of 2007. We added 13 million to backlog in Q4, with orders remaining quite strong, particularly in our government systems and the commercial vision systems businesses. For all of 2009, bookings totaled over $1.3 billion, far and away a record for FLIR. We have seen an impact from the slower economic environment, but are also affected by unusually volatile foreign currency exchange rates during Q4. This impact was almost entirely confined to our thermography business. Arne, will have more to say about thermography later and some of these other factors; however, I do want to be clear that we believe these factors are confined to the current economic situation and thermography strategy of expanding existing markets and developing new markets through lower price and broader distribution is unchanged. In fact, it was especially rewarding to see that our units volume in thermography increased by 33% over Q4 last year. We are particularly excited about the upcoming introduction of our thermography products into numerous catalogs, including Grainger. In our press release this morning, we announced the exchange offer for our senior convertible notes. This offer provides a 2% cash payment on the par value of the bonds to holders wishing tender their bonds for conversion into FLIR stock. If a 100% of the bonds are tendered the cash cost to FLIR will be approximately $4 million, while saving our cash interest over the next 18 months would be in excess of $8 million. Since the shares underlying the bonds are already in fully diluted share counts, there'll be no impact on earnings per share and the impact on reported income will be minimum. We believe this offer provides an excellent liquidity opportunity for bondholders and a significant cash benefit for the company and our common shareholders. The offer is effective as of today and will remain open for at least 20 business days. We also issued our initial outlook for 2009 this morning. For the full year, we currently expect net revenue to be in the range of $1.2 billion to $1.25 million, an increase of approximately 11% to 16% compared with ‘08. And earnings per fully diluted share of $1.40 to $1.47, an increase of approximately 9% to 15% compared with 2008. This outlook assumes a significantly higher tax rate between 32% and 34%, about two points higher than we actually incurred in ‘08, as well as continuing poor economic climate in ‘09. The outlook for government systems and commercial vision systems remain strong. And both businesses entered 2009 with record backlog and the opportunity for significant growth in 2009. We have taken a very cautious approach to the second half of the year, however, and our outlook assumes no improvement on the worldwide economic conditions in 2009, and no major new contract wins in government systems. Until we have a clear view of these and other factors, we believe this conservative approach is the only responsible way to set expectations for this unknown in 2009. With that, I would like each of the three Presidents to comment in greater detail on the results of their businesses in Q4, and their outlooks for ‘09. We will start with Arne Almerfors, President of our Thermography division. Arne?

[Arne Almerfors:]

Thank you, Earl. Thermography revenue for Q4 was $87.9 million, a decrease of 3% from the fourth quarter of 2007. Excluding the Extech and Cedip acquisitions, traditional thermography revenue was down 12%. Reported fourth quarter revenue was negatively impacted by the recent sharp decline of Swedish Kroner against the US dollar. Excluding the effects of exchange rates, traditional thermography revenue in the fourth quarter declined by 6%. For all of 2008, total revenue was $327.3 million, an increase of 25% from 2007 and a 5% increase, excluding acquisitions. Thermography's operating income in Q4 was $26.6 million and operating margin was 26%, down 3% from the prior year, but up 5% from the third quarter. Excluding acquisitions, traditional thermography margins were the highest in five quarters. We continue to see success in a strategy of expanding thermography market with new high volume products. Total unit volume, excluding Extech and Cedip, were up 33% for the quarter and 32% for the year, continuing the trend of the past several years. Demand in the quarter was negatively impacted by the global economic situation, particularly in the US. Business in Europe was flat given the stronger dollar; while Asia Pacific performed well, particularly in China as infrastructure expansion in (inaudible) and new distribution channels drew sales. From a market perspective, the building markets, which includes building diagnostics, energy auditing, facility management, HVAC, plumbing, and moisture and restoration grew nicely as demand increased for energy conservation tools. The electrical and mechanical market, which consists primarily predictive and preventive maintenance applications were soft during the quarter. In the gas imaging market, under a new rule adopted in December by the EPA, chemical facilities and petroleum plants now have the option of using optical gas imaging equipment (inaudible) mandatory. It is widely acknowledged that this technology allows gas leaks to be found more rapidly and efficiently than current methods, resulting in increased safety, cost savings, and a cleaner environment. We are very pleased the EPA has adopted this rule change and anticipate that it will stimulate demand for GasFindIR in the US and Latin America. From a product perspective, our new mid-range and high volume products, including the T and i-series product lines continue to grow rapidly as unit volumes increased nearly 90% from the prior year. Unit volumes were higher in the specialty product lines, such as T-series, R&D and GasFindIR were down as customers deferred expenditures. The integration of the Extech and Cedip acquisitions is now complete, and we are very pleased with these acquisitions and expect to see greater synergies from them in 2009 and beyond. We have renamed Cedip, Flir Advanced Thermal Solutions and have fully consolidated all our high-end R&D channel business onto this one platform. We expect the combined leadership position to create improved sales execution and profitability. Extech had a very good year in 2008. And we continue to expand distribution for our high volume products, and look forward in particular to inclusion in Graingers 2.4 million catalogs this month. Looking to 2009, we expect the building and gas imaging markets to grow nicely, why electrical and mechanical remains soft. Given the breadth and diversity of our market, as well as our expanding high volume distribution presence we currently expect thermography revenue to grow in the mid-single digit for all of 2009. And that concludes my comments, and maybe now turn the call over to Andy Teich, President of the Commercial Vision Systems division. Andy?

[Andy Teich:]

Thanks Arne. Commercial Vision Systems Q4 revenue was $42.4 million, an increase of 30% compared to a year ago. 2008 revenue was $180.6 million, an increase of 34% over 2007. Orders remained healthy in Q4 as backlog increased $10 million during the quarter to a record $91 million at year end. We experienced strong order activity internationally across multiple product lines, while orders in the US moderated. From a segment perspective, orders were particularly strong in Security and Surveillance and Cores and Components segments. For the full year, backlog rose $23 million or 34%. Operating income for Q4 was $8.1 million, up 5% from the prior year; while operating income for the year was $37.5 million, an increase of 40% from the prior year. Operating margins were 19% for the quarter and 21% for the year, consistent with the prior year and in line with our internal targets. Overall, we were very pleased with the division’s progress during the year. In pursuing our mission to grow commercial markets for infrared technology, we achieved several milestones, including record revenue and orders, and expansion of our global distribution channel, the finding of new OEM partners, continued reduction in production costs, and significant capacity expansion as we prepare for the future. In the fourth quarter, a security and surveillance market continued audits rapid growth path as orders and revenue increased substantially from the prior year. This growth has reflected across the breadth of our product line from long range HRC multi-sensors systems used to protect ports and borders to the inexpensive and versatile SR series used for short and midrange application, including critical infrastructure, commercial, and residential applications. Of note, during the quarter was a large multimillion dollar order for over 100 HRC multi-sensors systems for a multistate international border security project. FLIR was chosen by a large international integrator for our breadth of product offering and a comprehensive multi-sensor networking solution, which we refer to as Nexus. Orders and maritime market was strong during the quarter. During the growth was multiple domestic and international orders for Voyager and Navigator hand-held system for commercial shipping applications as our emphasis in this area showed good result. Efforts to target maritime law enforcement are beginning to bear fruit as well. Our Cores and Components market represents over 50 customers across multiple industries including sophisticated defense system, weapon sight, UAVs, automotive, and fire fighting OEM. Demand remained strong in this segment during the quarter as the customer and market breadth we enjoy tends the buffer the weak effect of weak economic conditions. In the automotive market we are excited about the new BMW 7-series launch, which offers the new second generation night vision system, while we believe this system, which includes automated pedestrian detection, is compiling from an ease of use and safety perspective; we are precautious about near term growth given the current state of the automotive industry. As we look to 2009, we expect continued growth, while capitalizing on opportunities to advance our business model, for the increase our competitive advantages (inaudible) lead the industry well into the future. We plan to continue a significant investment in research and development and marketing, and we plan to launch of a new product platform in key vertical markets during the year. With these product launches and our record backlog, we are optimistic, 2009 could be another good year for CVS. And with that, I will now pass the call on to Bill Sundermeier, President of the Government Systems division.

[Bill Sundermeier:]

Thank you Andy. 2008 was an outstanding year for the Government Systems division. The increase revenue by 49%, to a record $569 million; increased operating income by 76%, to a record $233.8 million; and increased backlog by 81% to a record $552 million. We executed our strategy to increase our long-term program business, and with the resulting backlog and IDIQ contracts we entered 2009 with excellent visibility. For the fourth quarter, revenue was a record $172 million, up 50% from the prior year. Q4 operating income was up 77% to a record $74 million. And operating margins were also a record at 43%. As we experienced significant operating leverage during the quarter, fourth quarter demand remained strong around the world with particularly great strength in land-based and airborne applications. During the quarter, beating bad the uncooled thermal weapon sight market through a teaming agreement with Trijicon, leading provider of weapon sight for military units around the world. Pursuant to the agreement, FLIR developed a Thermal Weapon Sight that can be used in conjunction with Trijicon’s existing Optical Gunsight. The Thermal Weapon Sight utilizes FLIR 640 x 480 uncooled detectors and provides outstanding targeting capabilities. By combining FLIR’s thermal imaging expertise with Trijicon’s weapon sight capabilities and a well developed channel we see the potential for good growth in this large potential market. The force protection market, we pioneered several years ago is continuing to strive. During the quarter, we received delivery orders for $40 million from the US Army Space and Missile Defense Command under the $358 million IDIQ contract for the BED-C & G-BOCs [ph] programs. In total, we now received orders of $280 million under this IDIQ and the expected of his under these programs to continue to 2009. We are very pleased that our significant investment in force protection sensor solution has resulted in our leading position in this market. We are proud of the track record of these products and look forward to our ongoing with the US Army and Marine. This morning, you may have seen an RFI from the U.S. Army Materiel Command for the RAID program. We believe this RFI reflects the normal transition of this program from an urgent need program to the program of record. Our international business expanded during the quarter as well, as overseas bookings exceeded 30% of the Q4 total. In addition to the large orders we announced publicly from the Kingdom of Saudi Arabia and the Australian Air Force, we received over 30 additional orders from a diverse set of international customers for products ranging from BRITE Star laser designation system to long-range range HRC surveillance camera and a handheld Recon III. We believe international markets offer substantial growth potential, and our product portfolio and sales efforts position us well to capitalize upon them. Our core US DOD, airborne, maritime and land-based businesses continued to perform well. During the quarter, we received several orders for the Star SAFIRE III, the Star SAFIRE HD, Recon III, and long-range multi-sensor systems from the US Armed Forces for a variety of important missions. As you may be aware, we were not selected for the medium range thermal binocular program, MRTB. When we are disappointed with the decision. We have not included any revenue from this program in our outlook for 2009. Consistent with our commercially developed military qualified business model we expect the Recon III product family to remain very successful the other customers around the world. In fact, we won program business, totaling nearly $100 million for the Recon III product family in 2008. We expect 2009 to be another strong year for Government Systems backed by a record backlog and a large portfolio of IDIQ contracts. Beyond our current order book we continued to see very good pipeline of the opportunities, both in the US and abroad with the CDMQ model, FLIR is in a powerful position to grow existing markets and expand into new one. That concludes my comments. Please let me turn the call back over to Earl.

[Earl Lewis:]

Thank you, Bill. Over the past several years, FLIR seen our revenue increase at a compound annual rate of 26%. Net income increased to 30%, compounded annual rate. We've delivered compounded annual returns to our shareholders of 31%. FLIR has an outstanding position in faster growing markets and the strategies support strong growth for many years to come. We are in many ways unique and our largest customer, is US government, yet we are not a government contractor in that traditional (inaudible). Virtually all our investment in R&D is self-funded, and we develop products for many customers, not just one. This means we approach each opportunity with a commercial mindset. To make decisions, we think they make sense for our customers in that situation. Our market share in military infrared is still very small, much less than 10%. We have seen very good results grow in this business using this commercially developed military qualified model. We will continue to pursue these large contracts. And as we have consistently said stated, they are not the core of our strategy, our reason for what we think is a very bright future. While our entire community is facing unprecedented challenges, we remain committed to pursuing the proven strategies that have delivered superior long-term results for our shareholders. With that I would like to continue to thank the employees for Flir, now nearly 2000 strong, for their outstanding contribution to our success in 2008. Let me turn the call over to Steve, who will go through some of the details and then we will take some of your questions. Steve?

[Steve Bailey:]

Thanks, Earl. Revenue for the fourth quarter of 2008 totaled $302.3 million, an increase of 25% from the same quarter last year. Revenue from Government Systems amounted to $172 million, a 50% increase as compared to the fourth quarter of 2007. Revenue from our Commercial Vision Systems division of $42.4 million increased 12% as compared to the fourth quarter of 2007; and Thermography revenue of $87.9 million, a decrease of 3% over the fourth quarter of 2007 and a 12% decline organically. Of the operating divisions, Thermography is the most impacted by currency fluctuations due to its worldwide presence. On a currency adjusted basis, Thermography revenue on its local currencies were up approximately 3% over the fourth quarter of 2007. Our international revenues for the quarter were 43% of our total revenue, while revenues from US government sales accounted for 44% of the consolidated revenue during the period. For 2008, revenues totaled $1,077,000,000, an increase of 38% as compared to 2007. For the year, Government Systems revenue of $569 million increased 49%; Thermography revenue of $327.3 million increased 25% or 5% organically; and revenues from Commercial Vision Systems of $180.6 million, increased 34% as compared to 2007. For 2008, international revenues were 38% of total revenue while revenues from US government sales accounted for 41% of consolidated revenue. We closed the year with a backlog of $663 million, a 2% increase during the quarter. Our backlog has increased 69% or $279 million over the backlog at year-end 2007. At year-end, division backlog amounted to Government Systems $552 million, an 81% increase over 2007; Thermography backlog was flat year-over-year at $19 million; while Commercial Vision System's backlog of $91 million was a 34% increase over 2007. Gross margin for the fourth quarter was 57.4% of revenue; this compared to 56.6% for the same quarter last year. The increase in average gross margins was primarily due to the improved margins with higher volumes at Government Systems. For the year, gross margins were 56.3% as compared to 55.6% in 2007, again with the improvement related to the efficiencies associated with higher volumes, particularly in the Government Systems division. Research and development expenses of $21.7 million were 7.2% of revenue for the quarter, as compared to $20.8 million or 8.6% of revenue for the fourth quarter of 2007. For the year, the company has incurred research and development expense of $90 million or 8.4% of revenue, as compared to $72.5 million or 9.3% of revenue during 2007. Selling, general and administrative expenses for the quarter and the year of $63.7 million and $231.7 million respectively were relatively constant at 22% of revenues for the period. Earnings from operations for the fourth quarter totaled $88.1 million or 29.1% of revenue, as compared to $62.9 million or 25.9% of revenue in the fourth quarter of 2007. Quarterly earnings from operations as provided by the operating divisions were $74 million from Government Systems, a 77% increase; $8.1 million from Commercial Vision Systems, a 5% increase; and $22.6 million from Thermography, a 13% decrease as compared to the fourth quarter of 2007. For the quarter, Thermography organic earnings from operations of $22.4 million declined 11%. For 2008, earnings from operations were $284.5 million or 26.4% of revenue, an increase of $92.7 million or 48% over 2007. For the full year, earnings from operations were Government Systems, $233.8 million, a 76% increase; Commercial Vision Systems, $37.5 million, a 40% increase; and Thermography division $70.5 million, a decrease of 4%; while corporate operating expenses were $57.3 million. Interest expense for the quarter and the year totaled $2.1 million and $9 million respectively and it primarily relates to the interest costs and amortization and transaction costs of our convertible notes. During this quarter, the company earned $10.8 million of other income, primarily from $9.9 million of currency gains and $800,000 of interest and other income. For 2008, other income amounts to $19.4 million, including currency gains of $12.9 million and interest and other income of $6.5 million. Based on the mix of foreign and domestic income for the full year, the effective tax rate for the quarter was approximately 32.5% and 30.9% for the year. The increase of the annual rate over the 28.5% reported in 2007 was primarily due to the increase in 2008 in the proportion of US earnings which are taxed at higher rates than at other international jurisdictions. For the fourth quarter, net earnings were $65.3 million or $0.41 per diluted share. The 40% increase or $18.7 million increase in net earnings compares to net earnings of $46.6 million or $0.30 per diluted share for the same quarter of 2007. For 2008, net earnings are $203.7 million or $1.28 per diluted share, a $67 million increase which represents 49% over 2007 net earnings of $136.7 million or $0.89 per diluted share. We finished the year with cash of $289.4 million, as compared to Q3 quarter-ending balance of $206.1 million and a year-end 2007 cash balance of $203.7 million. During the fourth quarter, the cash increase of $83.3 million was primarily due to cash provided from operating activities of $90.1 million and cash generated from stock compensation programs of $16 million, offset by capital expenditures of $6.6 million and the negative impact on cash from exchange rate changes of $15 million. For the year, we had an increase in cash of $85.8 million. In 2008, we generated cash from operations of $218.3 million and cash from stock compensation programs of $65.7 million. Partially offsetting these amounts were cash used of $78.8 million for acquisitions of Cedip and Ifara; $40.7 million was used for repurchasing common stock; capital expenditures of $27.6 million, and repayments of debt of $22.4 million, and the negative impact of currency exchange rates of $21.2 million. This concludes the summary of the fourth quarter and the year financial results. Earl, I will turn the call back to you.

[Earl Lewis:]

Thank you very much. And operator, we are ready to take our first call from Tim.

[Operator:]

Tim Quillin with Stephens, Inc., your line is open.

[Earl Lewis:]

Good morning, Tim.

[Tim Quillin -- Stephens:]

Good morning. How are you?

[Earl Lewis:]

Been better.

[Tim Quillin -- Stephens:]

I appreciate your honesty. Currency is a little bit hard to figure -- for me to figure out how to project the future. Can you just talk a little bit about the currency puts and takes, the impact you know both in top line and below the line especially, and how we should think about that in 2009?

[Earl Lewis:]

Well, I guess the -- I think it was about $5 million on the top line in Thermography in Q4, I am sorry, $6.6 million in Thermography in Q4, Tim. And my experience with this is, I don’t remember it ever being quite so volatile as it has been in the last two or three months. So, if I really could forecast it, I probably wouldn't be doing this job. One of the things that we -- in our internal planning -- set a base and then do our budgets; but this year, we have introduced a new look at it, we are taking the budgets for all of our international operations and locking them in so we can compare them to their budget in their home currency as opposed to the variable rate that we're getting, which is just bouncing around everything on this. I do not know if that will help that much in terms of the end result; it will just allow us to make sure that the operations are performing as we expected them to do relative to their local currencies. But clearly, there is more volatility here than there ever was in the past and it has caught us pretty hard. From memory, it reduced the backlog in the Government Systems business as well by a fairly significant amount, $12 million. So the actual quarter entry for Government Systems was significantly higher, but the currency effect on their backlog took the backlog down by $12 million I guess. I mean, this is just bouncing all over, Tim, and it affects lots of things. So I could give you a nice clear answer on that, I would be glad to do it. Luckily we have operations in Europe, so we are hedged a little bit naturally. We have cash in Europe and you see that appearing as a positive on our quarterly results, because that actually increased in value. I don't have a good answer for you, Tim.

[Tim Quillin -- Stephens:]

Okay.

[Arne Almerfors:]

Tim, I was just going to say that as we look at outlook for 2009, we have developed that outlook based upon what we track from about six different banks with regard to their forecast for currencies. During the quarterly periods, as we develop that outlook and process that through our outlook bases, so it is a very difficult mix throughout the operations and it does impact it, most significantly in Thermography, which I think is dealing with about nine or 10 different currencies on a global basis.

[Earl Lewis:]

And then of course we take all that and convert it all back to dollars, first to kroner then to dollars. So it is – anyways, not a good answer, I know, Tim.

[Tim Quillin -- Stephens:]

Well, do you know what the net impact on earnings this quarter, because you had some currency gain as well as a negative impact. Do you know if the net impact was positive or negative?

[Steve Bailey:]

Tim when you – do you want to?

[Earl Lewis:]

No, it’s good.

[Steve Bailey:]

The comment I was going to make, Tim, is you saw big currency gains below the line. A substantial -- I can't tell you exactly what the number is but a substantial portion of the gains that showed up below the line were consumed above the line by the fact that Arne’s revenue was substantially negatively impacted and the flow through is to give operating income was negatively impacted by currency during the quarter. I can’t tell you net if it was positive or negative, but that currency gain of $10 million was offset by a fairly significant jump up above the line.

[Tim Quillin -- Stephens:]

Okay.

[Earl Lewis:]

Yes, very significant jump. I think the -- on average over time, zero.

[Operator:]

And your next question comes from the line of Michael Lewis with BB&T Capital Markets.

[Michael Lewis -- BB&T Capital Markets:]

Guys, good morning. Thanks for taking my call. Earl or Bill, I was hoping that you could provide us a little bit of detail from MRTV on your debrief. Can you share anything with regard to the comments that the customer made with you, which detailed why you may not have gotten on that program?

[Earl Lewis:]

We know exactly why we didn't get on that. We believe, and I can’t speak for the customer, but we believe that customer used this equipment I would've liked it very, very much. Our strategy has been to design products and to make those products as user-friendly as we possibly can. In the case of Recon III, we designed it to be lighter and more efficient and to be used by more soldiers who had normally corrective vision. We did not put an adjustment in for a person who didn't have corrective vision. They wanted that in their final decision and we didn't have it, and therefore they disqualified us.

[Michael Lewis -- BB&T Capital Markets:]

That is very helpful, thank you. And then, Bill, if you could just provide us with some forward looking here, can you help us identify what you think the top three to five opportunities in the US Defense market is right now for Flir over the next 12 months, because we know that there is a lot of infrared opportunities that I think that the investment community is a little bit confused that they may feel that it is drying up, which I don't think is the case right now? Could you help us out here?

[Bill Sundermeier:]

Well certainly it isn't drying up but we traditionally haven’t gone out there and told the investment community what our top priorities that we are pursuing. I think I'm going to stick with that, if I may.

[Michael Lewis -- BB&T Capital Markets:]

What about with regard to not offering an actual name, what about the size of the opportunities that are in front of you right now that if you do when you can add into the bookings and backlog and give us kind of a view looking out?

[Bill Sundermeier:]

I wish I could. If I did I can guarantee you the government will probably slam us for terminance for by a quarter or two. So, that is a very high-risk gain. But as far as new opportunities are concerned, I am saying that I don't see a slowdown for Flir. There are plenty of opportunities out there for us to pursue and we are going after all of them. So I don't quickly see a slowdown and I don't anticipate a slowdown so far in 2009.

[Earl Lewis:]

I think to a certain extent looking backwards might be helpful there, the total number of IDIQs that we won, Bill, last year in 2008.

[Bill Sundermeier:]

That was greater than a dozen of large IDIQs, over $300 million in --.

[Earl Lewis:]

I don't have a fact here but I'm going to speculate. At the beginning of the year, we didn't know about half of those. And that is essentially the issue now. Major programs, yes, we do know major programs. There is two or three major programs that are out for bid now and I think you probably know them, OUH is one, BBE is another one, and then (inaudible). These are very large programs. And traditionally, Flir has not won very, very large programs. Yes, think of two very, very large programs we have won in 2008 and even that started very small; started out as a little activity. So our bread-and-butter has always been in the $20 million to $40 million, $50 million type of programs that are not necessarily legit line items for example. I don't know if that helps at all, we are not trying to not help. It is just that the nature of our business isn't really living major big programs. You are quiet.

[Operator:]

Yes, please limit yourself to one question and one follow-up question. And your next question comes from the line of Brian Gesuale with Raymond James.

[Brian Gesuale -- Raymond James:]

Hey guys.

[Earl Lewis:]

Hi.

[Brian Gesuale -- Raymond James:]

I wanted to maybe dig in. It sounds a little like you believe that all divisions will show some growth in 2009, and I was just wondering maybe how you look at the -- some of the deposit in settlements, whether it is the channel relationship with Granger in Thermography affects things, and then also you are entering in there with an awful lot of government backlog plus a lot of maintenance revenue that is not in backlog. It seems like you have to feel very comfortable about that business growing. Can you just give us a little bit of color and parameters around both those divisions?

[Earl Lewis:]

Well, in terms of our forecast for 2009, we're very comfortable with the Government Systems as you might imagine, because of the size of the backlog we have there. And we will be able to, during Q1 and Q2, monitor our order intake in Government Systems that will make us pretty sure of what the balance of the year is going to look like. Q4 for Government Systems was better than we thought. We actually added the backlog, even though we had tremendous revenue. Commercial Vision Systems actually has increased its backlog fairly significantly. So a good part of this year is currently in backlog. So both your first two points are correct. Thermography on the other hand, we have two we think very positive things going for us. One is the Granger catalog and two is the acceptance by the EPA gas detection activities. But that has always been harder for us to predict because it has always been book and bill business. The most encouraging thing I think in Thermography is that the traditional classical Thermography business, excluding any of the acquisitions we have made, grew by 33% on a unit volume basis. There was a mix change, there is no doubt about it; there was a mix change. It moved from the higher-end preventive predictive maintenance with old factories, if you will and (inaudible) production of goods to higher volume activities for buildings, building maintenance, and electrical inspection et cetera. Those are good strong markets that will continue to grow. And the best part about that, probably under the radar screen of everyone is that those gross margins actually improved during that period since Q4. So we're selling many more units and improving our gross margin. I think that bodes very well for the future in a very difficult time, but it is difficult to forecast as well. So in our outlook, we have been very conservative on what Thermography will do in 2009. I think we have been conservative in what both Government Systems and Commercial Vision will do in 2009, and in that conservativeness -- I mean if there are CEOs in the country that understand better what this economy is going to do than I do, they are going to forecast different than I am. I don't know what it is going to do. I was scared the day I thought of it, to be honest with you. There’s too many conflicting activities happening. I think it would have been irresponsible of us to hold to our forecast, given those currents there currently circulating around the world. So we are saying we think that we won’t do as well as would have a quarter ago. I can't believe there is many people in the world that think they will do as well as they did a quarter ago. Well, that is why we reduced our forecast.

[Brian Gesuale -- Raymond James:]

That makes a lot of sense, Earl. Can you maybe just comment on what you're doing with the spending internally?

[Earl Lewis:]

Yes, we are of course very, very cautious. We have done -- we have put a cap on employment for all the divisions; we have frozen salary increases at this point, we will review that at the – for example in the second half, we will see if the second half looks better than it does today, I mean, today our visibility to the second half is very, very sketchy I guess. And so, we are being cautious on our spending, we have held all salaries. We will pay bonuses for last year, because we think that people deserve that, they did a good job. But going forward them we are being very, very cautious. And those bonuses were accrued in our results for last year.

[Brian Gesuale -- Raymond James:]

Okay, thanks a lot.

[Earl Lewis:]

Sure.

[Operator:]

And your next question comes from the line of Peter Arment with AmTech Research.

[Peter Arment -- AmTech Research:]

Good morning, everyone. Earl, could you talk a little bit about the – I guess, there were some comments about international growth as offsetting your weakness in North America. Where are those pockets in international growth that I guess help us understand that given what has gone on in the last three months?

[Earl Lewis:]

Yes, Peter, that is particularly true in Thermography. And a little bit -- in our forecast, a little bit in Government Systems as well. It seems that the economy in the United States is ahead of in decline the rest of the world. And we have seen that in our business -- the US Thermography business was the weakest, Europe was a little bit okay and the Far East has been strong. So that mix is – we think probably will change a little bit going forward, because I can't believe the rest of the world doesn’t catch up whole. But given what we saw in Q4, it was -- I guess I would say for Thermography weak US, okay Europe, strong Far East. Whether that will continue or not, a little hard to say and we would expect that there maybe some improvement in US, but they're not betting on it.

[Peter Arment -- AmTech Research:]

Okay, and then just staying on Thermography, I heard margin performance was impressive in the quarter. Maybe you could give a little more color because you had tremendous volume on your units picked up.

[Earl Lewis:]

Yes, part of our strategy from day one, Peter, is we introduce new lower-priced products. We try very hard to keep the gross margins higher than the previous product line. And that is a strategy we have talked about over and over again. It is one that I think people have hard time understanding. When your total sales value goes down, your unit volumes go up and your margins go up. I mean that is not normal in business. But we have pursued and the engineers and the folks in Sweden particularly have done fantastic jobs of designing new products with better and better margins, and that has shone through I think in Q4. It is our unit volume strategy; we expect that the volumes will go up and up and up. We can maintain those margins; we are in pretty good shape. And so while the overall total Thermography sales revenue was not where we would have liked to seen it, underlying that were some very positive results.

[Peter Arment -- AmTech Research:]

And you expect that to translate through even in 2009 even though the uncertainty there?

[Earl Lewis:]

We expect the uncertainty will probably affect the top line, but we believe that we will be able to hold our costs the way we have in the past.

[Peter Arment -- AmTech Research:]

That is great. Thanks, Earl.

[Operator:]

And your next question comes from the line of Paul Coster with JPMorgan.

[Paul Coster -- JPMorgan:]

Thank you. First question relates to Andy and it is a slightly multipart question. You had this order for 100 HLC cameras for border control. Am I correct in assuming it is Saudi Arabia? Why is it in CVS and not in Government Systems, and do you think this is the start of a bigger program?

[Andy Teich:]

Okay, well, a couple of things that I will start with. Currency has got a line in CVS. You could ask me that, Bill. So the -- what is happening in the border security market is that increasingly so these contracts are being serviced by prime integrators. And CVS is a business that that has been established to address the needs of integrators rather than direct end-users. So the way we have split our business within Flir is that if a government entity buys direct from Flir, then it is serviced out of Government Systems division, where we have business development people calling directly on government end-users, but if a business is serviced through an integrator and specifically for border control programs, it is serviced through CVS. And that has been ongoing, that is why we are the division supporting the SBI net program through Boeing as a prime integrator and through major integrators in Europe and Asia. In the case of your question about where these 108 HLCs are going, the customer in this case has requested of me not to disclose who it is but I can tell you it is not Saudi. So it is -- that is a program we are active on, but this particular one was not Saudi Arabia.

[Paul Coster -- JPMorgan:]

And this is the start of a large program?

[Andy Teich:]

It is a part of a multi-phased program, on which we have won the first phase and (inaudible) represent at the second through fourth phases of the program.

[Earl Lewis:]

You know, we believe this will be a good business for us this year and next year. And we are not forecasting it. We know there is a number of opportunities we planned to won and I'll be darned if I am going to speculate if we're going to get it or not. But I will say that we have the right hardware.

[Operator:]

And your next question comes from the line of Chris Donaghey with SunTrust Robinson.

[Earl Lewis:]

Good morning, Chris.

[Chris Donaghey -- SunTrust Robinson:]

Hi, good morning. Sorry about that. Bill, I wonder if you could talk a little bit about the potential move from the urgent need to the program of record status for RAID, G-BOSS, BETSCC, all of those combined, and if you know if there is attached to this an increase to the potential unit volume going forward?

[Bill Sundermeier:]

Sure. First, you know as a normal part of the acquisition, this is a standard process for them to go through and making sure that the folks is what they want and if there is any other new technologies out there that could be better. And we bought them for going through the work that they're supposed to be doing. The program on record, from our initial indications could be larger than what has been out there in the current situation although it probably won't hit until the 2011 (inaudible). So there is plenty of time for the unit’s insight to change. And second, we still do have had to on the current IDIQ and we see that if there are other urgent needs that do arise prior to this process to go through that perhaps there will be additional orders placed. Right now, we don't have secure vision into any of those urgent requirements, but as history has shown, those have popped up on our radar and have been added to the IDIQ. Hope that answers your question.

[Chris Donaghey -- SunTrust Robinson:]

And a couple of quick just kind of housekeeping follow-ups. Arne mentioned his growth expectations for his segment in 2009. Can you provide that for the other two segments as well in the IDIQ backlog and thoughts on share repurchase given the current stock price? Thanks.

[Earl Lewis:]

By golly. He practically he slipped in six questions.

[Steve Bailey:]

I think he did.

[Earl Lewis:]

Arne, did you give guidance as to your --?

[Arne Almefors:]

No, we talked about the orders.

[Earl Lewis:]

Arne's business is not going to grow as much as Bill’s and Andy’s. Bill’s and Andy’s we think is going to grow about same, it will be in the teens. And Arne's probably will not. That this kind of what we laid out this year. What were the rest of the questions? Share repurchase -- it is certainly looking like a better buy everyday. We have always addressed that on a kind of a -- make a decision and then go into the market. We haven't announced those programs as such but we have certainly bought back shares in the past and we have some good cash balances now. The third part, I think he had three questions.

[Steve Bailey:]

The IDIQ.

[Bill Sundermeier:]

I don’t think we have that number.

[Earl Lewis:]

We have that somewhere I think.

[Steve Bailey:]

I don’t think we talked about it.

[Earl Lewis:]

We don’t have the number for the end of the year; I think we don’t have it as of right now. Okay, next question.

[Operator:]

Your next question comes from the line of Michael Ciarmoli with Boenning & Scattergood.

[Michael Ciarmoli -- Boenning & Scattergood:]

Hey, guys. Thanks for taking my call. Just to follow up on that last line of questioning regarding the gross outlook. You know the -- you talked about mid-teens growth I guess – or teens growth for the Government Systems. Why the deceleration, your backlog at $552 million doesn't really assume a lot of book and ship business for the year. That seems pretty conservative, considering -- you know, it seems to still be a target rich environment.

[Earl Lewis:]

I think you are right.

[Michael Ciarmoli -- Boenning & Scattergood:]

So I mean, it seems you know we will assume that Thermography 5%, CVS say 10% to 15%, you have historically had maybe 40% of that year's worth of revenue I guess comes from services, just book and ship business. Is there any change in the 2009 landscape that that would come in otherwise?

[Earl Lewis:]

No. We have explained I think historically how we try to do this. Let me just go through it quickly again. We take the range of opportunities; we apply to that range of opportunity some kind of statistical estimate as to what we think the probabilities of them are. We have -- as I think I stated in the last conference call, we would like very much to not run our backlog down significantly. So that has -- we set out as a goal to try to not have the Government Systems backlog significantly decline. We believe it will decline a little bit, but not significantly, and so that we have orders, and I will have to back up these incentives. We found that running these factories efficiently was a function of having a good solid backlog in front of them.

[Michael Ciarmoli -- Boenning & Scattergood:]

Okay.

[Earl Lewis:]

And so our strategy is to try to make sure we preserve the efficiencies of those factories by trying to preserve the backlog. And that is our plan, if the order entry is higher, we will ship more, but to try to keep that backlog in front of the factory so that they work much more efficiently.

[Michael Ciarmoli -- Boenning & Scattergood:]

Okay. And then just if you can on the Rateon [ph] litigation, I believe that was supposed to go to trial in January. Can you give us an update on that?

[Earl Lewis:]

I think it has been delayed.

[Michael Ciarmoli -- Boenning & Scattergood:]

Okay.

[Operator:]

And your next question comes from the line of Jonathan Ho with William Blair.

[Jonathan Ho -- William Blair:]

Good morning, guys. Just a quick question on the tax rates. Can you give us a little bit of color on what you're expecting there and what sort of the increases of some mix issue?

[Earl Lewis:]

That is a mix issue, well Steve go ahead and answer that.

[Steve Bailey:]

It is just real straightforward is the certainly -- we have a higher proportion of the entailment trivia to the US in 2008 and looking forward, also in 2009. And you know the US has the highest marginal tax rates of many of the tax jurisdictions. Secondly, there is a change in the Swedish tax law effectively January 1, 2009 which has reduced some of our tax benefit that was derived in that country. So the net effect of those are the two drivers that are moving the tax rate higher.

[Jonathan Ho -- William Blair:]

Okay my second question is on the G-BOSS, RAID BETSCC program and the transition away from emergency procurement. Does this impact your sole sourcing status at all?

[Arne Almerfors:]

Does it affect the current IDIQ that we have with them and what it does is it may go through due diligence processes and move on through subsequent phases and the program on record. They do need to go through a process where they look at all the available technology that is out there and solicit from the users what kind of technology they want to have. So there is -- a process that we have to go through this sort of client and determine if there is a better solution out there.

[Operator:]

And your next question comes from the line of Steve Levinson with Stifel.

[Steve Levinson -- Stifel:]

Thank you, good morning. Thanks for taking my question. If your bond tender doesn't go through all the way, new FASB rules affect the amount of interest you will have to expense in 2009.

[Earl Lewis:]

Yes, that is correct.

[Steve Levinson -- Stifel:]

Do you have an approximate amount of -- do you know how many additional basis points we should add when doing modeling?

[Earl Lewis:]

Keep in mind that that additional interest expense is taken away when you get to EPS. So you will see it on one line, but it goes away on the next. So on an EPS basis, it is neutral.

[Steve Levinson -- Stifel:]

Okay and obviously neutral the EBITDA.

[Steve Bailey:]

Correct. So, in another words, it doesn’t matter how much of this tender really. This tender is only done essentially to reduce our cash, not to affect the P&L.

[Steve Levinson -- Stifel:]

Okay thanks. The other question is, I know this might be a little stretched, but do you think the Obama stimulus plan, which includes insulating a lot government buildings might help your thermography business this year?

[Andrew Teich:]

It's one of this plans alike, because if it's true, I think he said that the total number of buildings they want improve is something like 3 million. And clearly thermography is very helpful with the analysis that the building’s heat transfer -- in improving that, that energy conservation. So if that program does move forward, I’d believe it should help us, yes.

[Steve Levinson -- Stifel:]

I’ll chat with you down the road. Thanks very much.

[Andrew Teich:]

Thank you.

[Operator:]

And your next question comes from the line of Brian Ruttenbur with Morgan Keegan.

[Brian Ruttenbur:]

Okay, thank you very much. Can you talk a little bit about SG&A and R&D as a percentage of revenue in ‘09, as well as CapEx? What numbers you are thinking about in ‘09?

[Steve Bailey:]

Yes, I can tell you what number I'm thinking about, but I think the guys who work for me are thinking about it in a different way still. We spent about $26 million from memory, and I think we should be around $30 million this year. Currently our budgets are a little bit higher than that, but we’ll go back and little bit. And that perhaps adds to your last question, not your first question.

[Brian Ruttenbur:]

All right. SG&A and R&D as a percent of –

[Steve Bailey:]

R&D will probably decline a little bit. We traditionally run in around 10%. I think we can see our way to a little bit less than that. We are getting much more efficient in our R&D. We have bigger, we are spending more absolute money at it. So I don't know as we necessarily have to keep in the 10% range, but it's going to be relatively high percentage of revenue compared to most companies. And I think it will be more or like 8% and 9% going forward than the 10% we’ve had.

[Brian Ruttenbur:]

You were 8.5% in ‘08, do you think you can get down from there?

[Steve Bailey:]

No, I think, it’s approximately (inaudible) I think we budgeted for about that rate maybe it had a bit more even. Not a big change, though. And SG&A, what we are trying to do is basically hold these expenses from growing much in 2009, all of them, on an absolute basis. So, while they go up, they are not going to go up dramatically. One thing we know we can control is, how much money we spend.

[Operator:]

And your next question comes from the line of James Ricchiuti with Needham & Company.

[James Ricchiuti:]

Hi, good morning. Thank you. Question on the thermography business, you guys have spent a fair amount of time and effort building up the channel for this business, and I'm wondering how you see the economy begin to impact the channel? How healthy are the guys (inaudible) selling the product? And is there any sense you can give me on moving forward on the channel strategy in light of the economy?

[Andrew Teich:]

I don't think -- I’ll answer it backwards. If the new the economy was going to be this bad we would not have done the channel strategy. We would have sold down it. Clearly as you move into lower and lower and lower price points, you have to find more efficient ways of selling your products other than a salesperson calling on the customer and actually demoing it, because that expense becomes way, way too big in the totality. So we would have to move to more efficient higher volume channels, if you will. But I don't think we are going to change that at all and think it's the right way to go. I don't see where economy affects channels any more than it does direct sales or other means of getting our product to the customer in terms of the total volume. Channels that we've developed like Grainger should provide higher volume at lower overall cost when all said and done.

[James Ricchiuti:]

Overall, can you give us a sense as to some of a channel like Grainger, which presumably starts to ramp up this year, how you see that? How meaningful that could be in’09, and perhaps in 2010?

[Earl Lewis:]

Four years -- well, Arne (inaudible) then Arne comment. Four years ago, we started using third party -- five years ago. Now we are talking about a different kind of third-party, stocking distributor, who has huge sales potential. And we believe they can sell an awful lot of unit volume more than we could through a smaller distribution.

[Arne Almerfors:]

And I mean, it's also important to see that the – the more of the high volume products we see we also adapt to that kind of channel strategy that we have to support this kind of product like the catalog company Grainger. We have more catalog companies of course around the world, like in Japan and Europe.

[Earl Lewis:]

They are new, that are new.

[Arne Almerfors:]

Very new, very new they are, but it's coming. And that strategy has to continue to support the total setup of our, say, future approach to high volume oriented activities. At the same time, I would like to say that we are also building channel structure in Asia-Pacific. And that's kind of a new territory to us. So that's an incremental effect more like it's not been seen there before. And we are entering that market and that will also support our grooves in that area in this year.

[James Ricchiuti:]

Okay, thanks. Arne, I have one other question for you. It surprised me a little bit that the European business for you was okay. And I'm wondering you were like a month or so into the quarter, how is business looking thus far in ’09, or have you begun to see that weakness in Europe as well?

[Arne Almerfors:]

We haven't seen it so far.

[James Ricchiuti:]

Okay, thank you.

[Earl Lewis:]

Now to kind of put three questions together. Europeans are better, ahead of us in this idea of energy and buildings, for example. They have a number of regulations that we don't have in United States that really require you to -- require you (inaudible) as such, but they do require you to make sure you're buildings are properly insulated.

[Arne Almerfors:]

I could add to your comment that the EU has translated international laws in whole of the countries within EU. And these laws are now demanding that will have an inspection for energy purposes, as in many countries from January 01, this year. So this will be a positive effect on our business.

[Earl Lewis:]

And the other question that was asked (inaudible). Clearly, it looks like the United States will follow lightly and popularly so.

[Operator:]

And your next question comes from the line of Michael Fringe [ph] with Morgan Jeffin [ph].

[Michael Fringe -- Morgan Jeffin:]

Good morning, gentlemen. I’m wondering if the environment is having any impact on M&A, that a lot of factories are down and private companies are a little more desperate, has this presented more opportunities for you guys?

[Steve Bailey:]

We have more opportunities today than we did six months ago. And we are pursuing more opportunities right now, plus and a minus. I think there are more opportunities, but there’s more opportunities as more people are worried. And I'm not necessarily, not part of that group. We’ve built up a good cash reward, so we have the opportunity of doing things like buying stock or buying other companies, a number of different opportunities and we are evaluating them all right now as it kind of come along.

[Michael Fringe -- Morgan Jeffin:]

A quick housekeeping, can you provide us with a depreciation and amortization for the quarter or EBITDA number?

[Steve Bailey:]

We can. I'm sure we can. We’ll interrupt and give you that numbers, as you go forward.

[Michael Fringe -- Morgan Jeffin:]

Okay. Thank you.

[Operator:]

And your next question comes from the line of Dan Berkery [ph], Withacorner [ph].

[Dan Berkery:]

Hi, three-part question, okay. The first one is on cash flow for ’09. I thought you gave the CapEx number, but if you could repeat it. And then do you think working capital on options exercise would be positive cash flows in ’09? The second set of questions is on the balance sheet -- three questions there, the minimum cash need to run the business. And then how – where that cash is located that you have on the 12/08 balance sheet, is that oversees, or is all that cash easily accessible? And then the last question is how should we think of share buyback and M&A if the bonds tendered does go through, and then you sort of have a net cash position of over $200 million, close to $300 million. Does that change your thoughts on buyback and M&A without that convert to debt? Thank you very much.

[Earl Lewis:]

The last one is real simple. No that affect has -- it really doesn't have any effect on us. We have never viewed that convert is debt given that it was so deep into the money. That wouldn't have affected our M&A activities. Cash is roughly half in Europe, half here, with just approximate numbers that are fairly close. We use cash in both places so that’s borne in. Our capital equipment, I think I said we are approximately $30 million, it might be a little bit more this year. My target, that we will reduce some of it. The plan is a little bit to get there. That's I think a reasonable number for the year. And then last part, Steve? Working capital, you like to comment on it.

[Steve Bailey:]

We are predicting that absolutely differently, we have predicting pretty good cash flow this year. Our budget for cash flow is just positive – is very good for 2009. Stock comp, well that's up to you whether you guys buy the shares or not, if the stock price goes up, we will see more I'm sure. At this level I don't see as much.

[Dan Berkery:]

Okay, so as we stand on things now, do you think you would be down year over year versus the ’08 number?

[Steve Bailey:]

Which was it?

[Dan Berkery:]

Stock comp, deposits.

[Steve Bailey:]

Yes. Where the prices now, I guess –

[Dan Berkery:]

Thank you were much. Good luck.

[Steve Bailey:]

If I can (inaudible) prior question was where depreciation and amortization? 2008 depreciation was approximately $26 million or about $6.5 million per quarter. Amortization I think was around $13 million, so a little over $4 million a quarter. So that's the answer to the question.

[Earl Lewis:]

Okay, we will take another couple of questions.

[Operator:]

And your next question is a follow-up question from Tim Quillin with Stephens Inc.

[Tim Quillin:]

Hi. Thank you for taking my follow-up question. Just two real quick questions, one on the government business; kind of given that you have – I think it's a big number, about $78 million left on your IDIQ for RAID, and that this program record probably won’t result in incremental RAID business until government, fiscal 11, it’s the right way to think about 2011, is that you're managing or targeting towards flat sales in the government business?

[Bill Sundermeier:]

It’s 2010 flat compared to ’09. We haven't done those budgets yet and there is a bunch of things that could change that. But our back of our mind thinking is that we won’t see huge increases, Tim.

[Tim Quillin:]

Okay. And then the second question is that thermography business was off relatively significantly in the fourth quarter, you are forecasting growth in 2009, and I guess the positive inputs are that the Grainger distribution channel should bear some fruit and gas finder should bear some fruit, but is there an offset to that? I mean, it would seem to be -- the thermography business seems to be deteriorating instead of stabilizing at least over the past couple of quarters. So, how comfortable are you with growth in thermography? Thanks.

[Andrew Teich:]

I would not ever characterize a business that unit volume increased 33% year over year is deteriorating. I just can't do that. The question is that we have mixed changes that are affecting it, how much really affected. And if there is an over trend to these lower and lower priced products, and we are seeing that this is the first time that trend has resulted in revenue actually declining from my recollection. But the unit volumes are increasing significantly, and that is to me the key driver in forecasting what the future is going to be like for thermography because we've known that for long time. What we hadn’t known is that the economy would clip our high end products the way it did. But that can only happen for a certain period of time until the revenues declined or coming back. Meanwhile our strategy is exactly what we've said, and we believe it will continue to bear fruit that we will sell more and more units at good margins and if that will be a part of the plan for next year, this year rather. I think you asked two things, Tim.

[Arne Almerfors:]

Tim, I will add to it. The gas imaging business, we are looking very positive on the opportunities this year. We refer to that as the new regulation from EPEA and a more stronger introduction of the products into the international markets. The building markets, we also talked about the energy conservation as (inaudible). That’s also looking very positive to us moving forward. So, that’s more major markets improvements. Then it’s important to understand the balance we have in the territories we serve where we divide activities into Americas, EMEA, European, East Africa, and Asia Pacific. And when we look up on the forecast for ’09, we have of course taken a more conservative approach to the development in US, in Americas. And as we said earlier we had more of a flat goal, somewhat positive improvement in EMEA, and definitely we’re seeing very positive signs in Asia Pacific. So, we have a balance between the markets that are important to understand relative to the growth we forecast for this year.

[Andrew Teich:]

If you characterize what was really off, the US industrial manufacturing, preventive, predictive maintenance purchases, no surprise I guess that the capital equipment buy them. That part of our business was obviously weak. But thermography is a fantastic business, Tim. No doubt about it.

[Operator:]

And your next question comes from Paul Coster with JPMorgan.

[Paul Coster:]

Yes, thank you. Bill, the force protection program has been a tremendous success, and most of it seems to have been directed activities in Iraq. As we move from Iraq to Afghanistan militarily. What happens to the equipment already deployed in Iraq? Does it get redeployed? And should we expect more force protection investments in Afghanistan? Can you just talk us through that whole scenario?

[Bill Sundermeier:]

Our current insight certain is that we are financed to surge into Afghanistan to solve the problem there. But there are a lot of questions been asked right now. And answer (inaudible) whether or not we would be fine with allowing the Iraqi forces to use our systems and new ones would be needed for Afghanistan and how do we redeploy those systems over. So we don't have a concrete vision into, will there be additional requirements because of Afghanistan, will they redeploy them over there, will they leave some with the Iraq forces and then procure some more. So all those questions are going through right now (inaudible) and the whole procurement process of – as we know more, of course, our hope is that they want additional systems to cover the Afghan opportunity and want to leave those in Iraq for the long-term security of that country. So, as we know more we will be sharing, but those questions are being debated right now and reviewed by the army.

[Paul Coster:]

Thank you.

[Operator:]

And at this time, there are no further questions. Do you have any closing remarks?

[Earl Lewis:]

No. I just thank you all for your questions and for calling in. And I think 2009 will be here very soon and we will see how it works out for us and others. It certainly is a challenging economy for I think everyone. I firmly believe in FLIR’s technology and their markets, and their potentials. So, I am not at all giving up on this company one way or the other. We are going to have a good year in ’09, just like we did in ’08. And hope you all enjoyed watching it. Thank you very much.

[Operator:]

This concludes today’s conference call. You may now disconnect.