SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

For the transition period from to

(State or other jurisdiction of

incorporation or organization)

Indicate by check mark whether the ~~Registrant~~registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No ¨☐

Indicate by check mark whether the ~~Registrant~~registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the ~~Registrant~~registrant was required to submit ~~and post~~ such files). Yes x☒ No ¨☐

Indicate by check mark whether the ~~Registrant~~registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one)~~

~~Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes~~ ¨ No x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ¨☒

As of October ~~18, 2017,~~25, 2019, there were ~~138,574,234~~134,153,070 shares of the registrant’s common stock, $0.01 par value, outstanding.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

~~The accompanying notes are an integral part of these consolidated financial statements.~~

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEETS

(in thousands, except for par value)

~~The accompanying notes are an integral part of these consolidated financial statements.~~FLIR SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(in thousands, except for per share amounts)

For the three months ended September 30, 2019:

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine months ended September 30, 2019:

_________________________

(1) The ~~accompanying notes are~~Company recorded an ~~integral part~~immaterial correction which increased both retained earnings and deferred income taxes related to the Company's adoption of ~~these consolidated financial statements.~~Accounting Standards Update 2016-16 "Intra-Entity Transfers of Assets Other Than Inventory" ("ASU 2016-16") during the year ended December 31, 2018.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(in thousands, except for per share amounts)

For the three months ended September 30, 2018:

For the nine months ended September 30, 2018:

Adoption of ASC 606 and ASU 2016-16⁽¹⁾

_________________________

(1) The Company adopted Accounting Standards Update 2014-09 "Revenue - Revenue from Contracts with Customers" ("ASU 606") and ASU 2016-16 on January 1, 2018, on a modified retrospective method.

CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The accompanying consolidated financial statements of FLIR Systems, Inc. and its consolidated subsidiaries (the “Company”) are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, these statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the Company’s consolidated financial position and results of operations for the interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2018.

The accompanying consolidated financial statements include the accounts of FLIR Systems, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for the year ending December 31, ~~2017.~~2019.

Recently Adopted Accounting Pronouncements

~~Effective January 1, 2017, the Company adopted the~~ Financial Accounting Standards Board ("FASB") Accounting Standards Update ~~2016-09,~~("ASU") No. 2016-02, "Leases ("ASC 842"). Effective January 1, 2019, the Company adopted ASC 842 and all the related amendments using the modified retrospective method, using the permitted practical expedients, to those contracts still outstanding as of January 1, 2019. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The most significant impact was the recognition, on a discounted basis, of right-of-use (ROU) assets totaling approximately $31.9 million and lease liabilities totaling approximately $34.2 million under non-cancelable operating leases as of January 1, 2019 and the related new required disclosures. The standard did not have an impact on the Company's consolidated income statements or consolidated statements of cash flows. For additional disclosures required under the new standard, see Note 9, "Leases" of the Notes to the Consolidated Financial Statements.

FASB ASU No. 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" ("ASU 2017-04"). Effective January 1, 2019, the Company adopted ASU 2017-04. The amendments in this update simplify the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment also requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The standard did not have an impact on the Company's consolidated financial statements.

FASB ASU No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" ("ASU 2018-02"). Effective January 1, 2019, the Company adopted ASU 2018-02. The standard allows companies to reclassify stranded tax effects in accumulated other comprehensive earnings (loss) that have been caused by the Tax Cuts and Jobs Act of 2017 (the Act) to retained earningsfor each period in which the effect of the change in the U.S. federal corporate income tax rate is recorded. However, the FASB made the reclassification optional. As a result, the Company assessed the impact of the ASU on its financial statements and did not exercise the option to reclassify the stranded tax effects caused by the Act.

FASB ASU No. 2018-07, "Improvements to ~~Employee~~Nonemployee Share-Based Payment Accounting" ("ASU ~~2016-09"~~2018-07"). Effective January 1, 2019, the Company adopted ASU 2018-07. The standard ~~update simplifies several aspects of~~more closely aligns the accounting for employee and nonemployee share-based ~~payment transactions, including accounting for income taxes, forfeitures, and statutory withholding requirements, as well as classification in the Consolidated Statements of Cash Flows. As~~payments. The standard did not have a result of the adoption, on a prospective basis, the Company recognized $0.4 million and $4.0 million of excess tax benefits from stock-based compensation as a discrete item in income tax provision for the three and nine months ended September 30, 2017, respectively. Historically, these amounts were recorded as additional paid-in capital. Upon adoption, the Company elected to apply the change retrospectively to the Consolidated Statement of Cash Flows which resulted in a reclassification of excess tax benefits from stock-based compensation of $1.6 million from cash flows from financing activities to cash flows from operating activities for the nine months ended September 30, 2016. Additionally, $5.8 million paid in cash to satisfy withholding requirements for net settlement of restricted stock unit shares vested and stock options exercised has been reclassified from cash flows from operating activities to cash flows from financing activities to conform to the presentation required by the new standard in the Consolidated Statement of Cash Flows for the nine months ended September 30, 2016. ASU 2016-09 also requires excess tax benefits and deficiencies to be excluded from the assumed future proceeds in the calculation of diluted shares. This change resulted in an increase in diluted weighted average shares outstanding of 215,000 shares and 211,000 shares for the three and nine months ended September 30, 2017, respectively. The Company elected not to change its policy on accounting for forfeitures and will continue to estimate a requisite forfeiture rate. Additional amendments to the accounting for income taxes and minimum statutory withholding requirements had nomaterial impact on the Company's ~~results of operations.~~

~~Reclassifications~~

~~The Company made certain reclassifications to the prior years' financial statements and notes to the~~ consolidated financial statements to conform them to the presentation as of and for the three and nine months ended September 30, 2017. These reclassifications had no effect on consolidated financial position, net earnings, shareholders' equity, or ~~net cash flows for any of the periods presented.~~disclosures.

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Recently Adopted Accounting Pronouncements - (Continued)

FASB ASU No. 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract” (“ASU 2018-15”). Effective January 1, 2019, the Company adopted ASU 2018-15. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The standard did not have a material impact on the Company’s consolidated financial statements.

The Company designs, markets and sells products primarily as commercial, off-the-shelf products. Certain customers request different system configurations, based on standard options or accessories that the Company offers. Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company regularly enters into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. In such situations, contract values are allocated to each performance obligation based on its relative estimated standalone selling price. The vast majority of the Company's revenues are recognized at a point in time when goods are transferred to a customer. However, for certain contracts that include highly customized components, if performance does not create an asset with an alternative use and termination for convenience clauses provide an enforceable right to payment for performance completed to date, revenue is recognized over time as the performance obligation is satisfied.

Revenue includes certain shipping and handling costs and is stated net of third party agency fees. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of goods sold. Revenue is recognized net of allowances for returns and net of taxes collected from customers which are subsequently remitted to governmental authorities.

The Company's products are sold with warranty provisions that require it to remedy deficiencies in quality or performance of the Company's products over a specified period of time, generally twelve to twenty-four months, at no cost to its customers. Warranty liabilities are established at the time that revenue is recognized at levels that represent the Company's estimate of the costs that will be incurred to fulfill those warranty requirements.

Provisions for estimated losses on sales or related receivables are recorded when identified. Service revenue is deferred and recognized over the contract period, as is the case for extended warranty contracts, or recognized as services are provided.

See Note 19, "Operating Segments and Related Information - Revenue and Long-Lived Assets by Geographic Area" forinformation related to the Company’s revenues disaggregated by significant geographical region and operating segment.

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables and deferred revenue and advance payments from customers on the Consolidated Balance Sheets. Contract assets and liabilities are reported on a contract-by-contract basis. The Company had no material deferred contract costs recorded on the Consolidated Balance Sheet as of September 30, 2019.

Contract assets: The Company recognizes unbilled receivables as contract assets when the Company has rights to consideration for work completed but has not yet billed at the reporting date. Unbilled receivables are included within accounts receivable, net on the Consolidated Balance Sheets. The balance of unbilled receivables as of September 30, 2019 and December 31, 2018 were $19.9 million and $10.5 million, respectively.

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Contract Liabilities: The Company records contract liabilities when cash payments are received or due in advance of the Company's performance. Contract liabilities include deferred revenue and advance payments from customers. Contract liabilities are classified as either current or long-term in the Consolidated Balance Sheets based on the timing of when the Company expects to recognize revenue. As of September 30, 2019 and December 31, 2018, contract liability balances totaled $85.6 million and $66.4 million, respectively. These balances included amounts classified as long-term as of September 30, 2019 and December 31, 2018 and were $13.7 million and $14.0 million, respectively, and are included within pension and other long-term liabilities in the accompanying Consolidated Balance Sheets. Approximately $47.5 million of revenue recognized during the nine month period ended September 30, 2019 was included in the combined opening contract liability balances.

Remaining Performance Obligations

Remaining performance obligations represent the aggregate transaction price allocated to performance obligations with an original contract term greater than one year which are fully or partially unsatisfied at the end of the period. While the remaining performance obligation disclosure is similar in concept to backlog, the definition of remaining performance obligations excludes contracts that provide the customer with the right to cancel or terminate for convenience with no substantial penalty, even if historical experience indicates the likelihood of cancellation or termination is remote. The Company has elected to exclude contracts with customers with an original term of one year or less from remaining performance obligations while these contracts are included within backlog.

As of September 30, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $135.0 million. The Company expects to recognize revenue on approximately 67 percent of the remaining performance obligations over the next twelve months, and the remainder recognized thereafter.

Stock Incentive Plans

The Company has a stock-based compensation program that provides equity incentives for employees, consultants and directors. This program includes incentive and non-statutory stock options and non-vested stock awards (referred to as restricted stock unit awards) granted under two plans: the FLIR Systems, Inc. 2002 Stock Incentive Plan (the “2002 Plan”) and the FLIR Systems, Inc. 2011 Stock Incentive Plan (the “2011 Plan”). The Company has discontinued issuing awards out of the 2002 Plan but previously-granted awards under the 2002 Plan remain outstanding.

The Company has granted time-based options, time-based restricted stock unit awards, market-based restricted stock unit awards and performance-based restricted stock unit awards. Options generally expire ten years from the grant date. Time-based options and restricted stock unit awards generally vest over a ~~three-year~~three year period. Market-based restricted stock unit awards ~~may be~~were earned based upon the Company's total shareholder return compared to the total shareholder return of the component company at the 60th percentile level in the S&P 500 Index over a ~~three-year~~three year period. Performance-based restricted stock unit awards granted during the year ended December 31, 2016 were earned based upon the Company's return on invested capital over a three year period. Performance-based restricted stock unit awards granted during the year ended December 31, 2017 may be earned based upon ~~certain profitability metrics as approved by~~ the ~~compensation committee~~Company's operating margin performance over a three year period. Performance-based restricted stock unit awards granted during the year ended December 31, 2018 and during the nine months ended September 30, 2019 may be earned based upon a combination of the Company's ~~board of directors, including return on invested capital or income from operations~~revenue and operating performance over ~~the relevant three-year periods. Shares~~a three year period. Certain shares vested under the performance-based restricted stock unit awards and the market-based restricted stock unit awards must ~~generally~~ be held by the participant for a period of one year from the vest date.

Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan (the “ESPP”) which allows employees to purchase shares of the Company’s common stock at 85 percent of the fair market value at the lower of either the date of enrollment or the purchase date. The ESPP provides for six-month offerings commencing on May 1 and November 1 of each year with purchases on April 30 and October 31 of each year. Shares purchased under the 2009 ESPP must be held by employees for a period of at least 18 months after the date of purchase. On April 19, 2019, the Company's shareholders approved the FLIR Systems, Inc. 2019 Employee Stock Purchase Plan ("2019 ESPP"). The final purchase under the 2009 ESPP was on April 30, 2019 and the first offering under the 2019 ESPP commenced on May 1, 2019.

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 3. Stock-based Compensation - (Continued)

The following table sets forth the stock-based compensation expense recognized in the Consolidated Statements of Income (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Cost of goods sold	$	769	$	843	$	2,326	$	2,313
Research and development	2,296		1,967		5,981		5,014
Selling, general and administrative	7,028		7,752		19,064		17,635
Stock-based compensation expense before income taxes	$	10,093	$	10,562	$	27,371	$	24,962

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Cost of goods sold $ 788
$ 881
$ 1,820
$ 2,351
Research and development 1,329
1,225
3,805
3,639
Selling, general and administrative 7,774
4,766
19,120
15,263
Stock-based compensation expense before income taxes $ 9,891
$ 6,872
$ 24,745
$ 21,253

Stock-based compensation expense capitalized in the Consolidated Balance Sheets is as follows (in thousands):



	September 30,
	2019		2018
Capitalized in inventory	$	1,194	$	1,115

September 30,
2017 2016
Capitalized in inventory $ 1,074
$ 585

As of September 30, ~~2017,~~2019, the Company had approximately ~~$45.9~~$67.4 million of total unrecognized stock-based compensation costs, net of estimated forfeitures, to be recognized over a weighted average period of ~~2.20~~approximately two years.

~~FLIR SYSTEMS, INC.~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~


Note 3.4.	Net Earnings Per Share

The following table sets forth the reconciliation of the numerator and denominator utilized in the computation of basic and diluted earnings per share (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Numerator for earnings per share:
Net earnings for basic and diluted earnings per share	$	62,047	$	73,151	$	169,913	$	183,909
Denominator for earnings per share:
Weighted average number of common shares outstanding	134,741		138,190		135,264		138,146
Assumed exercise of stock options and vesting of restricted stock awards, net of shares assumed reacquired under the treasury stock method	1,309		2,137		1,562		2,467
Diluted shares outstanding	136,050		140,327		136,826		140,613

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Numerator for earnings per share:
Net earnings for basic and diluted earnings per share $ 63,529
$ 58,633
$ 157,513
$ 105,126
Denominator for earnings per share:
Weighted average number of common shares outstanding 137,849
136,963
137,030
137,438
Assumed exercise of stock options and vesting of restricted stock awards, net of shares assumed reacquired under the treasury stock method 1,570
975
1,823
1,156
Diluted shares outstanding 139,419
137,938
138,853
138,594

The effect of stock-based compensation awards for ~~the~~ three and nine months ended September 30, ~~2017, which in aggregate consisted of 147,000 and 83,000 shares, respectively; and for the three and nine months ended September 30, 2016,~~2019, which in the aggregate consisted of ~~322,000~~80,000 and ~~317,000~~76,000 shares, respectively, have been excluded for purposes of diluted earnings per share since the effect of their inclusion would have been anti-dilutive. There were no shares excluded for the three and nine months ended September 30, 2018.

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)


Note 4.5.	Fair Value of Financial Instruments

Factors used in determining the fair value of financial assets and liabilities are summarized into three broad categories in accordance with FASB ASC Topic 820, “Fair Value Measurements”:

Level 1 – quoted prices in active markets for identical securities as of the reporting date;

Level 2 – other significant directly or indirectly observable inputs, including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, and observable market prices for identical instruments that are traded in less active markets; and

Level 3 – significant inputs that are generally less observable than objective sources, including our own assumptions in determining fair value.

The factors or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The Company had ~~$60.8~~$31.1 million and ~~$8.3~~$200.0 million of cash equivalents at September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively, which were primarily investments in money market funds and overnight deposits. The Company has categorized its cash equivalents as a Level 1 financial asset, measured at fair value based on quoted prices in active markets of identical assets. All cash equivalents are in instruments that are convertible to cash daily. The fair value of the Company’s foreign currency contracts as of September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, and the interest rate swap contract as of September 30, 2019 are disclosed in Note 5,6, "Derivative Financial Instruments," and are based on Level 2 inputs. The fair value of the Company's borrowings under the Credit Agreement as described in Note 13, "Credit Agreement," as of September 30, 2019 approximates the carrying value. The fair value of the Company’s senior unsecured notes as described in Note ~~13,~~14, "Long-Term Debt," is approximately ~~$430.8~~$429.9 million and $418.8 million based upon Level 2 inputs at September 30, ~~2017~~. At September 30, 2017, the Company had no other borrowings outstanding under the revolving credit facility described in Note 13. The Company does not have any other significant financial assets or liabilities that are measured at fair value.2019 and December 31, 2018, respectively.

~~FLIR SYSTEMS, INC.~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

Note 5.6. Derivative Financial Instruments

Foreign Currency Exchange Rate Risk

The Company enters into foreign currency forward contracts not formally designated as hedges to manage the consolidated exchange rate risk associated with the remeasurement of non-functional currency denominated monetary assets and liabilities. Changes in fair value of foreign currency forward contracts are recognized in income at the end of each reporting period based on the difference between the contract rate and the spot rate. In general, these gains and losses are offset in the Consolidated Statements of Income by the reciprocal gains and losses from ~~cash settlement of~~ the underlying assets or liabilities which originally gave rise to the exposure. The net amount of the gains and losses related to derivative instruments recorded in other ~~(income)~~ expense, net for the three and nine months ended September 30, ~~2017~~2019 were a net ~~gain~~losses of ~~$0.2~~$2.3 million and ~~a net loss of $7.3~~$2.6 million, respectively. The net amount of the gains and losses related to derivative instruments recorded in other expense, net for the three and nine months ended September 30, ~~2016~~2018 were ~~$3.0~~a net gain of $1.5 million and ~~$4.1~~a net loss of $7.1 million, respectively.

The table below presents the net notional amounts of the Company’s outstanding foreign currency forward contracts by currency (in thousands):



	September 30,		December 31,
	2019		2018
European euro	$	29,167	$	61,452
Canadian dollar	27,003		19,685
British pound sterling	14,356		609
Brazilian real	9,048		8,598
Norwegian krone	6,462		255
Swedish krona	5,989		3,608
Australian dollar	676		1,131
Other	592		558
	$	93,293	$	95,896

September 30, December 31,
2017 2016
European euro $ 129,730
$ 156,352
Swedish kroner 75,879
48,555
Canadian dollar 46,374
15,645
British pound sterling 24,954
33,862
Brazilian real 10,386
2,747
Australian dollar 1,960
1,653
Japanese yen 898
3,251
Other 896
—
$ 291,077
$ 262,065

At September 30, ~~2017,~~2019, the Company’s foreign currency forward contracts, in general, had maturities of three months or less.

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 6. Derivative Financial Instruments - (Continued)

Foreign Currency Exchange Rate Risk - (Continued)

The carrying amounts of the foreign exchange contracts included in the Consolidated Balance Sheets are as follows (in thousands):



	September 30, 2019					December 31, 2018
	Prepaid Expenses and Other Current Assets		Other Current Liabilities		��	Prepaid Expenses and Other Current Assets		Other Current Liabilities
Foreign exchange contracts	$	808	$	386		$	431	$	951

September 30, 2017 December 31, 2016
Prepaid Expenses and Other Current Assets Other Current Liabilities Prepaid Expenses and Other Current Assets Other Current Liabilities
Foreign exchange contracts $ 2,269
$ 2,737
$ 2,369
$ 75

Interest Rate Swap Contracts

~~On May 31, 2016, the Company drew down $105 million under the revolving~~The Company's outstanding debt at September 30, 2019 consists of fixed rate notes and an unsecured credit facility ~~as described~~consisting of a revolving loan facility, a U.S. dollar term loan and a Swedish kronor term loan, all of which accrue interest at a floating rate. As discussed in Note ~~11,~~13, "Credit Agreement," ~~and repaid~~interest expense on the ~~term loan originally issued under the credit agreement dated April 5, 2013. Interest was accrued and paid monthly~~Company's floating rate debt is calculated based on a fixed spread over the ~~one-month LIBOR rate. To manage the~~applicable Eurocurrency rate (e.g. LIBOR). Therefore, fluctuations in market interest rates will cause interest expense increases or decreases on a given amount of floating rate debt.

The Company is managing its interest rate risk ~~arising from~~related to certain floating rate debt through a floored interest rate swap (“floored swap”) in which the ~~variability~~Company receives floating rate payments subject to a floor of zero percent and makes fixed rate payments. The impact of the floored swap is to fix the floating rate basis for the calculation of interest on the unsecured Swedish kronor term loan at the levels indicated in ~~monthly~~the table below. The effective interest ~~expense attributable~~rate paid is equal to the ~~original~~fixed rate shown below plus the applicable spread then in effect. At September 30, 2019, the effective interest rate on the Swedish kronor term loan ~~and amounts drawn under~~which includes the ~~revolver,~~impact of the ~~Company entered into two amortizing interest rate swaps with an aggregate notional amount~~floored swap was 1.840 percent.

As of ~~$105 million.~~ September 30, 2019, the following floored swap was outstanding:

The ~~interest rate swaps were~~floored swap is designated and effective as a cash flow ~~hedges.~~

~~During~~hedge with individual swap cash flows recorded as an asset or liability in the quarter ended September 30, 2017, the Company repaid all amounts outstanding under the revolving credit facility. Concurrently, the Company exited both interest rate swaps which had a combined notional amountCompany's Consolidated Balance Sheets at ~~the time of $86.3 million and discontinued the cash flow hedge. The Company reclassified a gain of $0.5 million from~~fair value. Fair value adjustments are recorded as an adjustment to accumulated other comprehensive ~~income~~earnings, except that any gains and losses on ineffectiveness of the floored swap would be recorded as an adjustment to interest ~~expense because it~~expense. The net fair value of the Company's floored swap was ~~probable~~an unrealized loss of $2.3 million, which has been recorded in prepaid expenses and other current assets, other current liabilities and pension and other long-term liabilities in the Consolidated Balance Sheet as of September 30, 2019.

All of the Company's derivative counterparties have investment grade credit ratings. The Company is a party to master netting arrangements that contain features that allow counterparties to net settle amounts arising from multiple separate derivative transactions or net settle in the ~~forecasted variable monthly LIBOR-based interest rate payments would no longer occur.~~case of certain triggering events such as a bankruptcy or major default of one of the counterparties to the transaction. The Company has not pledged assets or posted collateral as a requirement for entering into or maintaining derivative positions.


Note 7.	Accounts Receivable

Accounts receivable are net of an allowance for doubtful accounts of $5.9 million and $4.3 million at September 30, 2019 and December 31, 2018, respectively.

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)


Note 6.8.	~~Accounts Receivable~~

~~Accounts receivable are net of an allowance for doubtful accounts of $6.1 million and $6.5 million at September 30, 2017 and December 31, 2016, respectively.~~

Inventories


~~Note 7.~~	~~Inventories~~

Inventories consist of the following (in thousands):



	September 30,		December 31,
	2019		2018
Raw material and subassemblies	$	226,695	$	214,164
Work-in-progress	46,423		43,096
Finished goods	124,429		94,847
	$	397,547	$	352,107

September 30, December 31,
2017 2016
Raw material and subassemblies $ 223,817
$ 200,640
Work-in-progress 52,287
43,430
Finished goods 136,901
127,301
$ 413,005
$ 371,371


Note 9.	Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in other assets, other current liabilities, and pension and other long-term liabilities on the consolidated balance sheets. The Company does not have any finance leases at September 30, 2019.

Operating lease right-of-use assets ("ROU assets") represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of minimum fixed lease payments over the lease term. As most of the leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. ROU assets also include prepaid lease payments made prior to commencement of the lease plus initial capitalized direct costs and exclude tenant improvement allowances. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Lease expense for minimum fixed lease payments is recognized on a straight-line basis over the lease term.

The Company has elected to apply the short-term lease exemption in accordance with guidance, and therefore, short-term leases (leases with a term of twelve months or less) are not recorded on the balance sheet. The Company has only a small number of leases that qualify for the exemption and the amount of its remaining short-term lease commitments is not significant.

Most of the Company’s operating leases are for buildings, warehouses and office space. These leases have remaining lease terms of approximately one year to ten years.

The components of lease expense was as follows (in thousands):



	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019

Operating lease expense	$	3,239	$	8,711
Short-term lease expense	277		850
Variable lease expense	555		1,671
Total lease expense	$	4,071	$	11,232

Supplemental cash flow information related to operating leases (in thousands):



	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	2,990	$	8,173
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	2,970	$	10,356

Supplemental balance sheet information related to operating leases (in thousands):



	September 30, 2019
Operating lease right-of-use assets	$	36,951
Operating lease liabilities	$	40,930

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)


Note 9.	Leases - (Continued)

As of September 30, 2019, the weighted average remaining lease term for operating leases was 5.1 years and the weighted average discount rate was 4.02 percent.

Maturities of lease liabilities as of September 30, 2019 were as follows (in thousands):



Remainder of 2019	$	2,984
2020	11,697
2021	10,491
2022	6,942
2023	4,084
2024	2,364
Thereafter	7,466
Total lease payments	46,028
Less: imputed interest	(5,098		)
Present value of lease liabilities	$	40,930

The Company's future minimum lease commitments, net of sub-lease rental income, as of December 31, 2018, under Accounting Standard Codification Topic 840, the predecessor to Topic 842, are as follows:



	Net Operating Leases
2019	$	10,561
2020	8,270
2021	7,283
2022	4,894
2023	2,934
Thereafter	5,911
Total minimum payments	$	39,853

Note 8.10. Property and Equipment

Property and equipment are net of accumulated depreciation of ~~$313.6~~$355.4 million and ~~$275.1~~$333.4 million at September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively.


Note 9.11.	Goodwill

The carrying value of goodwill and the activity for the nine months ended September 30, ~~2017~~2019 are as follows (in thousands):



Balance, December 31, 2018	$	904,571
Goodwill from acquisitions	462,970
Currency translation adjustments	(12,746		)
Balance, September 30, 2019	$	1,354,795

Balance, December 31, 2016 $ 801,406
Goodwill from acquisitions 100,022
Currency translation adjustments 29,418
Balance, September 30, 2017 $ 930,846

See Note ~~17,~~19, "Operating Segments and Related ~~Information -~~ ~~Operating Segments," of the Notes to the Consolidated Financial Statements~~Information" for additional information on the carrying value of goodwill by operating ~~segment at September 30, 2017.~~

segments.

See Note ~~18,~~20, "Business Acquisitions~~" of the Notes to the Consolidated Financial Statements~~ and Divestitures" for additional information on ~~the addition of~~ goodwill from acquisitions.

Note ~~10.~~12. Intangible Assets

Intangible assets are net of accumulated amortization of ~~$100.8~~$135.5 million and ~~$77.8~~$97.7 million at September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively.


~~Note 11.~~	~~Credit Agreement~~

On February 8, 2011, the Company entered into a credit agreement with Bank of America, N.A., U.S. Bank National Association, JPMorgan Chase Bank N.A. and other lenders, as amended on April 5, 2013, October 27, 2015 and May 31, 2016 (the "Credit Agreement") which provides for a $500 million revolving line of credit. At September 30, 2017, the Company had no amounts outstanding under its revolving credit facility and had $16.9 million of letters of credit outstanding governed by the facility, which reduces the total available revolving credit under the Credit Agreement to $483.1 million.

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)


Note ~~12.~~13.	~~Accrued Product Warranties~~ Credit Agreement

On March 29, 2019, the Company entered into a Second Amended and Restated Credit Agreement (“Credit Agreement”) with Bank of America, N.A., JPMorgan Chase Bank, N.A., U.S. Bank National Association, Citibank, N.A., MUFG Union Bank, N.A., and the other lenders party thereto.The ~~following table summarizes~~Credit Agreement amended and restated the ~~Company’s warranty liability~~Company's existing Amended and ~~activity (in thousands):~~Restated Credit Agreement, dated as of May 31, 2016 ("Existing Credit Agreement"). The Credit Agreement provides for a $650.0 million unsecured revolving credit facility, a $100.0 million unsecured term loan facility available in U.S. dollars amortizing at 5.0 percent per annum, and a $150.0 million unsecured term loan facility available in Swedish kronor amortizing at 5.0 percent per annum. The Credit Agreement has a term of five years and matures on March 29, 2024. In connection with the closing of the Credit Agreement, the Company made an initial borrowing of $100.0 million in revolving loans, $100.0 million in term loans in U.S. dollars, and the equivalent of $150.0 million in term loans in Swedish kronor. Additionally, the Company repaid in full all outstanding amounts, consisting of revolving loans in an aggregate principal amount of $375.0 million, under the Existing Credit Agreement.

On January 11, 2019, a standby letter of credit totaling approximately $224.8 million (Swedish kronor 2.2 billion) was issued under a new bilateral letter of credit reimbursement agreement ("L/C Agreement") to secure a payment guarantee required by the Swedish Tax Authorities in order to grant a respite from paying the tax reassessment described in Note 18, "Income Taxes." Outstanding amounts under the L/C Agreement do not reduce the available revolving credit from the Credit Agreement as described above.

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Accrued product warranties, beginning of period $ 19,530
$ 17,492
$ 20,845
$ 16,514
Amounts paid for warranty services (3,790 ) (3,624 ) (12,781 ) (13,221 )
Warranty provisions for products sold 3,294
5,099
10,785
15,658
Currency translation adjustments and other 90
1,025
275
1,041
Accrued product warranties, end of period $ 19,124
$ 19,992
$ 19,124
$ 19,992

Current accrued product warranties, end of period $ 16,193
$ 16,759
Long-term accrued product warranties, end of period $ 2,931
$ 3,233

Note ~~13.~~14. Long-Term Debt

Long-term debt consists of the following (in thousands):


	September 30,			December 31,			September 30,			December 31,
	2017			2016			2019			2018
Unsecured notes	$	425,000		$	425,000		$	425,000		$	425,000
Credit Agreement	—			97,500			236,021			—
Unamortized discounts and issuance costs of unsecured notes	(4,631		)	(5,579		)
Unamortized discounts and issuance costs							(4,037		)	(3,052		)
	$	420,369		$	516,921		$	656,984		$	421,948
Current portion, long-term debt	$	—		$	15,000		$	12,104		$	—
Long-term debt	$	420,369		$	501,921		$	644,880		$	421,948

In June 2016, the Company issued ~~$425~~$425.0 million aggregate principal amount of its 3.125 percent senior unsecured notes due June 15, 2021 (the “2016 Notes”). The net proceeds from the issuance of the 2016 Notes were approximately $421.0 million, after deducting underwriting discounts and offering expenses, which are being amortized over a period of five years. Interest on the 2016 Notes is payable semiannually in arrears on December 15 and June 15. The proceeds from the 2016 Notes were used to repay the principal amount of the notes ~~issued in August 2011 and~~ outstanding in July 2016 and are being used for general corporate purposes, including working capital and capital expenditure needs, business acquisitions and repurchases of the Company’s common stock.

~~On May 31, 2016,~~As discussed in Note 13, "Credit Agreement," on March 29, 2019, the Company ~~repaid its~~made an initial borrowing of $100.0 million in term ~~loan~~loans in U.S. dollars, and ~~drew down $105.0~~the equivalent of $150.0 million ~~under~~in term loans in Swedish kronor. Both term loans amortize at 5.0 percent per annum with the revolving credit facility. Interest on amounts outstanding under the revolving credit facility accrued at the one-month LIBOR rate plus the applicable margin for the amount outstanding and was paid monthlycurrent portion included in ~~arrears. During the quarter ended September 30, 2017, the Company repaid all amounts outstanding under the revolving credit facility.~~current liabilities.


~~Note 14.~~	~~Shareholders’ Equity~~

~~The following table summarizes the common stock and additional paid-in capital activity during the nine months ended September 30, 2017 (in thousands):~~

Common stock and additional paid-in capital, December 31, 2016 $ 12,139
Common stock issued pursuant to stock-based compensation plans, net 34,726
Stock-based compensation 25,252
Common stock and additional paid-in capital, September 30, 2017 $ 72,117

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)


Note ~~14.~~15.	~~Shareholders’~~ Accrued Product Warranties

The following table summarizes the Company’s warranty liability and activity (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Accrued product warranties, beginning of period	$	18,541		$	18,499		$	18,583		$	18,051
Amounts paid for warranty services	(3,853		)	(4,332		)	(10,983		)	(12,809		)
Warranty provisions for products sold	4,329			4,971			10,536			13,873
Business acquisition	—			—			899			—
Currency translation adjustments and other	(100		)	19			(118		)	42
Accrued product warranties, end of period	$	18,917		$	19,157		$	18,917		$	19,157

Current accrued product warranties, end of period							$	14,371		$	15,567
Long-term accrued product warranties, end of period							$	4,546		$	3,590


Note 16.	Shareholders' Equity ~~- (Continued)~~

On February 7, 2019, the Company's Board of Directors authorized the repurchase of up to 15.0 million shares of the Company's outstanding common stock. This authorization expires in February 2021. During the nine months ended September ~~8, 2017,~~30, 2019, the Company repurchased 2.5 million shares of the Company's common stock through open market transactions under the 2019 authorization. The total cash payments for the repurchase of the Company's common stock during the nine months ended September 30, 2019 were $125.0 million.

On September 6, 2019, the Company paid a dividend of ~~$0.15~~$0.17 per share on its outstanding common stock to the shareholders of record as of the close of business on August ~~25, 2017.~~23, 2019. The total cash payments for dividends during the nine months ended September 30, ~~2017~~2019 were ~~$61.8~~$68.9 million.


Note ~~15.~~17.	Contingencies

~~Raytheon Litigation~~

FLIR Systems, Inc. and its subsidiary, FLIR Commercial Systems, Inc. (formerly known as Indigo Systems Corporation) (together, the “FLIR Parties”), were named in a lawsuit filed by Raytheon Company (“Raytheon”) on March 2, 2007, in the United States District Court for the Eastern District of Texas. Raytheon's complaint, as amended, asserted claims for tortious interference, patent infringement, trade secret misappropriation, unfair competition, breach of contract, and fraudulent concealment. The FLIR Parties filed an answer to the complaint on September 2, 2008, in which they denied all material allegations. On October 27, 2010, the FLIR Parties and Raytheon entered into a settlement agreement that resolved the patent infringement claims (the "Patent Claims") pursuant to which the FLIR Parties paid $3 million to Raytheon and entitles the FLIR Parties to certain license rights in the patents that were the subject of the Patent Claims. On October 28, 2014, a four-week trial began with respect to Raytheon's remaining claims of misappropriations of trade secrets and claims related to 31 alleged trade secrets. On November 24, 2014, a jury in the United States District Court for the Eastern District of Texas rejected Raytheon’s claims and determined that 27 of the alleged trade secrets were not in fact trade secrets and that neither of the FLIR Parties infringed any of the trade secrets claimed and awarded Raytheon no damages. On March 31, 2016, the United States District Court for the Eastern District of Texas issued a Final Judgment denying Raytheon’s claims and awarding FLIR court costs and denying each of Raytheon’s and FLIR’s Renewed Motions for Judgment as a Matter of Law and denying FLIR’s Amended Rule 54(d) Motion for Attorneys’ Fees and Costs Under the Texas Theft Liability Act.

On April 29, 2016, Raytheon filed a Notice of Appeal to the United States Court of Appeals for the Federal Circuit of the denial by the United States District Court for the Eastern District of Texas of Raytheon’s Renewed Motion for Judgment as a Matter of Law, or in the Alternative, Motion for New Trial. On May 11, 2016, the FLIR Parties filed a Notice of Appeal to the United States Court of Appeals for the Federal Circuit of the Order of the United States District Court for the Eastern District of Texas Denying the FLIR Parties’ Amended Rule 54(d) Motion for Attorneys’ Fees and Costs under the Texas Theft Liability Act, the Order Denying the FLIR Parties’ Renewed Motion For Judgment as a Matter Of Law, and the Final Judgment to the extent it denied the FLIR Parties Attorneys’ Fees and Costs under the Texas Theft Liability Act. The matter remains ongoing and is subject to appeal. The Company is unable to estimate the amount or range of potential loss or recovery, if any, which might result if the final determination of this matter is favorable or unfavorable, but an adverse ruling on the merits of the original claims against the FLIR Parties, while remote, could be material.

Matters Involving the United States Department of State and Department of Commerce

On ~~October 22, 2014,~~April 24, 2018, the Company ~~initially contacted~~entered into a Consent Agreement with the United States Department of ~~State Office~~State's Directorate of Defense Trade Controls ~~Compliance~~ (“~~DTCC”~~DDTC”)~~, pursuant~~ to ~~International Traffic in Arms Regulation (“ITAR”) § 127.12(c),~~resolve allegations regarding the unauthorized export of technical data and defense services to dual and third country nationals from certain Company facilities, the failure to properly use and manage export licenses and export authorizations, and failures to report certain payments under 22 CFR Part 130 in ~~at least four facilities~~potential violation of the ~~Company. On April 27, 2015,~~International Traffic in Arms Regulation (“ITAR”). The Consent Agreement has a four-year term and provides for: (i) a civil penalty of $30.0 million with $15.0 million of this amount suspended on the ~~Company submitted its initial report~~condition that the funds have or will be used for Department-approved Consent Agreement remedial compliance measures, (ii) the appointment of an external Special Compliance Official to DTCC regarding the details of the issues raised in the October 22, 2014, submission. DTCC subsequently notified the Company that it was considering administrative proceedings under Part 128 of ITAR and requested a tolling agreement, which the Company executed on June 16, 2015 and referenced certain Company disclosures in addition to the submissions made in conjunctionoversee compliance with the ~~October 24, 2014 initial notification. On June 6, 2016,~~Consent Agreement and the Company executed a subsequent tolling agreement extending the tolling period for matters to be potentially included in an administrative proceeding for an additional 18 months until the end of December 2017. DTCC continues its reviewITAR; (iii) two external audits of the Company’s ~~activities~~ITAR compliance program; and (iv) continued implementation of ongoing remedial compliance measures and additional remedial compliance measures related to automated systems and ITAR compliance policies, procedures, and training. During the three-month period ended March 31, 2018, the Company ~~continues~~recorded a $15.0 million charge for the portion of the penalty that is not subject to ~~engage actively with the United States government on these matters.~~

suspension. In ~~May 2017,~~April 2018, the Company ~~submitted an initial notification~~paid $1.0 million of the $15.0 million charge and as of September 30, 2019, the remaining amount payable of $3.5 million and $7.0 million has been recorded in other current liabilities and pension and other long-term liabilities, respectively. The remaining $10.5 million is payable in annual installments of $3.5 million through April 2022. The Company expects recent and future investments in remedial compliance measures will be sufficient to ~~DTCC regarding potential violations related to certain export classifications obtained through~~cover the ~~commodity jurisdiction process. DTCC~~$15.0 million suspension amount.

As part of the Consent Agreement, DDTC acknowledged ~~the notification and at the request of DTCC,~~that the Company ~~executed~~voluntarily disclosed certain of the alleged Arms Export Control Act and ITAR violations, which were resolved pursuant to the Consent Agreement, cooperated in the DDTC's review, and instituted a ~~tolling agreement for this matter, suspending the statute~~number of ~~limitations for a twelve (12) month period~~.

compliance program improvements.

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)


Note ~~15.~~17.	Contingencies - (Continued)

In ~~June~~May 2017, the Company submitted an initial notification to DDTC regarding potential violations related to certain export classifications obtained through the commodity jurisdiction process and a final voluntary disclosure in August 2017. The Company also submitted a voluntary self-disclosure regarding the same matter with the United States Department of Commerce Bureau of Industry and Security ("BIS"). DDTC and BIS both acknowledged the submissions and, at the request of the agencies, the Company executed tolling agreements for this matter. The DDTC tolling agreement has lapsed; the Company executed a tolling agreement with BIS, suspending the statute of limitations through February 3, 2020. The Company also executed a tolling agreement with the Department of Justice ("DOJ"), suspending the statute of limitations with the DOJ through December 1, 2019. This matter remains under review by DDTC, DOJ, and BIS.

In June 2017, BIS informed the Company of additional export licensing requirements that restrict the Company’s ability to sell ~~9hz~~certain thermal products without a license to customers in China not identified on a list maintained by the United States Department of Commerce. This action was precipitated by concerns of sale without a license or potential diversion of some of the Company's products to prohibited end users and to countries subject to economic and other sanctions implemented by the United States. BIS subsequently favorably modified these restrictions to reduce the applicability of the restrictions to sales of FLIR's Tau camera cores (as opposed to finished products containing Tau camera cores) to customers in China not identified on a list maintained by the United States Department of Commerce and persons in a country other than those in EAR Country Group A:5 (Supplement No. 1 to Part 740 of the EAR). If the Company is found to have violated applicable rules and regulations with respect to customers and limitations on the export and end use of the Company’s products, the Company could be subject to substantial fines and penalties, suspension of existing licenses or other authorizations and/or loss or suspension of export privileges.

The Company is unable to reasonably estimate the time it may take to resolve these matters or the amount or range of potential loss, penalty or other government action, if any, that may be incurred in connection with these matters. However, an unfavorable outcome could result in substantial fines and penalties or loss or suspension of export privileges or of particular authorizations that could be material to the Company’s financial position, results of operations or cash flows in and following the period in which such an outcome becomes estimable or known.

SkyWatch Product Quality Matters

In March 2016, the Company learned of potential quality concerns with respect to as many as ~~312~~315 Level III and Level IV SkyWatch Surveillance Towers sold by FLIR and companies acquired by FLIR from 2002 through 2014. The Company notified customers who purchased the affected SkyWatch Towers of the potential concerns and, as a precautionary measure, also temporarily suspended production of all Level III and Level IV SkyWatch Towers pending the completion of its review and the implementation of any necessary remedial measures. ~~During the quarter ended June 30, 2017, the~~The Company identified the cause of these quality issues, and began testing certain remedial solutions to repair the affected SkyWatch Towers. Testing of the remedial solution for certain of the product variations affected was also completed during the quarter ended June 30, 2017. Subsequent to the aforementioned identification and testing,notified customers ~~who purchased the product configurations for which a remedial solution has been identified and tested were notified~~ of their ~~options~~option to request ~~modifications to~~repair and modification of their ~~fielded~~in-field units, and has begun in-field repairs of identified affected units. While there still remains uncertainty related to estimating the costs associated with a potential remedy and number of units which may require such remedy, the Company currently estimates the range of potential loss on remaining units to be between ~~$5.6~~$5.0 million and ~~$15~~$11.6 million. As no single amount within the range is a better estimate than any other amount within the range, the Company has recorded ~~a liability~~an accrual of ~~$5.6~~$5.0 million in other current liabilities as of September 30, ~~2017.~~2019. Factors underlying this estimated range of loss may change from time to time, and actual results may vary significantly from this estimate.

Shareholder Derivative Lawsuit

In October 2018, a shareholder filed a derivative lawsuit in the Circuit Court of the State of Oregon for the County of Multnomah under the caption Stein v. Carter, et al., Case No. 18CV46824, against the Company, as a nominal defendant, and certain current and former directors of the Company. Pointing to the Company’s 2015 settlement with the United States Securities and Exchange Commission of alleged United States Foreign Corrupt Practices Act violations and 2018 settlement with United States Department of State of alleged export control violations, the complaint alleges that the Company’s directors breached their fiduciary duties by failing to ensure that the Company had internal controls in place that would have prevented the alleged underlying misconduct and these settlements. The complaint also asserts claims for corporate waste and unjust enrichment, and seeks unspecified monetary damages from the individual defendants, injunctive relief, disgorgement of director compensation, and attorneys’ fees and costs. Because the complaint is derivative in nature, it does not seek monetary damages from the Company. However, the Company may be required to advance, and ultimately be responsible for, the legal fees and costs incurred by the individual defendants.

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)


Note 17.	Contingencies - (Continued)

On January 16, 2019, the defendants moved to dismiss the complaint. On March 21, 2019, instead of opposing the defendants' motion, the plaintiff filed an amended complaint. On April 25, 2019, the defendants moved to dismiss the amended complaint. On July 22, 2019, after complete briefing and oral argument, the court granted the defendants’ motion to dismiss the amended complaint without prejudice and with leave to amend. On July 29, 2019, the plaintiff informed the court that the plaintiff would not file a second amended complaint. On August 6, 2019, the court entered an order of judgment and dismissal without prejudice.

Other Matters

The Company is also subject to other legal and administrative proceedings, investigations, claims and litigation arising in the ordinary course of business not specifically identified above. In these identified matters and others not specifically identified, the Company records a liability with respect to a matter when management believes it is both probable that a liability has been incurred and the Company can reasonably estimate the amount of the loss. The Company believes it has recorded adequate provisions for any probable and estimable losses for matters in existence on the date hereof. The Company reviews these provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter. While the outcome of each of these matters is currently not determinable, the Company does not expect that the ultimate resolution of any such matter will individually have a material adverse effect on the Company’s financial position, results of operations or cash flows. The costs to resolve all such matters may in the aggregate have a material adverse effect on the Company’s financial position, results of operations or cash flows.


Note ~~16.~~18.	Income Taxes

The provision for income taxes was as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Income tax provision	$	5,079		$	12,267		$	30,093		$	39,077
Effective tax rate	7.6		%	14.4		%	15.0		%	17.5		%

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Income tax provision $ 21,004
$ 16,575
$ 46,124
$ 85,555
Effective tax rate 24.8 % 22.0 % 22.6 % 44.9 %

~~FLIR SYSTEMS, INC.~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

~~Note 16. Income Taxes~~

The effective tax rate for the three and nine months ended September 30, ~~2017,~~2019, is lower than the United States Federal tax rate of 3521.0 percent mainly due to increased benefit in the ~~mix of~~US for foreign derived intangible income and research credits, combined with a lower US tax burden on income earned by our foreign ~~jurisdiction~~subsidiaries and a reduction in unrecognized tax benefits related to transfer pricing and research credits. These amounts were offset partially by state taxes, higher tax rates ~~the effect of federal,~~applied to income earned in certain foreign ~~and state tax credits, excess tax benefits from stock compensation,~~jurisdictions, and other discrete ~~adjustments.~~items.

As of September 30, 2019 and December 31, 2018, the Company has accrued income tax liabilities of $42.9 million related to the transition tax enacted on December 22, 2017 as part of the Tax Cuts and Jobs Act. Of the amounts accrued, none are expected to be due within one year. The remaining transition tax will not accrue interest and will be paid in annual installments beginning in 2020 through 2024.

As of September 30, 2019, the Company had approximately ~~$59.5~~$13.3 million of unrecognized tax benefits, all of which would affect the Company’s effective tax rate if recognized. The Company anticipates approximately ~~$47.0~~$1.5 million of its net unrecognized tax benefits will be recognized within 12 months as the result of settlements or effective settlements with various tax authorities, the closure of certain audits and the lapse of the applicable statute of limitations.

The Company classifies interest and penalties related to unrecognized tax benefits in the income tax provision. As of September 30, ~~2017,~~2019, the Company had ~~$2.5~~$3.6 million of accrued interest and penalties related to unrecognized tax benefits that are recorded as current and non-current accrued income taxes on the Consolidated Balance Sheet.

During the three-month period ending December 31, 2018, the Swedish Tax Authority (“STA”) issued a reassessment of tax for the year ending December 31, 2012 to one of the Company's non-operating subsidiaries in Sweden. The reassessment concerns the use of tax credits applied against capital gains pursuant to European Union Council Directive 2009/133/EC, commonly referred to as the EU Merger Directive, and assesses taxes and penalties totaling approximately $306.6 million (Swedish kronor 3.0 billion). The Company believes the STA’s assertions in the reassessment are not in accordance with Swedish tax regulations and plans to defend the Company's positions with the STA and through the Swedish court system, as necessary. Consequently, no adjustment to the Company's unrecognized tax benefits has been recorded in relation to this matter.

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)


Note 18.	Income Taxes - (Continued)

During the three-month period ended September 30, 2019, the European Commission announced the opening of a separate review to assess whether an excess profit tax ruling granted by Belgium to one of the Company's international subsidiaries is in breach of European Union state aid rules. The Company believes all taxes assessed by Belgium have been paid, and has not adjusted unrecognized tax benefits in relation to this matter.

Management believes that the Company's recorded tax liabilities are adequate in the aggregate for its income tax exposures.

The Company currently has the following tax years open to examination by major taxing jurisdictions:



	Tax Years:
United States Federal	~~2013~~2016 - ~~2015~~2017
State of California	~~2013~~2014 - ~~2015~~2017
State of Massachusetts	~~2013~~2014 - ~~2015~~2017
State of Oregon	~~2013~~2015 - ~~2015~~2017
Sweden	2012 - ~~2015~~2017
United Kingdom	~~2012~~2014 - ~~2015~~2017
Belgium	2011 - ~~2016~~2017

~~FLIR SYSTEMS, INC.~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

Note ~~17.~~19. Operating Segments and Related Information

Operating Segments

The Company’s chief operating decision maker ("CODM"), its Chief Executive Officer, evaluates each of its segments’ performance and allocates resources based on revenue and segment operating income. Intersegment revenues are recorded at cost and are eliminated in consolidation. The Company and each of its segments employ consistent accounting policies.

The Company has ~~six~~3 reportable operating segments as follows:

~~Surveillance~~Industrial Business Unit

The ~~Surveillance~~Industrial business unit develops and manufactures thermal and visible-spectrum imaging camera cores and components that are utilized by third parties to create thermal, industrial, and other types of imaging systems. The segment also develops and manufactures devices that image, measure, and assess thermal energy, gases, and other environmental elements for industrial, commercial, and scientific applications, imaging payloads for Unmanned Aerial Systems ("UAS"), machine vision cameras, people counting and tracking, and thermal imaging solutions for use by consumers in the smartphone and mobile devices markets. Products include thermal imaging cameras, gas detection cameras, firefighting cameras, process automation cameras, and environmental test and measurement devices.

Government and Defense Business Unit

The Government and Defense business unit develops and manufactures enhanced imaging and recognition solutions for a wide variety of military, law enforcement, public safety, and other government customers around the world for the protection of borders, troops, and public welfare. Offerings include airborne, land, maritime, and man-portable multi-spectrum imaging systems, radars, lasers, imaging components, integrated multi-sensor system platforms, and services related to these systems.

~~Instruments~~

The Instruments segment develops and manufactures devices that image, measure, and assess thermal energy, gases, and other environmental elements for industrial, commercial, and scientific applications. Products include thermal imaging cameras, gas detection cameras, firefighting cameras, process automation cameras, and environmental test and measurement devices.

~~Security~~

The Security segment develops and manufactures cameras, video recording systems, and video management systems for use in commercial, critical infrastructure, and home security applications. Products include thermal and visible-spectrum cameras, digital and networked~~video recorders, and related software and accessories that enable the efficient and effective safeguarding of assets at all hours of the day and through adverse weather conditions.~~

~~OEM & Emerging Markets~~

The OEM & Emerging Markets segment develops and manufactures thermal and visible-spectrum imaging camera cores and components that are utilized by third parties to create thermal, industrial, and other types of imaging systems. The segment also develops and manufactures intelligent traffic monitoring and signal control systems, imaging payloads for Unmanned Aerial Systems ("UAS"), and thermal imaging solutions for use by consumers in the smartphone and mobile devices markets.

~~Maritime~~

The Maritime segment develops and manufactures electronics and imaging instruments for the recreational and commercial maritime market. The segment provides a full suite of networked electronic systems including multi-function helm displays, navigational instruments, autopilots, radars, sonar systems, thermal and visible imaging systems, and communications equipment for boats of all sizes.

~~Detection~~

~~The Detection segment~~ develops and manufactures sensor instruments and integrated platform solutions for the detection, identification, and suppression of chemical, biological, radiological, nuclear, and explosives ("CBRNE") threats for military force protection, homeland security, and commercial applications. Offerings include airborne, land, maritime, and man-portable multi-spectrum imaging systems, radars, lasers, imaging components, integrated multi-sensor system platforms, CBRNE detectors, nano-class UAS solutions, and services related to these systems.

Commercial Business Unit

The ~~Company’s chief operating decision maker ("CODM"), its Chief Executive Officer, evaluates each~~Commercial business unit develops and manufactures cameras, video recording systems, and video management systems for use in commercial and critical infrastructure, electronics and imaging instruments for the recreational and commercial maritime market, intelligent traffic monitoring and signal control systems, and hand-held and weapon-mounted thermal imaging systems for use in a variety of ~~its segment’s performance~~applications. Products include thermal and ~~allocates resources based on revenue~~visible-spectrum security cameras, digital and ~~segment operating income. Intersegment revenues are recorded at cost~~networkedvideo recorders, and ~~are eliminated in consolidation. The Company~~related software and ~~each~~accessories, a full suite of ~~its segments employ consistent accounting policies.~~networked marine electronic systems including multi-function helm displays, navigational instruments, autopilots, radars, sonar systems, thermal and visible imaging systems, and communications equipment for boats of all sizes, traffic cameras, sensors and associated traffic management software, and thermal scopes and handheld thermal cameras.

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 19. Operating Segments and Related Information - (Continued)

Operating Segments - (Continued)

The following tables present revenue, operating income, and assets for the ~~six~~three segments. Operating income as reviewed by the CODM is revenue less cost of goods sold and operating ~~expense,~~expenses, excluding general corporate expenses, ~~acquisition related costs, executive transition costs,~~ amortization of purchased intangible assets, amortization of acquisition-related inventory step-up, ~~costs associated with the SkyWatch product remediation,~~loss on sale of a business and restructuring and other charges. ~~Accounts~~Net accounts receivable, inventories and ~~inventories~~demonstration assets for the operating segments are regularly reviewed by management and are reported below as segment assets. All remaining assets, liabilities, capital expenditures, and depreciation are managed on a Company-wide basis.

~~FLIR SYSTEMS, INC.~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

~~Note 17. Operating Segments and Related Information - (Continued)~~

~~Operating Segments - (Continued)~~

Operating segment information is as follows (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Revenue—External Customers:
Surveillance $ 146,805
$ 136,402
$ 394,742
$ 373,993
Instruments 91,429
82,673
255,253
240,160
Security 65,660
56,431
160,447
166,872
OEM & Emerging Markets 87,206
62,719
259,418
167,544
Maritime 42,256
40,586
145,909
147,469
Detection 31,356 26,417 89,881 91,391
$ 464,712
$ 405,228
$ 1,305,650
$ 1,187,429
Revenue—Intersegments:
Surveillance $ 10,115
$ 5,001
$ 18,203
$ 13,980
Instruments 929
709
2,916
3,498
Security 2,931
4,267
9,697
10,575
OEM & Emerging Markets 11,456
7,518
29,986
24,528
Maritime 567
656
1,865
2,728
Detection 2
—
3
31
Eliminations (26,000 ) (18,151 ) (62,670 ) (55,340 )
$ —
$ —
$ —
$ —
Segment operating income:
Surveillance $ 44,941
$ 41,428
$ 104,313
$ 103,888
Instruments 29,603
27,578
74,376
67,254
Security 6,486
4,784
8,090
7,025
OEM & Emerging Markets 26,931
20,658
77,628
48,100
Maritime 4,466
3,155
19,060
16,482
Detection 8,883
6,999
24,644
25,556
$ 121,310
$ 104,602
$ 308,111
$ 268,305



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenue—External Customers:
Industrial	$	176,617		$	177,151		$	544,889		$	536,231
Government and Defense	213,348			171,955			584,207			492,313
Commercial	81,283			85,792			268,886			298,679
	$	471,248		$	434,898		$	1,397,982		$	1,327,223
Revenue—Intersegments:
Industrial	$	3,818		$	3,455		$	13,364		$	15,950
Government and Defense	959			2,327			3,906			8,428
Commercial	4,355			5,845			14,572			13,926
Eliminations	(9,132		)	(11,627		)	(31,842		)	(38,304		)
	$	—		$	—		$	—		$	—
Segment operating income:
Industrial	$	58,344		$	56,046		$	177,318		$	159,597
Government and Defense	56,298			53,878			153,535			145,608
Commercial	7,569			10,441			33,497			42,280
	$	122,211		$	120,365		$	364,350		$	347,485

A reconciliation of the Company's consolidated segment operating income to consolidated earnings before income taxes is as follows (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016			2019			2018			2019			2018
Consolidated segment operating income	$	121,310		$	104,602		$	308,111		$	268,305		$	122,211		$	120,365		$	364,350		$	347,485
Unallocated corporate expenses	(25,492		)	(16,514		)	(68,733		)	(49,186		)	(29,532		)	(22,427		)	(95,244		)	(79,865		)
Amortization of purchased intangible assets	(7,102		)	(4,329		)	(20,854		)	(12,464		)	(15,478		)	(5,824		)	(42,451		)	(17,909		)
Amortization of acquisition-related inventory step-up	—			—			(1,992		)	—
SkyWatch product quality accrual	(1,088		)	(2,000		)	(3,088		)	(2,000		)
Restructuring charges	(542		)	(910		)	(642		)	(1,217		)
Impact of acquisition-related inventory step-up													(674		)	—			(1,573		)	—
Loss on sale of business													—			—			—			(10,178		)
Restructuring and other charges													(2,139		)	(3,562		)	(5,875		)	(6,823		)
Consolidated earnings from operations	87,086			80,849			212,802			203,438			74,388			88,552			219,207			232,710
Interest and non-operating expense, net	(2,553		)	(5,641		)	(9,165		)	(12,757		)
Interest and non-operating expenses, net													(7,262		)	(3,134		)	(19,201		)	(9,724		)
Consolidated earnings before income taxes	$	84,533		$	75,208		$	203,637		$	190,681		$	67,126		$	85,418		$	200,006		$	222,986

Unallocated corporate expenses include general corporate expenses, acquisition related costs and executive transition costs.

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note ~~17.~~19. Operating Segments and Related Information - (Continued)

Operating Segments - (Continued)

September 30, December 31,
2017 2016
Segment assets (accounts receivable, net and inventories):
Surveillance $ 290,353
$ 283,324
Instruments 132,642
114,681
Security 95,063
93,174
OEM & Emerging Markets 141,212
144,862
Maritime 65,276
61,494
Detection 34,001
25,856

$ 758,547
$ 723,391
A reconciliation of the Company's consolidated segment operating assets to consolidated total assets is as follows (in thousands):



	September 30,		December 31,
	2019		2018
Operating segment assets:
Net accounts receivable, inventories and demonstration assets:
Industrial	$	268,217	$	266,457
Government and Defense	350,020		307,041
Commercial	139,931		137,560
	$	758,168	$	711,058
Goodwill:
Industrial	403,225		391,603
Government and Defense	719,082		284,188
Commercial	232,488		228,780
	$	1,354,795	$	904,571
Total operating segment assets	$	2,112,963	$	1,615,629

Assets not allocated:
Cash and cash equivalents	$	295,391	$	512,144
Prepaid expenses and other current assets	63,623		69,445
Property and equipment, net	253,338		247,407
Deferred income taxes	101,211		100,620
Intangible assets, net	262,095		146,845
Other assets	109,259		89,152
Total assets	$	3,197,880	$	2,781,242

September 30, December 31,
2017 2016
Segment goodwill:
Surveillance $ 259,400
$ 152,383
Instruments 153,677
147,595
Security 111,883
102,983
OEM & Emerging Markets 255,490
252,647
Maritime 102,384
97,860
Detection 48,012
47,938
$ 930,846
$ 801,406

Revenue and Long-Lived Assets by Geographic Area

Information related to revenue by significant geographical location, determined by the end customer, is as follows (in thousands):

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 19. Operating Segments and Related Information - (Continued)

Revenue and Long-Lived Assets by Geographic Area - (Continued)

Long-lived assets by significant geographic locations are as follows (in thousands):

~~FLIR SYSTEMS, INC.~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

~~Note 17. Operating Segments and Related Information - (Continued)~~

~~Operating Segments - (Continued)~~



	September 30,		December 31,
	2019		2018
United States	$	1,141,735	$	720,885
Europe	426,266		446,704
Other foreign	411,486		220,386
	$	1,979,487	$	1,387,975

Revenue derived from major customers is as follows (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
United States government	$	165,682	$	144,747	$	459,336	$	383,946

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
United States government $ 117,797
$ 112,735
$ 345,856
$ 298,476

~~Point Grey Research,~~Business Acquisitions

On ~~November 4, 2016,~~September 10, 2018, the Company completed ~~the acquisition~~a transaction to acquire 100% of the ~~assets~~outstanding stock of ~~Point Grey Research~~Acyclica, Inc. ~~(“Point Grey”)~~, a ~~global leader in the development of advanced visible imaging cameras~~privately held software developer for automotive roadway and ~~solutions that are used in industrial automation systems, medical diagnostic equipment, people counting systems, intelligent traffic systems, military~~intersection data generation and ~~defense products, and advanced mapping systems,~~analysis for approximately ~~$259.2~~$9.7 million, ~~in cash, subject~~including an estimate for contingent consideration pursuant to ~~customary post-closing adjustments. During~~ the ~~third quarter of 2017, the~~stock purchase agreement. The Company finalized the purchase price allocation during the current quarter which had no change to the previously recorded allocation of ~~$39.8~~$3.9 million ~~to identifiable~~of identified intangible assets and ~~$183.7~~revised the allocation of goodwill to $7.0 million ~~to goodwill. These amounts have been recorded~~ in the ~~Company’s OEM & Emerging Markets segment.~~Commercial business unit.

SeaPilot AB. On October 16, 2018, the Company acquired substantially all of the outstanding shares of SeaPilot AB, a privately held technology company for approximately $4.6 million in cash. The ~~allocation of~~Company finalized the purchase price ~~for Point Grey is as follows (in thousands):~~

Cash acquired $ 2,994
Other tangible assets and liabilities, net 35,064
Net deferred taxes (2,438 )
Identifiable intangible assets 39,800
Goodwill 183,741
Total purchase price $ 259,161

~~The~~allocation during the current quarter which had no change to the previously recorded allocation of ~~the purchase price related to this acquisition is based on management’s judgments after evaluating several factors, including valuation assessments~~$2.4 million of ~~tangible and~~identified intangible assets and estimates of the fair value of liabilities assumed. The goodwill of $183.7 million represents future economic benefits expected to arise from synergies from combining operations and the ability of Point Grey to provide the Company domain knowledge and distribution channels in adjacent markets.

~~In connection with~~revised the allocation of ~~purchase price~~goodwill to $3.0 million in the assets acquired and liabilities assumed, the Company identified certain intangible assets. The following table presents the acquired intangible assets, their estimated fair values, and estimated useful lives (in thousands, except years):

Estimated
Useful Life Amount
Developed technology 10 years $ 23,100
Customer relationships 7 years 13,200
Backlog 1 year 2,300
Non-Competition Agreements 5 years 1,000
Other n/a 200
$ 39,800
Commercial business unit.

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

~~Note 18.~~ Business Acquisitions - (Continued)

Acquisition-date identifiable intangible assets primarily consist of intangibles derived from developed technology, customer relationships, backlog, and non-competition agreements. Developed technology represents the economic advantage of having certain technologies in place that lower manufacturing and operating costs and drive higher margins. Customer relationships represent the relationships Point Grey has established in the OEM and people counting markets as of the date of the acquisition. Backlog represents “pre-sold” business at the date of acquisition, which provides positive earning streams post acquisition that exceed what is required to provide a return on the other assets employed. Non-competition agreements represent the economic benefit of having agreements with certain current and former employees and shareholders of Point Grey that restrict their ability to compete directly with the Company.

The developed technology was valued using the income approach and relief from royalty method. Customer relationships and backlog were valued using the income approach and multi-period excess earnings method. Non-competition agreements were valued using the income approach and the with-and-without method.

~~Prox Dynamics, AS~~

Aeryon Labs Inc.On ~~November 30, 2016,~~January 28, 2019, the Company ~~acquired~~completed its acquisition of 100% of the outstanding stock of ~~Prox Dynamics AS (“Prox Dynamics”)~~Aeryon Labs Inc., a ~~leading~~privately held developer of high-performance UAS for the global military, public safety, and ~~manufacturer of nano-class UASs for military and para-military intelligence, surveillance, and reconnaissance applications,~~critical infrastructure markets for approximately ~~$134.1 in cash, subject to customary post-close adjustments. At December 31, 2016, the Company reported the net tangible assets of $11.3~~$205.9 million in cash. Based on the ~~respective balance sheet accounts and the excess purchase price of $122.8 million in other long-term assets.~~

~~During the three months ended March 31, 2017, the Company performed a~~Company's preliminary purchase price allocation, ~~which resulted in an allocation~~the Company recorded $44.3 million of ~~$31.4 of identifiable~~identified intangible assets and ~~$91.9~~$154.7 million of goodwill in ~~conjunction with~~ the ~~Prox Dynamics acquisition, which has been recorded in~~Government and Defense business unit during the ~~Company’s Surveillance business segment.~~

~~During the three months~~quarter ended June 30, ~~2017, the Company finalized~~2019. The final allocation of the purchase price ~~allocation, resulting in a $7.4 decrease~~ to ~~net deferred taxes,~~identified intangible assets, goodwill and ~~a corresponding $7.4 increase in goodwill. The goodwill~~related tax attributes is subject to final determination of ~~$99.3 represents future economic benefits~~fair value and is expected to ~~arise from synergies from combining operations~~be finalized during the ~~ability~~fourth quarter of ~~Prox Dynamics to provide the Company domain knowledge and distribution channels in adjacent markets.~~2019.

The preliminary allocation of the purchase price for ~~Prox Dynamics~~Aeryon Labs Inc. is as follows (in thousands):



Cash acquired	$	5,145
Other tangible assets and liabilities	6,096
Net deferred taxes	(4,327		)
Identified intangible assets	44,292
Goodwill	154,716
Total purchase price	$	205,922

Cash acquired $ 11,706
Other tangible assets and liabilities, net (900 )
Net deferred taxes (7,387 )
Identifiable intangible assets 31,400
Goodwill 99,269
Total purchase price $ 134,088

~~In connection with~~Endeavor Robotics Holdings, Inc. On March 4, 2019, the Company completed its acquisition of 100% of the outstanding stock of Endeavor Robotics Holdings, Inc. a privately held developer of tactical unmanned ground vehicles for the global military, public safety, and critical infrastructure markets for approximately $385.9 million in cash. Based on the Company's preliminary purchase price allocation, the Company recorded $102.7 million of intangible assets and $284.3 million of goodwill in the Government and Defense business unit during the quarter ended June 30, 2019. The final allocation of the purchase price to identified intangible assets, goodwill and related tax attributes is subject to final determination of fair value and is expected to be finalized during the ~~assets acquired and liabilities assumed,~~fourth quarter of 2019.

The preliminary allocation of the purchase price for Endeavor Robotics Holdings, Inc. is as follows (in thousands):



Cash acquired	$	6,687
Other tangible assets and liabilities	14,916
Net deferred taxes	(22,739		)
Identified intangible assets	102,740
Goodwill	284,327
Total purchase price	$	385,931

New England Optical Systems, Inc. On May 1, 2019, the Company ~~identified certain intangible assets.~~acquired the outstanding stock of New England Optical Systems, Inc., a privately-held engineering and manufacturing company engaged in the design and production of infrared optical assemblies. The ~~following table presents~~transaction consideration includes a $22.2 million cash payment with up to an additional $12.0 million in deferred compensation payable over a two-year period. Based on the ~~acquired~~Company's preliminary purchase price allocation, the Company recorded $6.4 million of identified intangible assets ~~their estimated fair values,~~ and ~~estimated useful lives (in thousands, except years):~~

Estimated
Useful Life Amount
Developed technology 8 years $ 23,400
Customer relationships 7 years 3,500
Patents 8 years 3,100
Trade name 8 years 1,400
$ 31,400

~~Acquisition-date identifiable~~$14.0 million of goodwill in the Industrial business unit in the current quarter. The final allocation of the purchase price to identified intangible assets, ~~primarily consist~~goodwill and related tax attributes is subject to final determination of intangibles derived from developed technology, customer relationships, patents, and trade name. Developed technology and patents represent the economic advantage of having certain technologies in place that lower manufacturing and operating costs and drive higher margins. Customer relationships represents the relationships Prox Dynamics has established in the military and defense ministries of countries throughout the world. Trade name represents the "Black Hornet" name, which is well recognized within the industryfair value and is ~~known as a leading product within~~expected to be finalized during the ~~nano-class UAS segment.~~

~~FLIR SYSTEMS, INC.~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

~~Note 18. Business Acquisitions - (Continued)~~fourth quarter of 2019.

The developed technology and customer relationships were valued using the income approach and multi-period excess earnings method. Patents and trade name were valued using the income approach and relief from royalty method.

~~The~~business acquisitions ~~of Point Grey and Prox Dynamics~~listed above are not significant as defined in Regulation ~~S-X~~S–X under the Securities Exchange Act of 1934, nor are they significant compared to the Company's overall results of operations. Consequently, no pro forma financial information is provided.

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Divestitures of the Consumer and Small and Medium-Sized Security Businesses

On February 6, 2018 the Company sold the Consumer and Small and Medium-sized ("SMB") Security businesses within the Commercial business unit for total cash consideration of approximately $28.8 million. As a result of this combined sale, the Company recognized a total pre-tax loss of approximately $37.3 million (approximately $23.6 million in year ended December 31, 2017 and approximately $13.7 million in the year ended December 31, 2018). This disposal did not qualify as discontinued operations and therefore, its operating results were included in the Company’s continuing operations for all periods presented through the date of the sale.

On October ~~19, 2017~~17, 2019, the Company’s Board of Directors declared a quarterly dividend of ~~$0.15~~$0.17 per share on its common stock, payable on December ~~8, 2017~~6, 2019, to shareholders of record as of the close of business on November ~~24, 2017~~26, 2019. The total cash payment of this dividend will be approximately ~~$20.8 million~~.$22.8 million.

Forward-Looking Statements

This Quarterly Report on Form 10-Q (the “Report”), including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding future events and the future results of FLIR Systems, Inc. and its consolidated subsidiaries (“FLIR” or the “Company”) that are based on management’s current expectations, estimates, projections and assumptions about the Company’s business. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “sees,” “estimates” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors including, but not limited to, those discussed in “Risk Factors” section in Part II, Item 1A of this Report, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2, and elsewhere in this Report as well as those discussed from time to time in the Company’s other Securities and Exchange Commission filings and reports. In addition, such statements could be affected by general industry, economic, and market conditions. Such forward-looking statements speak only as of the date of this Report or, in the case of any document incorporated by reference, the date of that document, and the Company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this Report, or for changes made to this document by wire services or Internet service providers. If the Company updates or corrects one or more forward-looking statements, investors and others should not conclude that the Company will make additional updates or corrections with respect to other forward-looking statements.

Consolidated Operating Results

The following discussion of operating results provides an overview of our operations by addressing key elements in our Consolidated Statements of Income. The “Segment Operating Results” section that follows describes the contributions of each of our business segments to our consolidated revenue and earnings from operations. ~~Our six operating segments are: Surveillance, Instruments, Security, OEM & Emerging Markets, Maritime, and Detection.~~ Given the nature of our business, we believe revenue and earnings from operations (including operating margin percentage) are most relevant to an understanding of our performance at a segment level. Additionally, at the segment level we disclose backlog, which represents orders received for products or services for which a sales agreement is in place and delivery is expected within twelve months. ~~See Note 17, "Operating Segments and Related Information,"~~Backlog is not an absolute indicator of future revenue because a portion of the ~~Notes to~~orders in backlog could be delayed or canceled at the ~~Consolidated Financial Statements for additional information on the six operating segments.~~customer's discretion.

Revenue. Consolidated revenue for the three months ended September 30, ~~2017,~~2019, increased by ~~14.7~~8.4 percent year over year, from ~~$405.2~~$434.9 million in the third quarter of ~~2016~~2018 to ~~$464.7~~$471.2 million in the third quarter of ~~2017.~~2019. Consolidated revenue for the nine months ended September 30, ~~2017,~~2019 increased by ~~10.0~~5.3 percent year over year, from ~~$1,187.4~~$1,327.2 million in the first nine months of ~~2016~~2018 to ~~$1,305.7~~$1,398.0 million in the first nine months of ~~2017. Revenue increased~~2019. Increases in ~~all six of our operating segments~~revenues for the three month period ~~ended September 30, 2017.~~was primarily driven by increases in our Government and Defense business unit which is partially attributed to the acquisitions of Aeryon Labs Inc. ("Aeryon") and Endeavor Robotics Holdings Inc. ("Endeavor") during the first quarter of 2019 coupled with volume increases of unmanned solutions and surveillance systems. Increases in revenues for the nine month period were primarily driven by increases in our ~~Surveillance, Instruments,~~Government and ~~OEM & Emerging Markets segments were~~Defense business unit as noted above, partially offset by declines in ~~revenues~~our Commercial business unit as a result of the divestiture of the Consumer and Small and Medium-sized ("SMB") Security businesses as announced in ~~our Security,~~February 2018 and volume declines in the Maritime and ~~Detection segments. The growth for the three month period ended September 30, 2017 occurred in all six of our operating segments, supported by the acquisitions of Prox Dynamics~~Outdoor and Point Grey. The acquisitions of Armasight, Prox Dynamics, and Point Grey were the primary drivers in revenue growth for the nine month period ended September 30, 2017 compared to the same periods ended September 30, 2016.Tactical Systems ("OTS") businesses.

The timing of orders, scheduling of backlog, and fluctuations in demand in various regions of the world can give rise to quarter to quarter and year over year fluctuations in the mix of revenue. Consequently, year over year comparisons for any given quarter may not be indicative of comparisons using longer time periods. ~~While we~~We currently expect total annual revenue for ~~2017~~2019 to be higher than ~~2016~~2018 revenue, however, unexpected changes in economic conditions from key customer markets or other major unanticipated events may cause total revenue, and the mix of revenue between our segments, to vary from quarter to quarter during the year.

International sales accounted for ~~46.0~~42.7 percent and ~~43.4~~44.7 percent of total revenue for the quarters ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively. The proportion of our international revenue compared to total revenue will fluctuate from quarter to quarter

due to normal variation in order activity across various regions as well as specific factors that may affect one region and not another. Overall, we anticipate that revenue from international sales will continue to comprise a significant percentage of total revenue.

Cost of goods sold. Cost of goods sold for the three and nine months ~~periods~~ ended September 30, ~~2017~~2019 were ~~$241.8~~$241.7 million and ~~$684.7~~$701.1 million, respectively, compared to cost of goods sold for the three and nine months ended September 30, ~~2016~~2018 of ~~$213.9~~$212.8 million and ~~$635.0~~$654.7 million, respectively. The ~~year over year~~ increase in cost of goods sold for the three month period is partially attributed to the acquisitions of Aeryon and Endeavor coupled with volume increases of unmanned solutions and surveillance systems. The increase

in cost of goods sold for the nine month period is primarily ~~related to higher revenues~~driven by the Government and Defense business unit for the same reasons noted for the three month period, partially offset by declines in ~~2017.~~our Commercial business unit as a result of the divestiture of the Consumer and SMB Security businesses in the first quarter of 2018 and volume declines in the Maritime and OTS businesses.

Gross profit. Gross profit for the ~~quarter~~three months ended September 30, ~~2017,~~2019, was ~~$222.9~~$229.6 million compared to ~~$191.4~~$222.1 million for the ~~same quarter last year.~~three months ended September 30, 2018. Gross profit for the nine months ended September 30, ~~2017~~2019 was ~~$620.9~~$696.9 million compared to ~~$552.4~~$672.5 million for the nine month period ended September 30, ~~2016.~~2018. Gross margin, defined as gross profit divided by revenue, ~~increased~~decreased from ~~47.2~~51.1 percent in the third quarter of ~~2016~~2018 to ~~48.0~~48.7 percent in the third quarter of ~~2017~~2019 and ~~increased from 46.5~~was relatively flat at 49.8 percent for the nine months ended September 30, ~~2016,~~2019 compared to ~~47.6~~50.7 percent ~~during~~for the nine months ended September 30, ~~2017.~~2018. The ~~increase~~decrease in gross margin for the three ~~and nine~~ month ~~periods~~period was primarily due to the change in product mix in our Government and Defense business unit due to the acquisitions ~~and favorable product mix.~~as noted above, as well as the increase in amortization of acquired intangible assets recorded during the period.

Research and development expenses. Research and development expenses for the third quarter of ~~2017~~2019 totaled ~~$42.9~~$50.1 million, compared to ~~$33.8~~$42.0 million in the third quarter of ~~2016.~~2018. Research and development expenses infor the first nine months of ~~2017~~2019 were ~~$127.9~~$151.1 million compared to ~~$109.3~~$133.0 million for the first nine months of ~~2016. The increase in research and development expenses year over year for the three and nine month periods was primarily related to the inclusion of companies acquired in the last 12 months.~~2018. Research and development expenses as a percentage of revenue were ~~9.2~~10.6 percent for the three months ended September 30, ~~2017~~2019 and ~~8.4~~9.7 percent for the three months ended September 30, ~~2016.~~2018. Research and development expenses as a percentage of revenue for the first nine months of ~~2017~~2019 were ~~9.8~~10.8 percent ~~compared to 9.2~~and 10.0 percent during the first nine months of ~~2016.~~2018. We have, and will continue to have, fluctuations in quarterly spending depending on product development needs and overall business spending priorities and believe that annual spending levels are most indicative of our commitment to research and development. Over the past five annual periods through December 31, ~~2016,~~2018, our annual research and development expenses have varied between 8.5 percent and 9.9 percent of revenue, and we currently expect these expenses to remain within that approximate range, on an annual basis, for the foreseeable future.

Selling, general, and administrative expenses. Selling, general, and administrative expenses were ~~$92.9~~$105.1 million and ~~$76.7~~$91.5 million for the ~~quarters~~three months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively. Selling, general, and administrative expenses were ~~$280.2~~$326.6 million and ~~$239.6~~$296.7 million for the nine months ended September 30, ~~2017~~2019 and ~~2016,~~September 30, 2018, respectively. The ~~increase~~increases in selling, general, and administrative expenses ~~year over year~~ for the three and nine ~~month~~months in 2019 compared to same periods ~~was~~in 2018 are primarily attributed to acquisition related toexpenses for acquisitions occurring in the ~~inclusion~~first half of 2019 and consent agreement related costs. In addition, the increases in selling, general and administrative expenses ~~of companies acquired~~during the nine month period in 2019 compared to the nine month period in 2018 were partially offset by the $15 million regulatory settlement that was recorded in the ~~last 12 months.~~first quarter of 2018 and did not repeat in 2019. Selling, general, and administrative expenses as a percentage of revenue were ~~20.0~~22.3 percent and ~~18.9~~21.0 percent for the ~~quarters~~three months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively. Selling, general, and administrative expenses as a percentage of revenue were ~~21.5~~23.4 percent and ~~20.2~~22.4 percent for the nine month periods ended September 30, ~~2017~~2019 and ~~2016,~~September 30, 2018, respectively. ~~Over~~

Loss on sale of business. During the ~~past five annual periods through December 31, 2016,~~first quarter of 2018, we recorded an additional pre-tax loss on the sale of our ~~annual selling, general~~Consumer and ~~administrative expenses have varied between 19.4 percent~~SMB Security businesses of $10.2 million. See Note 20, "Business Acquisitions and ~~21.7 percent~~Divestitures," of ~~revenue, and we currently expect these expenses~~the Notes to ~~remain within that range, on an annual basis,~~the Consolidated Financial Statements for ~~the foreseeable future.~~additional information.

Interest expense. Interest expense for the three months ended September 30, ~~2017,~~2019, was ~~$3.8~~$7.6 million, compared to ~~$5.7~~$4.0 million for the same period of ~~2016.~~2018. Interest expense for the nine months ended September 30, ~~2017,~~2019 was ~~$12.7~~$20.4 million, compared to ~~$13.5~~$12.1 million for the ~~nine months ended September 30, 2016.~~same period of 2018. Interest expense for the three and nine month period in ~~2017~~2019 was primarily associated with the $425 million aggregate principal amount of our 3.125 percent senior unsecured notes and interest on amounts drawn under our credit facility. ~~During the three month period ended September 30, 2017 we paid off the outstanding amount drawn on our credit facility.~~ Interest expense for the same periods in ~~2016 was~~2018 were primarily associated with the ~~$250~~$425 million aggregate principal amount of our ~~3.75~~3.125 percent senior unsecured ~~notes and our term loan that was drawn upon under our credit agreement.~~notes.

Income taxes. Our income tax provision of ~~$21.0~~$5.1 million and ~~$46.1~~$30.1 million for the three and nine ~~month periods~~months ended September 30, ~~2017,~~2019, respectively, represents an effective tax rate of ~~24.8~~7.6 percent and ~~22.6 percent, respectively.~~15.0 percent. Our income tax provision for the three and nine ~~month periods~~months ended September 30, ~~2016~~2018 was ~~$16.6~~$12.3 million and ~~$85.6~~$39.1 million, which represented an effective tax rate of ~~22.0~~14.4 percent and ~~44.9 percent, respectively.~~17.5 percent. The effective tax rate for the three and nine months ended September 30, ~~2017~~2019 is lower than the United States Federal tax rate of 3521 percent mainly due to increased benefit in the ~~mix of~~U.S. for foreign derived intangible income and research credits, combined with a lower U.S. tax burden on income earned by our foreign ~~jurisdiction~~subsidiaries and a reduction in unrecognized tax benefits related to transfer pricing and research credits. These amounts were offset partially by state taxes, higher tax rates ~~the effect of federal,~~applied to income earned in certain foreign ~~and state tax credits, excess tax benefits for stock compensation,~~jurisdictions, and other discrete ~~adjustments.~~items.

During 2018, the Swedish Tax Authority (“STA”) issued a reassessment of tax for the year ending December 31, 2012 to one of our non-operating subsidiaries in Sweden. The ~~first quarter~~reassessment concerns the use of ~~2016 included discrete~~ tax ~~charges~~credits applied against capital gains pursuant to European Union Council Directive 2009/133/EC, commonly referred to as the EU Merger Directive, and assesses taxes and penalties totaling ~~$39.6~~approximately $306.6 million ~~related~~(Swedish kronor 3.0 billion). We believe the STA’s assertions in the

reassessment are not in accordance with Swedish tax regulations and plan to defend our positions with the ~~January 11, 2016, announcement from~~STA and through the Swedish court system, as necessary. Consequently, no adjustment to our unrecognized tax benefits has been recorded in relation to this matter.

During the three-month period ended September 30, 2019, the European Commission announced the opening of a ~~decision concluding that certain rules under Belgian~~separate review to assess whether an excess profit tax ~~legislation are deemed~~ruling granted by Belgium to ~~be incompatible~~

~~with~~one of our international subsidiaries is in breach of European Union ~~regulations on state aid. As a result of this decision, the European Commission has directed the Belgian Government to recover past taxes from certain entities, reflective of disallowed~~ state aid ~~which impacts one of the Company’s international subsidiaries. The Belgian Government announced they~~rules. We believe we have ~~appealed this decision~~paid all taxes assessed by Belgium, and ~~filed action for an annulment~~have not adjusted unrecognized tax benefits in the General Court of the European Union, and in July 2016 the Company filed a separate appeal with the General Court of the European Union. In accordance with FASB ASC Topic 740, “Income Taxes,” the Company recorded discrete tax expense of $39.6 million during 2016, relatedrelation to this matter and on January 10, 2017, received tax assessments from the Belgium government for a similar amount, which the Company has classified as current taxes payable on the Consolidated Balance Sheet as of September 30, 2017. The Company has filed a complaint against the Belgian tax assessments, and the result of this complaint, the appeal with the General Court of the European Union, new information received from the Belgian Government, or other future events may cause the income tax provision associated with the decision to be entirely or partially reversed.matter.

Segment Operating Results

The Company is currently organized into ~~six~~three reportable ~~operating~~ segments. The three reportable segments continue to be the Industrial business unit, Government and Defense business unit and the Commercial business unit. See Note ~~17,~~19, “Operating Segments and Related Information,” of the Notes to the Consolidated Financial Statements for a description of each operating segment, including the types of products and services from which each operating segment derives its revenues. ~~On August 30, 2017, we announced our plans to realign the business operations into three principle business units: Government and Defense,~~

Industrial ~~and Commercial. The Government and Defense business unit will consist of the current Surveillance and Detection segments, excluding the Outdoor and Tactical Systems (OTS) business; The~~

Industrial business unit will consist of the current Instruments and OEM and Emerging segments, excluding the Intelligent Traffic Systems (ITS) business; and the Commercial business unit will consist of the current Maritime and Security segments, along with the ITS and OTS businesses. With this consolidation, we intend to reduce complexity, realize greater operating synergies, and enhance management focus. We expect to report our financial results in accordance with this new operating structure beginning with the first quarter 2018 operating results. The operating results of our six current reportable operating segments for the three and nine months ended September 30, 2017 are presented below.

~~Surveillance~~ operating results are as follows (in millions, except percentages):

~~Surveillance~~Industrial business unit revenue for the ~~quarter~~three months ended September 30, ~~2017, increased by~~ ~~7.6 percent~~2019 was flat compared to the same period of ~~2016. Surveillance~~2018. Industrial business unit revenue for the nine months ended September 30, ~~2017,~~2019 increased by ~~5.5~~1.6 percent, compared to the same period of ~~2016.~~2018. The increase in revenue for the ~~quarter~~nine month period was predominately attributable to strong growth across the cooled cores product lines partially offset by declines in the Instruments and Integrated Imaging Systems (IIS) businesses. The increases in earnings from operations and corresponding operating margin for the three and nine month periods ended September 30, ~~2017,~~2019, compared to the same periods of 2018, were predominately attributable to favorable product mix led by the OEM business and productivity initiatives to improve manufacturing efficiency and decrease product costs across all divisions. The increase in backlog as of September 30, 2019 when compared to the backlog at September 30, 2018 is primarily attributed to a substantial award from a large aerospace and defense customer.

Government and Defense

Government and Defense business unit operating results are as follows (in millions, except percentages):

Government and Defense business unit revenue for the three months ended September 30, 2019 increasedby 24.1 percent compared to the same period of ~~2016 was driven by increase in sales in Airborne~~2018. Government and ~~Weapon Sights markets, and the addition of the Prox Dynamics~~Defense business ~~which was acquired in November 2016, partially offset by lower Land market sales. The increase in~~unit revenue for the nine months ended September 30, ~~2017~~2019 increased by 18.7 percent compared to the same period of ~~2016 was predominately due~~2018. Earnings from operations increased 4.5 percent for the three months ended September 30, 2019 compared to ~~the addition of Armasight, which was acquired~~same period in ~~June 2016 , the Prox Dynamics business,~~2018 and increased ~~Airborne sales.~~5.4 percent for the nine month period ended

September 30, 2019 compared to same period in 2018 while operating margins declined for the same periods. The increase in revenue and earnings from operations for the three and nine month periods ended September 30, ~~2017,~~2019, compared to the same periods ~~in 2016,~~of 2018, was primarily driven by the Aeryon and Endeavor acquisitions during the first quarter of 2019 and increased volumes of UAS products and surveillance systems. Operating margins declined for the three and nine month periods ended September 30, 2019, compared to same periods of 2018, due to ~~higher revenues and favorable product mix, partially offset by increased~~the inclusion of the operating ~~expenses~~losses from the ~~acquired businesses.~~same acquisitions noted above. The ~~increased~~increase in year-over-year backlog is primarily driven by the first quarter of 2019 acquisitions as noted above in ~~the Surveillance segment is largely attributed~~addition to the ~~$74.7 million contract for land surveillance systems from the United States Army received in September 2017.~~timing of orders and subsequent timing of deployment of major programs.

~~Instruments~~Commercial business unit operating results are as follows (in millions, except percentages):

~~Instruments segment~~Commercial business unit revenue for the ~~quarter~~three months ended September 30, ~~2017, increased~~2019 decreased by ~~10.6~~5.3 percent compared to the same period of 2016. Instruments revenue for the nine months ended September 30, 2017, increased by 6.3 percent compared to the same period of 2016. The increase in revenue for the three and nine month periods was predominately attributable to strength in the Premium and Volume Handheld product lines driven by new product launches, supplemented by growth in Optical Gas and Fire products. The revenue growth for the three and nine month periods was partially offset by declines in the test and measurement product lines. The increase in earnings from operations for the three and nine months ended September 30, 2017, compared to the same periods of 2016, was primarily due to the higher revenue base.

~~Security operating results are as follows (in millions, except percentages):~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Revenue $ 65.7
$ 56.4
$ 160.4
$ 166.9
Earnings from operations 6.5
4.8
8.1
7.0
Operating margin 9.9 % 8.5 % 5.0 % 4.2 %
Backlog 24
23

Security segment revenue for the quarter ended September 30, 2017, increased by 16.4 percent compared to the same period of 2016. Security revenue for the nine months ended September 30, 2017, decreased by 3.9 percent compared to the same period of 2016. The increase in revenue for the three month period ended September 30, 2017 was predominately due to growth in the Lorex-branded and other consumer-grade retail sales. The decrease in2018. Commercial business unit revenue for the nine month period ended September 30, 2017 compared to the same period ended September 30, 2016 was primarily due to a reduction in sales for consumer-grade security products in retail channels during the first six months of 2017, partially offset2019 decreased by increased consumer-grade sales through our e-commerce channel. The increase in earnings from operations for the three and nine months ended September 30, 2017, compared to the same periods of 2016, was due to cost savings initiatives in 2017.

~~OEM & Emerging Markets~~

~~OEM & Emerging Markets operating results are as follows (in millions, except percentages):~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Revenue $ 87.2
$ 62.7
$ 259.4
$ 167.5
Earnings from operations 26.9
20.7
77.6
48.1
Operating margin 30.9 % 32.9 % 29.9 % 28.7 %
Backlog 162
139

~~OEM & Emerging Markets segment revenue for the quarter ended September 30, 2017, increased by 39.0~~10.0 percent compared to the same period of ~~2016~~.2018. Earnings from operations for the three months ended September 30, 2019 decreased by 27.5 percent compared to the same period for 2018 and decreased by 20.8 percent for the nine month period ended September 30, 2019 compared to the same period of 2018. The ~~increase~~decrease in both revenue and earnings from operations and corresponding operating margin for the three month period ended September 30, 2017 was primarily related to revenue from the Point Grey business acquired in November 2016, supplemented by growth in our unmanned aerial systems and mobile accessories product lines. OEM & Emerging Markets revenue for the nine months ended September 30, 2017, increased by 54.8 percent2019 compared to the same period of ~~2016.~~2018 is primarily attributed to volume declines in our Maritime and OTS businesses. The ~~increase~~decrease in both revenue and earnings from operations and corresponding operating margin for the nine month period ~~was primarily due to the Point Grey acquisition and growth in our cores and traffic product lines. The increase in earnings from operations for the three and nine months~~ ended September 30, 2017, compared to the same periods of 2016, was due to higher revenues. The increase in backlog for the OEM & Emerging Markets segment was primarily attributed to the inclusion of backlog associated with the Point Grey acquisition.

~~Maritime operating results are as follows (in millions, except percentages):~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Revenue $ 42.3
$ 40.6
$ 145.9
$ 147.5
Earnings from operations 4.5
3.2
19.1
16.5
Operating margin 10.6 % 7.8 % 13.1 % 11.2 %
Backlog 16
24

~~Maritime segment revenue for the quarter ended September 30, 2017, increased by 4.1 percent~~2019 compared to the same period of ~~2016. The increase was due~~2018 is also attributed to ~~sales on~~volume declines in those same businesses as well as the ~~new Axiom line~~divestiture of ~~multi-function displays which began shipping~~our Consumer and SMB Security business during the ~~second~~first quarter of ~~2017. Maritime revenue for the nine months ended September 30, 2017, decreased by 1.1 percent.~~2018. The decrease in ~~revenue for~~year-over-year backlog is partially attributed to volume declines in the ~~nine month period~~Maritime and OTS businesses. Additionally, there was an international order in current backlog as of 2017 compared to the same period of the prior year was driven by a decline in Thermal camera sales, partially offset by the increase in multi-function display sales. The increase in operating income for the three and nine month periods ended September 30, ~~2017 compared~~2018, which was moved to ~~the same periods of 2016 was driven by stronger margins on shipments of new products introduced~~non-current backlog in ~~2017.~~late 2018 and subsequently canceled.

~~Detection operating results are as follows (in millions, except percentages):~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Revenue $ 31.4
$ 26.4
$ 89.9
$ 91.4
Earnings from operations 8.9
7.0
24.6
25.6
Operating margin 28.3 % 26.5 % 27.4 % 28.0 %
Backlog 78
68

Detection segment revenue for the quarter ended September 30, 2017, increased by 18.7 percent compared to same period of 2016. The increase for the quarter ended September 30, 2017 compared to the same period of 2016 was due to higher shipments of our CBRNE threat response systems to the United States government customers and higher sales of our ChemBio and Radiation products. Detection revenue for the nine months ended September 30, 2017, ~~decreased~~ by 1.7 percent. The decrease in revenue for the nine month period ending September 30, 2017, compared to the same periods of 2016, was primarily due to lower shipments of our CBRNE threat response systems during the period. These shipments account for a significant portion of Detection revenues, and timing of delivery schedules impacts periodic results. The increase in earnings from operations for the three month period ended September 30, 2017, compared to the same period of 2016 was due to the higher revenues in the quarter, while the decrease for the nine months ended September 30, 2017, compared to the same period of 2016 was due to lower revenues.

Liquidity and Capital Resources

At September 30, ~~2017,~~2019, we had a total of ~~$437.0~~$295.4 million in cash and cash equivalents, ~~$136.6~~$93.6 million of which resided in the United States and ~~$300.4~~$201.8 million at our foreign subsidiaries, compared to cash and cash equivalents at December 31, ~~2016,~~2018, of ~~$361.3~~$512.1 million, of which ~~$98.3~~$327.0 million resided in the United States and ~~$263.0~~$185.1 million at our foreign subsidiaries. The ~~increase~~decrease in cash and cash equivalents during the nine months ended September 30, ~~2017,~~2019, was primarily due to cash used for business acquisitions of $601.9 million, common stock repurchases of $125.0 million, dividend payments of $68.9 million, and capital expenditures of $32.0 million, partially offset by cash provided from operations of ~~$209.3~~$276.8 million, net proceeds of $329.4 million from our revolving credit facility and long-term debt, and proceeds of ~~$44.2~~$20.8 million from shares issued under our stock compensation ~~plans, partially offset by the pay down on our revolving credit facility of $97.5 million, capital expenditures of $31.9 million and dividend payments of $61.8 million.~~plans.

Cash provided by operating activities during the nine months ended September 30, ~~2017,~~2019 totaled ~~$209.3~~$276.8 million, which primarily consisted of net earnings, adjusted for depreciation and amortization, stock-based compensation, other non-cash items and changes in working capital. The increase of cash provided by operating activities in 2019 compared to 2018 was primarily due to changes in working capital balances driven by an increase in accounts payable, partially offset by a decrease in inventories.

Cash used ~~for~~by investing activities for the nine months ended September 30, ~~2017,~~2019 totaled ~~$29.0~~$632.6 million, which consisted primarily ~~consisted~~ of business acquisitions, a minority interest investment and capital expenditures in the ordinary course of business.

Cash ~~used~~provided by financing activities for the nine months ended September 30, ~~2017,~~2019 totaled ~~$124.6~~$145.4 million, which primarily consisted of ~~repayment of borrowings under~~cash provided from net proceeds from our revolving credit facility and long-term debt, and net proceeds from shares issued under our stock compensation plans, partially offset by repurchases of shares of our common stock and the payment of quarterly ~~dividends, partially offset by proceeds from share issuances pursuant to our stock plans.~~dividends.

On ~~February 8, 2011,~~March 29, 2019, we entered into a Second Amended and Restated Credit Agreement (“Credit Agreement”) with Bank of America, N.A., JPMorgan Chase Bank, N.A., U.S. Bank National Association, ~~JPMorgan Chase~~Citibank, N.A., MUFG Union Bank, N.A., and the other ~~Lenders.~~lenders party thereto. The Credit Agreement amended and restated the Company's existing Amended and Restated Credit Agreement, dated as of May 31, 2016 ("Existing Credit Agreement"). The Credit Agreement provides for a ~~$200~~$650.0 million ~~five-year~~unsecured revolving ~~line~~credit facility, a $100.0 million unsecured term loan facility available in U.S. dollars amortizing at 5.000 percent per annum, and a $150.0 million unsecured term loan facility available in Swedish kronor amortizing at 5.000 percent per annum. The Credit Agreement has a term of ~~credit. On April 5, 2013,~~five years and matures on March 29, 2024. In connection with the closing of the Credit Agreement, ~~was amended to extend~~we made an initial borrowing of $100.0 million in revolving loans, $100.0 million in term loans in U.S. dollars, and the ~~maturity~~equivalent of $150.0 million in term loans in Swedish kronor. Additionally, we repaid in full all outstanding amounts, consisting of revolving loans in an aggregate principal amount of $375.0 million, under the ~~revolving credit facility from April 8, 2016 to April 5, 2018, in addition to incorporating a $150 million term loan facility maturing April 5, 2019. On May 31, 2016, the~~Existing Credit Agreement was further amended to increase the borrowing capacity to $500 million and to extend the maturity of the revolving credit facility from April 5, 2018 to May 31, 2021. The amendment also incorporated a revised schedule of fees and interest rate spreads. Agreement.

We have the right, subject to certain conditions, including approval of additional commitments by qualified lenders, to increase the ~~revolving line of credit~~availability under the ~~Credit Agreement~~revolving credit facility by an additional ~~$200~~$200.0 million until ~~May 31, 2021.~~March 29, 2024. The Credit Agreement allows us and certain designated subsidiaries to borrow in United States dollars, European euros, Swedish kronor, British pound sterling, Japanese yen, Canadian dollars, Australian dollars, and other agreed upon currencies. Interest rates under the Credit Agreement are determined from the type and tenor of the borrowing and includes loans based on the ~~type of borrowing. Interest associated with borrowings can be based on either the prime lending rate of Bank of America, N.A. or the~~ published term Eurocurrency rate ~~(i.e.~~(e.g. LIBOR). in which the loan is denominated. The ~~borrowings~~Eurocurrency rate loans have a floor of zero percent and an applicable margin that ranges from ~~0.125~~1.0 percent to ~~2.125~~1.375 percent depending on the ~~applicable base rate and our~~Company’s consolidated total leverage ratio. ~~Including~~At September 30, 2019, the ~~respective spreads, the one-month Eurocurrency-based~~ borrowing rate on the revolving loan was ~~2.610~~3.294 percent per annum, the borrowing rate on the U.S. dollar term loan was 3.354 percent per annum and the ~~prime lending-based~~ borrowing rate on the Swedish kronor term loan was ~~4.625~~1.250 percent per ~~annum at September 30, 2017.~~annum. The Credit Agreement requires us to pay a commitment fee on the amount of unused revolving commitments at a rate, based on our consolidated total leverage ratio, which ranges from ~~0.150~~0.125 percent to ~~0.300~~0.200 percent of unused revolving commitments. At September 30, ~~2017,~~2019, the commitment fee on the amount of unused revolving credit was 0.175 percent per annum. The Credit Agreement contains ~~two~~one financial ~~covenants~~covenant that ~~require the~~requires maintenance of a consolidated total leverage ratio ~~and an interest coverage ratio,~~ with which ~~the Company was~~we were in compliance at September 30, ~~2017.~~2019. The ~~credit~~ facilities available under the Credit Agreement are unsecured. The Credit Agreement also contains language providing for the adoption of a LIBOR successor rate consistent with market practice. We are engaged in regular dialogue with our lenders and derivatives counterparties to keep apprised of the proposed successor rates in each of the jurisdictions in which we may have a need to execute a financial transaction. Although progress has been made by the various working groups, we believe it is too early to accurately assess any financial impact of the LIBOR benchmark reform.

On May 31, 2016, the Company drew down $105 million under the revolving credit facility and repaid the term loan originally issued under the credit agreement dated April 5, 2013. Interest was accrued and paid monthly based on the one-month LIBOR rate. To manage the interest rate risk arising from the variability in ~~monthly~~ interest expense attributable to amounts drawn under the ~~revolver, the Company~~Swedish kronor term loan facility, we entered into ~~two amortizing~~a floored interest rate ~~swaps~~swap with ~~an aggregate of $105~~a Swedish kronor notional amount initially equivalent to $150.0 million. The interest rate ~~swaps were~~swap was designated, and effective, as a cash flow ~~hedges.~~hedge.

During the quarter ended September 30, 2017, the Company repaid all amounts outstanding under the revolving credit facility. Concurrently, the Company exited both interest rate swaps which had a combined notional value at the time of $86.3 million. We had ~~$16.9~~$9.3 million of letters of credit outstanding under the Credit Agreement at September 30, ~~2017,~~2019, which reduced the total ~~available~~availability under the revolving ~~credit~~commitments under the Credit Agreement.

In June 2016, we issued ~~$425~~$425.0 million aggregate principal amount of our 3.125 percent senior unsecured notes due June 15, 2021 (the “Notes”). The net proceeds from the issuance of the Notes were approximately $421.0 million, after deducting underwriting discounts and offering expenses, which are being amortized over a period of five years. Interest on the Notes is payable semiannually in arrears on December 15 and June 15. The proceeds from the Notes were used to repay our ~~3.75~~3.750 percent

senior unsecured notes that were due September 1, 2016, and are being used for general corporate purposes, which include working capital and capital expenditure needs, business acquisitions, and repurchases of our common stock.

On February ~~5, 2015,~~8, 2017, our Board of Directors authorized the repurchase of up to 15.0 million shares of our outstanding common stock. ~~An aggregate of 6.3 million shares were repurchased under this~~This authorization ~~which~~ expired on February ~~5, 2017.~~8, 2019. On February ~~8, 2017,~~7, 2019, our Board of Directors authorized the repurchase of up to 15.0 million shares of our outstanding common stock. This authorization will expire on February ~~8, 2019.~~7, 2021. As of September 30, ~~2017, no~~2019, a total of approximately 2.5 million shares have been repurchased under the February 8,7, 2019 authorization.

As of September 30, 2019 and December 31, 2018, the Company has accrued income tax liabilities of $42.9 million related to the transition tax enacted on December 22, 2017 ~~authorization.~~as part of the Tax Cuts and Jobs Act. Of the amounts accrued, none are expected to be due within one year. The remaining transition tax will not accrue interest and will be paid in annual installments beginning in 2020 through 2024.

We have not provided United States, state or foreign income taxes ~~have not been provided~~ for ~~accumulated~~ earnings ofgenerated after January 1, 2018 by certain subsidiaries outside of the United States as we currently intend to reinvest the earnings in operations and other activities outside of the United States indefinitely. Should we subsequently elect to repatriate such foreign earnings, we would need to accrue and pay ~~United States~~state and foreign income taxes, thereby reducing the amount of our cash. United States taxes would generally not be payable due to changes made by the Tax Act.

During 2018, the Swedish Tax Authority (“STA”) issued a reassessment of tax for the year ending December 31, 2012 to one of our non-operating subsidiaries in Sweden. The reassessment concerns the use of tax credits applied against capital gains pursuant to European Union Council Directive 2009/133/EC, commonly referred to as the EU Merger Directive, and assesses taxes and penalties totaling approximately $306.6 million (Swedish kronor 3.0 billion). We believe the STA’s assertions in the reassessment are not in accordance with Swedish tax regulations and plan to defend our positions with the STA and through the Swedish court system, as necessary. Consequently, no adjustment to our unrecognized tax benefits has been recorded in relation to this matter.

On January 11, 2019, a standby letter of credit totaling approximately $224.8 million (Swedish kronor 2.2 billion) was issued under a new bilateral letter of credit reimbursement agreement ("L/C Agreement") to secure a payment guarantee required by the STA in order to grant a respite from paying the tax reassessment described above. Outstanding amounts under the L/C Agreement do not reduce the available revolving credit from the Credit Agreement as described above and in Note 13, "Credit Agreement."

We believe that our existing cash combined with the cash we anticipate generating from operating activities, and our available credit facilities and financing available from other sources will be sufficient to meet our cash requirements for the next twelve months. ~~We do not~~In addition to the acquisitions and divestiture disclosed elsewhere, we have ~~any significant commitments nor are we aware~~evaluated and expect to continue to evaluate possible transactions. Such transactions may be material and involve cash, our securities or the assumption of ~~any significant events or conditions that are likely to have a material impact on our liquidity or capital resources.~~additional indebtedness.

Off-Balance Sheet Arrangements

As of September 30, ~~2017~~,2019, we leased our non-owned facilities under operating lease agreements. We also leased certain operating machinery and equipment and office equipment under operating lease agreements. Except for these operating lease agreements, we dodid not have any off-balance sheet arrangements that have or are likely to have a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

~~Recent Accounting Pronouncements~~

Recently Issued Accounting Pronouncements

In ~~May 2014,~~June 2016, the FASB issued ASU No. 2016-13, "Measurement of Credit Losses on Financial ~~Accounting Standards Board (the "FASB") issued Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers"~~Instruments ("ASU ~~2014-09"~~2016-13" or "Topic 326"), which ~~establishes new guidance under which companies will~~significantly changes the way entities recognize ~~revenue~~impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to ~~depict~~occur over their remaining life. Subsequently, the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 also provides for additional disclosure requirements. The FASB has ~~recently~~ issued several amendments to the new standard ~~including clarification on accounting for licenses of intellectual property~~to clarify the implementation. ASU 2016-13 and ~~identifying performance obligations. The~~all related amendments include (i) ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606)-Principal versus Agent Considerations, which was issued in March 2016, and clarifies the implementation guidance for principal versus agent considerations in ASU 2014-09, and (ii) ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606)-Identifying Performance Obligations and Licensing, which was issued in April 2016, and amends the guidance in ASU No. 2014-09 related to identifying performance obligations and accounting for licenses of intellectual property.

The new standard permits adoption either by using (i) a full retrospective approach for all periods presented in the period of adoption or (ii) a modified retrospective approach with the cumulative effect of initially applying the new standard recognized at the date of initial application and providing certain additional disclosures. While ASU 2014-09 was to be effective for annual periods and interim periods beginning after December 15, 2016, on July 9, 2015, the FASB approved the deferral of the effective date to periods beginning on or after December 15, 2017. Accordingly, the Company currently intends to adopt ASU 2014-09 on January 1, 2018. The Company currently plans to adopt using the modified retrospective approach.

The Company has made progress toward completing the evaluation of the potential changes from adopting the new standard on its financial reporting and disclosures. The Company has evaluated the impact of the standard on all of its revenue streams and most of its significant contracts. The Company has completed the assessment of the impact on its business processes, controls and systems. During the third quarter of 2017, the Company completed the design of the changes to our business processes, controls and systems. The Company plans to implement the changes in the fourth quarter of 2017. The Company has also begun quantifying the impact of the adoption of the standard on retained earnings as of January 1, 2017. However, the impact to retained earnings is not known at this time, as it will be dependent on the number, size, and complexity of contracts that have not been substantially completed as of December 31, 2017.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The amendments in this update require the identification of arrangements that should be accounted for as leases by lessees. In general, for lease arrangements exceeding a twelve-month term, these arrangements must now be recognized as assets and liabilities on the balance sheet of the lessee. ASU 2016-02 requires the use of the modified retrospective method, which will require adjustment to all comparative periods presented in the consolidated financial statements. ASU 2016-02 isare effective for interim and annual reporting periods beginning after December 15, ~~2018, with early~~2019 using a modified-retrospective approach. Early adoption ~~permitted, and the~~is permitted. The Company ~~currently intends~~plans to adopt ~~ASU 2016-02 on~~the standard as of January 1, ~~2019. The Company~~2020 and is ~~assessing~~currently evaluating the impact ~~ASU 2016-02 will have~~of adoption on its ~~consolidated~~ financial statements and ~~expects that~~related disclosures, but does not anticipate a material impact to the ~~primary impact upon adoption will be the recognition, on a discounted basis, of its minimum commitments under noncancelable operating leases on its~~ consolidated ~~balance sheets resulting in the recording of right of use assets and lease obligations.~~financial statements.

In ~~October 2016,~~November 2018, the FASB issued ~~Accounting Standards Update~~ASU No. 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory” ("ASU 2016-16"). The amendments in this update eliminate the exception of recognizing, at the time of transfer, current and deferred income taxes for intra-entity asset transfers other than inventory. ASU 2016-16 is effective for interim and annual reporting periods beginning after December 15, 2017, and should be applied on a modified retrospective transition basis. The Company is currently planning to adopt ASU 2016-16 on January 1, 2018. The Company has estimated that there will be a remaining deferred tax benefit of $6.5 million recorded in prepaid expenses and other current assets and other assets as of December 31, 2017, which represents the tax benefit that was deferred in accordance with current GAAP. At adoption, the Company will recognize this amount through a cumulative-effect adjustment to retained earnings.

~~In January 2017, the FASB issued Accounting Standards Update No. 2017-01, "Business Combinations~~2018-18, "Collaborative Arrangements (Topic ~~805)~~808): Clarifying the ~~Definition of a Business"~~Interaction between Topic 808 and Topic 606" ("ASU ~~2017-01"~~2018-18"). The ~~amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether~~standard clarifies that certain transactions between collaborative arrangement participants should be accounted for ~~as acquisitions (or disposals)~~under ASC 606, when one participant is a customer, and specifies that a distinct good or service is the unit of ~~assets or businesses. ASU 2017-01~~account for evaluating whether the transaction is with a customer. The standard also provides some guidance on presentation of transactions not in the scope of ASC 606. The standard is effective for interim and annual reporting periods beginning after December 15, 2017. The Company currently intends to adopt ASU 2017-01 on January 1, 2018, and does not expect the adoption of ASU 2017-01 to have a material impact on its consolidated financial statements.

In January 2017, the FASB issued Accounting Standards Updated No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). The amendments in this update simplify the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual, or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendment should be applied on a prospective basis. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted ~~for interim or annual goodwill impairment tests performed on testing dates after~~as long as a company has already adopted the guidance in ASC 606. The Company plans to adopt the standard as of January 1, ~~2017. The amendments in ASU 2017-04 are to be applied~~2020 and is currently evaluating the impact of adoption on ~~a prospective basis~~its financial statements and ~~are~~related disclosures, but does not ~~expected to have~~anticipate a material impact onto the ~~Company’s~~ consolidated financial statements.

Critical Accounting Policies and Estimates

~~The Company reaffirms~~Preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Management believes the most complex and sensitive judgments, because of their significance to the consolidated financial statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Readers should refer to Management's Discussion and Analysis and the critical accounting policies and its use of estimates as reported in ~~its Form 10-K for the fiscal year ended December 31, 2016, as described in~~ Note 1, "Nature of Business and Significant Accounting ~~Policies,"~~Policies" and Note 14, "Contingencies" of the Notes to the Consolidated Financial Statements included in the Form 10-K for the fiscal year ended December 31, ~~2016.~~2018. Actual results in these areas could differ materially from management's estimates. There have been no significant changes in the Company's assumptions regarding critical accounting estimates during the first nine months of 2019.

Contractual Obligations

There were no material changes to the Company's contractual obligations outside the ordinary course of its business during the quarter ended September 30, ~~2017.~~2019. As described above in "Liquidity and Capital Resources," the Company borrowed $100 million under the revolving credit facility and $250 million under the term loan facility in conjunction with the closing of the Credit Agreement on March 29, 2019.

Contingencies

See Note ~~15,~~17, "Contingencies," of the Notes to the Consolidated Financial Statements for ~~a description of an ongoing lawsuit filed by Raytheon Company against FLIR Systems, Inc. and its subsidiary, FLIR Commercial Systems, Inc.,~~ the disclosure of certain matters by the Company to the United States Department of State Office of Defense Trade Controls Compliance, communications to the Company from the United States Department of Commerce Bureau of Industry and Security, and the Company's current estimates of the range of potential loss associated with quality concerns identified by the Company regarding certain SkyWatch Surveillance Towers.


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of September 30, ~~2017,~~2019, the Company has not experienced any changes in market risk exposure that would materially affect the quantitative and qualitative disclosures about market risk presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2018, other than the following:

Interest Rate Risk

The Company’s exposure to changes in market interest rates relates primarily to interest paid on the Company’s outstanding floating rate debt. The Company’s outstanding floating rate debt consists of amounts borrowed under our revolving loan facility as well as outstanding term loans. These borrowings bear interest at the respective Eurocurrency rate (e.g. LIBOR) plus a scheduled spread. Fluctuations in market interest rates will cause interest expense increases or decreases on such outstanding debt.

As our risk management objectives include mitigating the risk of changes in cash flows attributable to changes in the designated three-month Eurocurrency rate on the Company’s Swedish kronor term loan, the Company entered into a floored interest rate swap for the aggregate notional amount borrowed changes in the cash flows of the interest rate swap is expected to exactly offset the changes in cash flows attributable to fluctuations in the three-month Eurocurrency-based interest payments. The net effect of the swap is to convert the floating interest rate basis to a fixed rate of 0.59 percent.

It is expected that a number of banks currently reporting information used to set LIBOR will stop doing so after 2021. Such an occurrence could cause LIBOR to stop publication or cause LIBOR to no longer be representative of the underlying market. We are engaged in regular dialogue with our lenders and derivatives counterparties to keep apprised of the proposed successor rates in each of the jurisdictions in which we may have a need to execute a financial transaction. Although progress has been made by the various working groups, we believe it is too early to accurately assess an impact of the LIBOR benchmark reform.

See Note 6, "Derivative Financial Instruments - Interest Rate Swap Contracts," Note 13, "Credit Agreement," and Note 14, "Long-Term Debt," of the Notes to the Consolidated Financial Statements and Item 2 of Part I, "Management's Discussion and Analysis of Financial Condition and Results of Operations," for additional information on the Company's interest rate risk.


ITEM 4.	CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of September 30, ~~2017,~~2019, the Company completed an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Control Over Financial Reporting

There ~~was~~have been no ~~change~~changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended September 30, ~~2017,~~2019, that ~~has~~have materially affected, or isare reasonably likely to materially affect, ~~such~~the Company's internal control over financial reporting. The Company implemented internal controls to ensure it adequately evaluated its contracts and properly assessed the impact of the new accounting standard related to leases on the Company's financial statements to facilitate the adoption on January 1, 2019. There were no significant changes to the Company's internal control over financial reporting due to the adoption of the new standard.

PART II. OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

The Company is subject to legal proceedings, claims and litigation arising in the ordinary course of its business. See Note ~~15,~~17, “Contingencies” of the Notes to the Consolidated Financial Statements for additional information on the Company’s legal proceedings.

ITEM 1A. RISK FACTORS

The following are important factors that could cause actual results or events to differ materially from those contained in any forward-looking statements made by or on behalf of the Company. If we are unable to adequately respond to these risks and uncertainties, our business, financial condition and results of operations could be materially adversely affected. Additionally, we cannot be certain or give any assurance that any actions taken to reduce known risks and uncertainties will be effective.

Risks, Uncertainties and Other Factors Related to Our Business

We depend on the United States government for a material portion of our business and changes in government spending could adversely affect our business

We derive significant revenue from contracts or subcontracts funded by United States government agencies. A significant reduction in the purchase of our products by these agencies or contractors for these agencies would have a material adverse effect on our business. For the fiscal years ended December 31, 2018, 2017 and 2016, ~~2015 and 2014,~~ approximately 2529 percent, 2126 percent and 2025 percent, respectively, of our revenues were derived directly or indirectly from sales to the United States government and its agencies. The funding of contracts awarded to us depends on the overall United States government budget and appropriations process, which is beyond our control. A failure to pass budget appropriations, adopt continuing funding resolutions or other budgetary decisions limiting or delaying federal government spending, could reduce government spending on our products and services and have a material adverse effect on our business and our operating results.

In addition, at its discretion, the United States government may change its spending priorities and/or terminate, reduce or modify contracts.

Substantial uncertainty exists in the spending levels and priorities of the United States government, particularly with respect to military expenditures. Continued and further reductions in military spending could have a material adverse effect on our results from operations.

Considerable uncertainty exists regarding how future budget and program decisions will unfold, including the defense spending priorities of the United States government agencies. If annual appropriations bills are not timely enacted for fiscal year 2020 or beyond, the United States government may continue to operate under a continuing resolution. This could restrict new contract or program starts, presenting resource allocation challenges and placing limitations on some planned program budgets. We may also face another United States government shutdown of unknown duration. If a prolonged government shutdown of the Department of Defense were to occur, it could result in program cancellations, disruptions and/or stop work orders and could limit the United States government’s ability effectively to progress programs and to make timely payments, limit our ability to obtain necessary export licenses to ship internationally, and limit our ability to perform on our United States government contracts and successfully compete for new work. Consequently, significant delays or reductions in appropriations; long-term funding under a continuing resolution; an extended debt ceiling breach or government shutdown; and/or future budget and program decisions, among other items, may negatively impact our business and could have a material adverse effect on our financial condition and results of operations.

As a United States government supplier, we are subject to a number of procurement rules and regulations

Government contractors must comply with specific procurement regulations and other requirements and are subject to routine and non-routine audits and investigations by United States government agencies. In addition, violations of these regulations or other unrelated laws and statutes can lead to debarment and other penalties. If we fail to comply with procurement rules and regulations and other laws and statutes, the results could include: reductions in the value of contracts; contract modifications or termination; the assessment of penalties and fines; and/or suspension or debarment from United States government contracting or subcontracting for a period of time or permanently. An adverse action by the United States government could also result in lost sales to non-governmental customers who might disqualify us as a result of such adverse action. The impairment or loss of our government contracts could have a material adverse effect on our business.

Operating margins may be negatively impacted by reduction in sales or by a change in the mix of products sold

Our expense levels are based, in part, on our expectations regarding future sales and these expenses are largely fixed in the short term. Some expenses, such as those related to research and development activities, would likely be maintained in the event of a sales downturn in order to maintain and enhance ~~the~~our long-term ~~competitiveness of the Company.~~competitiveness. We maintain inventories of finished goods, components and raw materials at levels we believe are necessary to meet anticipated sales. Accordingly, we may not be able to reduce our costs in a timely manner to compensate for any unexpected shortfall between forecasted and actual sales. Any significant shortfall of sales may result in us carrying higher levels of inventories of finished goods, components and raw materials thereby increasing our risk of inventory obsolescence and corresponding inventory write-downs and write-offs. Our fixed costs, including facilities and information technology costs, compliance and public company costs, and depreciation and amortization related to previous acquisitions and capital expenditures, are significant and are difficult to reduce in the short term.

Our operating margins vary by product and substantial changes in the mix of products sold could also have a negative impact on our operating margins.

We may experience impairment in the value of our tangible and intangible assets

Our industry is subject to rapid changes in technology, which may result in unexpected obsolescence or impairment of our assets. Our intangible assets, including goodwill, represent a significant portion of our total assets. Most of these intangibles are the result of acquisitions in which the purchase price exceeded the value of the tangible assets acquired. We amortize certain of these intangibles over their anticipated useful life and review goodwill and indefinite-lived intangible assets for impairment annually or more frequently if warranted by events. To date we have not experienced any impairment of our intangible assets, but there can be no assurance that we will not experience such impairment in the future. In addition, certain of our tangible assets such as inventory and machinery and equipment may experience impairment in their value as a result of such events as the introduction of new products, changes in technology or changes in customer demand patterns. We depreciate our machinery and equipment at levels we believe are adequate; however, there can be no assurance that there will not be a future impairment that may have a material impact on our business, financial condition and results of operations.

Unfavorable results of legal proceedings could materially adversely affect us

We are subject to various legal proceedings and claims that have arisen out of the ordinary conduct of our business and are not yet resolved, and additional claims may arise in the future. Results of legal proceedings cannot be predicted with certainty. Regardless of merit, litigation may be both time-consuming and disruptive to our operations and could cause significant expense and diversion of management attention. From time to time, we are involved in lawsuits concerning intellectual property, torts, contracts, shareholder litigation, administrative and regulatory proceedings and other matters, as well as governmental inquiries and investigations, the outcomes of which may be significant to our results of operations and may limit our ability to engage in our business activities. In recognition of these considerations, we have and may in the future enter into material settlements to avoid ongoing costs and efforts in defending or pursuing a matter. Should we fail to prevail in certain matters, or should several of these matters be resolved against us in the same reporting period, we may be faced with significant monetary damages or injunctive relief against us that could adversely affect our business, financial condition, operating results and cash flows. While we have insurance related to our business operations, it may not apply to or fully cover liabilities we incur as a result of these lawsuits. We record accruals for liabilities where we believe a loss to be probable and reasonably estimable. However, our actual costs may differ materially from these estimates.

We face risks from international sales and business activities

We market and sell our products worldwide and international sales have accounted for, and are expected to continue to account for, a significant portion of our revenue. For the years ended December 31, ~~2016, 2015~~2018, 2017 and ~~2014,~~2016, international sales accounted for 4647 percent, 47 percent and 4946 percent, respectively, of our total revenue. We also manufacture certain products and subassemblies in Europe and we have several contract manufacturing agreements with third parties in Europe and in Asia. Certain of these products, particularly our thermal and infrared products, are subject to substantial government regulation and licensing and end use restrictions throughout the world. Our international business activities are subject to a number of risks, including:

the imposition of and changes to governmental licensing restrictions and controls impacting our technology and products;

restrictions and prohibitions on the export of technology and products, including ~~recent~~any applicable changes in regulation prohibiting the sale of certain of our products to certain end users without a license;

international trade restrictions;

difficulty in collecting receivables and governmental restrictions with respect to currency;

inadequate protection of intellectual property;

labor union activities;

changes in tariffs and taxes;

restrictions on repatriation of earnings;

restriction on the importation and exportation of goods and services;

risks, costs, impacts and obligations associated with the United States Foreign Corrupt Practices Act ("FCPA"), and other anti-bribery and anti-corruption laws applicable to us, and laws applicable to global trade and United States exports and

costs and penalties from violations of such laws and related regulations, including the costs associated with required remedial and other increased compliance activity;

difficulties in staffing and managing international operations; and

instability in economic or political conditions, inflation, recession, actual or anticipated military or political conflicts, and ~~economic instability.~~potential impact due to the upcoming exit of the United Kingdom (the "U.K.") from the European Union (the "EU"), colloquially referred to as "Brexit".

Some of these factors recently have had an adverse impact on our sales and operations and increased ~~the Company’s~~our cost of doing business and subjected the business to additional rules, policies and procedures that impacted the operation of the Company. No assurance can be given that these factors will not have a material adverse effect on our future international sales and operations and, consequently, on our business, financial condition and results of operations. Furthermore, compliance with complex foreign and ~~U.S.~~United States laws and regulations that apply to our international operations increases our cost of doing business both in the United States and in international jurisdictions. These regulations include import and export laws, anti-competition laws, anti-corruption laws, such as the FCPA and the U.K. Bribery Act, and other local laws prohibiting corrupt payments to governmental officials, data privacy requirements, tax laws, and accounting, internal control and disclosure requirements. For example, on April 8, 2015, the Company and the Securities and Exchange Commission (“SEC”) entered into an agreement through entry of an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities and Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order (the “SEC Order”). The SEC Order settled charges under the FCPA with respect to incidents of improper travel and gifts involving FLIR’s Middle East operation. Pursuant to the SEC Order, ~~the Company is~~we are obligated to “cease and ~~desist”~~desist�� from committing any future violations of the Securities Exchange Act of 1934, as amended. Violations of these laws and regulations could result in civil and criminal fines, penalties and sanctions against us, our officers or our employees, prohibitions on the conduct of our business and on our ability to offer our products and services in one or more countries, and could also materially affect our reputation, business and results of operations. In certain foreign jurisdictions, there is a higher risk of fraud or corruption and greater difficulty in maintaining effective internal controls and compliance programs. Further, although we have implemented and continue to implement policies and procedures designed to promote compliance with applicable laws and regulations, there can be no assurance that our employees, contractors or agents will not violate our policies or applicable laws and regulations.

On April 24, 2018, we entered into a Consent Agreement with the United States Department of State’s Directorate of Defense Trade Controls (“DDTC”) to resolve allegations regarding the unauthorized export of technical data and defense services to dual and third country nationals in certain of our facilities, the failure to properly use and manage export licenses and export authorizations, and failures to report certain payments under 22 CFR Part 130 in potential violation of ITAR. The Consent Agreement has a four-year term and provides for: (i) a civil penalty of $30 million with $15 million of this amount suspended on the condition that the funds have or will be used for Department-approved Consent Agreement remedial compliance measures, (ii) the appointment of an external Special Compliance Official to oversee compliance with the Consent Agreement and the ITAR; (iii) two external audits of our ITAR compliance program; and (iv) continued implementation of ongoing remedial compliance measures and additional remedial compliance measures related to automated systems and ITAR compliance policies, procedures, and training. During the three-month period ended March 31, 2018, we recorded a $15 million charge for the portion of the penalty that is not subject to suspension. As of September 30, 2019, the remaining amounts payable of $3.5 million and $7.0 million have been recorded in other current liabilities and pension and other long-term liabilities, respectively. We expect recent and future investments in remedial compliance measures will be sufficient to cover the $15 million suspension amount.

As part of the Consent Agreement, DDTC acknowledged that we voluntarily disclosed certain of the alleged Arms Export Control Act and ITAR violations (which were resolved pursuant to the Consent Agreement), cooperated in DDTC’s review, and instituted a number of compliance program improvements.

In addition, our international contracts may include industrial cooperation agreements requiring specific in-country purchases, investments, manufacturing agreements or other financial obligations, known as offset obligations, and may provide for penalties if we fail to meet such requirements. The impact of these factors is difficult to predict, but one or more of them could have a material adverse effect on our financial position, results of operations, or cash flows.

We face risks from Brexit

Brexit has created uncertainty about the future relationship between the U.K. and the EU. A draft withdrawal agreement was published in November 2018 but was rejected by the British Parliament and we are still uncertain about the final agreements they will reach on topics such as financial laws and regulations, tax and free trade agreements, immigration laws, and employment laws. On October 28, 2019, the EU approved the U.K.’s request for an extension to January 31, 2020. However, given the multiple Brexit deadline extensions to date, it is unclear if and when withdrawal will take place.

We have significant operations and a substantial workforce in Europe, a portion of which reside in the U.K. and therefore enjoy certain benefits based on the U.K.’s membership in the EU. The lack of clarity about Brexit and the future U.K. laws and regulations creates uncertainty for us, as the outcome of these negotiations may affect our business and operations. Additionally, there also is a risk that other countries may decide to leave the EU. The uncertainty surrounding Brexit not only potentially affects our business in the U.K. and the EU, but may have a material adverse effect on global economic conditions and the stability of global financial markets, which in turn could have a material adverse effect on our business, financial condition, and results of operations. Additionally, any development that has the effect of devaluing the European euro or British pound sterling could meaningfully reduce the value of our assets and reduce the usefulness of liquidity alternatives denominated in that currency, such as our multicurrency credit facility.

We face risks from currency fluctuations

Historically, currency fluctuations have affected our operating results. Changes in the value of foreign currencies in which our sales or costs incurred are denominated have in the past caused, and could in the future cause, fluctuations in our operating results. We seek to reduce our exposure to currency fluctuations by denominating, where possible, our international sales in United States dollars, by balancing expenses and revenues in various currencies and by undertaking limited hedging of forecasted currency exposures. With respect to international sales denominated in United States dollars, a decrease in the value of foreign currencies relative to the United States dollar could make our products less price competitive.

We may not be successful in obtaining the necessary export licenses to conduct operations abroad and the United States government may prevent proposed sales to foreign governments and customers

Export licenses and other authorizations ~~are~~may be required from United States government agencies under the ITAR, the ~~Export Administration Regulation (“EAR”),~~EAR, the Office of Foreign Assets Control (“OFAC”) Regulations, the Trading with the Enemy Act of 1917, the International Emergency Economic Powers Act (“IEEPA”), the Arms Export Control Act of 1976 (“AECA”), and other similar laws and regulations for the sale, use and export of many of our products and related data and services. Thermal and infrared products and technical data have been subject to the ITAR and EAR, historically under United States Munitions List ~~(“USML”~~("USML") Category XII and Commerce Control List ~~(“CCL”~~("CCL") Category 6. ~~Recently, the~~The United States Government’s export reform effort resulted in the transition of various Company products from the USML to the CCL, shifting the licensing requirements and restrictions for products regulated by the Department of Commerce under the EAR. This transition has increased the licensing requirements and restrictions on some products and reduced the requirements and restrictions on others. We can give no assurance that we will be successful in obtaining the necessary licenses from the United States Department of State or Department of Commerce required to conduct our business as presently or historically conducted.

The United States export licensing environment has been affected by a number of factors, including but not limited to, the aftermath of 9/11, the rise of terrorism and the changing geopolitical environment, heightened tensions with other countries (which shift and evolve over time), and the United States reliance on the tactical advantage of the night-time war fighter. Some of these factors have affected the thermal imaging and infrared technology industry overall while others have impacted ~~the Company~~us directly. In addition, the Company’s 2014 submission to the United States Department of State Office of Defense Trade Controls Compliance (“DTCC”) pursuant to ITAR § 127.12(c), regarding the unauthorized export of technical dataConsent Agreement and ~~defense services to dual~~related submissions and ~~third country nationals in at least four facilities of the Company,~~other communications concerning our licensing posture overall have led to heightened scrutiny of export licenses for products in our markets and, in some cases, has resulted in lengthened drafting and review periods for our license applications, including in countries where we have historically made significant sales. Subsequent engagement with the DTCC as part of the Company’s 2014 and related submissions and other communications concerning the Company’s licensing posture overall, highlight ~~DTCC’s~~DDTC’s focus on the manner in which ~~the Company handles~~we handle exports of ~~its~~our products, technical data and services subject to the ITAR. In addition, concerns with respect to potential diversion of certain of ~~the Company's~~our products to prohibited end users and countries subject to economic and other sanctions implemented by the United States government has caused the United States Department of Commerce Bureau of Industry and Security to restrict ~~recently the Company’s~~our ability to sell 9hz thermal products without a license to customers in China not identified on a list maintained by the United States Department of Commerce.

Although we have taken actions and continue to take additional actions necessary to implement policies and procedures to promote an improved compliance culture and programs, there is no guarantee that our actions will be effective or that government agencies will not view our actions and programs with heightened scrutiny, including as a result of events outside ~~the Company’s~~of our control. As a result, we may receive more restrictive provisos or limitations on new license requests, wholesale denials of our license requests,

suspensions or terminations of our existing licenses, or delays in receiving new licenses resulting from requests for follow-up information, due diligence requests or additional limitations on our sale to third parties. We can give no assurance that we will be successful in obtaining necessary licenses required to facilitate our international business. Failures to obtain or delays in obtaining licenses may prevent or limit our ability to market, sell, export, or transfer our products outside the United States and has had and could continue to have a material adverse effect on our business and ~~its~~our operating results.

General economic conditions may adversely affect our business, operating results and financial condition

Our operations and performance depend significantly on worldwide economic conditions and their impact on levels of capital investment and consumer spending. Economic factors that could adversely influence demand for ~~the Company’s~~our products include uncertainty about global economic conditions leading to reduced levels of investment, changes in government spending levels and/or priorities, the size and availability of government budgets, customers’ and suppliers’ access to credit, consumer confidence and other macroeconomic factors affecting government, industrial or consumer spending behavior.

In recent years, our performance has been negatively impacted by reduced spending by United States government agencies, global economic weakness, and the Eurozone crisis. Continuation of the conditions that led to reduced spending and potential further reductions in spending globally by either consumers or government agencies could have a material adverse effect on our business, financial condition and results of operations. For example, there is uncertainty around the implementation of Brexit and its impact on us and global economic conditions generally.

Our primary markets are volatile and unpredictable

Our business depends on the demand for our products and solutions in a variety of commercial, industrial and government markets. In the past, the demand for our products in these markets has fluctuated due to a variety of factors, some of which are beyond our control, including:

the timing, number and size of orders from, and shipments to, our customers, as well as the relative mix of those orders;

variations in the volume of orders for a particular product or product line in a particular fiscal quarter;

the size and timing of new contract awards;

the timing of the release of government funds for procurement of our products; and

the timing of orders and shipments within a given fiscal quarter.

Seasonal fluctuations in our operating results are an outcome of:

the seasonal pattern of contracting by the United States government and certain foreign governments;

the desire of customers to take delivery of equipment prior to fiscal year ends due to funding considerations; and

the tendency of commercial enterprises to utilize fully annual capital budgets prior to expiration.

Competition in our markets is intense and our failure to compete effectively could adversely affect our business

Competition in the diverse markets for our products is intense. The speed with which companies can identify new applications for thermal imaging, develop products to meet those needs and supply commercial quantities at low prices to the market are important competitive factors. We believe the principal competitive factors in our markets are product performance, price, customer service and training, product reputation, and effective marketing and sales efforts. Many of our competitors have greater financial, technical, research and development, and marketing resources than we do. All of these factors, as well as the potential for increased competition from new market entrants, require us to continue to invest in, and focus on, research and development and new product innovation. No assurance can be given that we will be able to compete effectively in the future and a failure to do so could have a material adverse effect on our business, financial condition and results of operations.

Our products may suffer from defects or errors leading to substantial product liability, damage or warranty claims

We include complex system designs and components in our products that may contain errors or defects, particularly when we incorporate new technology into our products or release new versions. If any of our products are defective, we might be required to redesign or recall those products or pay substantial damages or warranty claims. Such an event could result in significant expenses including expenses arising from product liability and warranty claims. It also could disrupt sales and affect our reputation and that of our products, which could have a material adverse effect on our business, financial condition and results of operations. As we expand our presence into new markets, we may face increased exposure to product liability claims. We maintain product liability insurance but cannot be certain that it will be sufficient or will continue to be available on acceptable terms.

Amounts included in our backlog may not result in actual revenues or translate into profits

Many contracts are subject to cancellation or suspension on short notice at the discretion of the customer, and the contracts in our backlog are subject to changes in the scope of services to be provided as well as adjustments to the costs relating to the contract. We have historically experienced variances in the components of backlog related to delivery delays or cancellations resulting from customer-specific circumstances, external market factors and economic factors beyond our control, and we may experience more delays or cancellations in the future. Accordingly, there is no assurance that backlog will actually be realized. If our backlog fails to materialize, we could experience a reduction in revenues and a decline in profitability, which could result in a deterioration of our financial position and liquidity.

Significant tariffs, restrictions on imports or other trade barriers between the United States and various countries, most significantly China, may impact our revenue and results of operations

In July 2018, the Office of the U.S. Trade Representative announced a list of Chinese imports that currently face tariffs of between ten and twenty-five percent. These tariffs currently affect some of the components of our products we import from China, and we may raise our prices on those products due to the tariffs or share the cost of such tariffs with our customers, which could harm our operating performance or cause our customers to seek alternative suppliers. It is possible that further tariffs may be imposed on our other imports, or that our business will be impacted by retaliatory trade measures taken by China or other countries in response to existing or future tariffs, causing us to raise prices or make changes to our operations, any of which could materially harm our revenue or operating results. In addition, we may seek to shift some of our manufacturing supply chain to other countries, which could result in disruption to our operations.

Risks, Uncertainties and Other Factors Related to Our Technology and Intellectual Property

Our inability to protect our intellectual property and proprietary rights and avoid infringing the rights of others could harm our competitive position and our business

Our ability to compete successfully and achieve future revenue growth depends, in part, on our ability to protect our proprietary technology and operate without infringing the rights of others. To accomplish this, we rely on a combination of patent, trademark, copyright and trade secret laws, confidentiality agreements and contractual provisions to protect our proprietary rights. Many of our proprietary rights are held in confidence as trade secrets and are not covered by patents, making them more difficult to protect. Although we currently hold worldwide patents covering certain aspects of our technologies and products, and we are actively pursuing additional patents, we cannot be certain that we will obtain additional patents or trademarks on our technology, products and trade names. Furthermore, we cannot be certain that our patents or trademarks will not be challenged or circumvented by our competitors or that measures taken by us to protect our proprietary rights will adequately deter their misappropriation or disclosure. Any failure by us to protect our intellectual property could have a material adverse effect on our business, financial condition and results of operations. Moreover, because intellectual property does not necessarily prevent our competitors from entering the markets we serve, there can be no assurance that we will be able to maintain our competitive advantage or that our competitors will not develop capabilities equal or superior to ours.

Litigation over patents and other intellectual property is common in our industry. We have been the subject of patent and other intellectual property litigation in the past and cannot be sure that we will not be subject to such litigation in the future. Similarly, there exists the possibility we will assert claims in litigation to protect our intellectual property. Lawsuits defending or prosecuting intellectual property claims and related legal and administrative proceedings could result in substantial expense to us and significant diversion of effort of our personnel. An adverse determination in a patent suit or in any other proceeding in which we are a party could subject us to significant liabilities, result in the loss of intellectual property rights we claim or impact our competitive position. Additionally, an adverse determination could require us to seek licenses from third parties. If such licenses are not available on commercially reasonable terms or at all, our business, financial condition and results of operations could be adversely affected.

Our future success will depend on our ability to respond to the rapid technological change in the markets in which we compete, our ability to introduce new or enhanced products and enter into new markets

The markets in which we compete are characterized by rapid technological developments and frequent new product introductions, enhancements and modifications. Our ability to develop new products and technologies that anticipate changing customer requirements, reduce costs and otherwise retain or enhance our competitive position in existing and new markets will be an important factor in our future results from operations. We will continue to make substantial capital expenditures and incur significant research and development costs to improve our manufacturing capability, reduce costs, and develop and introduce new products and enhancements. If we fail to develop and introduce new products and technologies in a timely manner, our business, financial

condition and results of operations would be adversely affected. In addition, we cannot be certain that our new products and technologies will be successful or that customers will accept any of our new products.

Our business could be negatively impacted by cybersecurity threats and other security threats and technology disruptions

We face certain security threats and technology disruptions, including threats to our information technology infrastructure, attempts to gain access to our or our customers’ proprietary or classified information, threats to the physical security of our facilities and employees, threats of terrorism events, and failures of our technology tools and systems. We are subject to laws and rules issued by various agencies concerning safeguarding and maintaining infrastructure and physical security and information confidentiality. Our information technology networks and related systems are critical to the operation of our business and essential to our ability to successfully perform day-to-day operations. We are also involved with information technology systems for certain customers and other third parties, for which we face similar security threats as for our own. In particular, cybersecurity threats-which include, but are not limited to, computer viruses, spyware and malware, attempts to access information, denial of service attacks and other electronic security breaches-are persistent and evolve quickly. Such threats have increased in frequency, scope and potential impact in recent years. Further, a variety of technological tools and systems, including both company-owned information technology and technological services provided by outside parties, support our critical functions. These technologies, as well as our products, are subject to failure and the user’s inability to have such technologies properly supported, updated, expanded or integrated into other technologies and may contain open source and third party software which may unbeknownst to us contain defects or viruses that pose unintended risks to our customers. These risks if not effectively mitigated or controlled could materially harm our business or reputation. While we believe that we have implemented appropriate measures, controls, and ~~controls,~~risk transfer mechanisms, there can be no assurance that such actions will be sufficient to prevent disruptions to critical systems, unauthorized release of confidential information, or corruption of ~~data.~~data, or financial loss.

We require user names and passwords in order to access our information technology systems. We use encryption and authentication technologies designed to secure the transmission and storage of data and prevent access to our data or accounts. These security measures are subject to third-party security breaches, employee error, malfeasance, faulty password management or other irregularities. For example, third parties may attempt to induce by fraud employees or customers into disclosing user names, passwords or other sensitive information, which may in turn be used to access our information technology systems. These security systems cannot provide absolute security. To the extent we were to experience a breach of our systems and were unable to protect sensitive data, such a breach could materially damage business partner and customer relationships, and curtail or otherwise impact the use of our information technology systems. Moreover, if a security breach of our information technology system affects our computer systems or results in the release of personally identifiable or other sensitive information of customers, business partners, employees and other third parties, our reputation and brand could be materially damaged, use of our products and services could decrease, and we could be exposed to a risk of loss, litigation and potential liability.

Although we have in the past and continue to be subject to cybersecurity threats and other security threats and technology disruptions, to date none has had a material impact on our business, financial condition or results of operations. Nonetheless, in the future, these types of events could disrupt our operations and customer and other third party information technology systems. They also could require significant management attention and resources, negatively impact our reputation among our customers and the public and challenge our eligibility for future work on sensitive or classified systems, which could have a material adverse effect on our business, financial condition and results of operations.

Risks, Uncertainties and Other Factors Related to Our Corporate Structure and Organization

Our future success depends in part on attracting and retaining key senior management and qualified technical, sales and other personnel

Our future success depends in part on the efforts and continued services of our key executives and our ability to attract and retain qualified technical, sales and other personnel. Significant competition exists for such personnel and we cannot assure the retention of our key executives, technical and sales personnel or our ability to attract, integrate and retain other such personnel that may be required in the future. We cannot assure that employees will not leave and subsequently compete against us. If we are unable to attract and retain key personnel, our business, financial condition and results of operations could be adversely affected.

We must successfully manage a complex global organization

As we have grown, the size and scope of our worldwide operations have also increased substantially. We currently design, manufacture and market numerous product lines in locations worldwide. Significant management time and effort is required to manage effectively the increased complexity of the business and our failure to successfully do so could have a material adverse

effect on our business, financial condition and results of operations. Our inability to continue to manufacture our products at one or more of our facilities as a result of, for example, a prolonged power outage, earthquake, fire or other natural disaster, or labor or political unrest, could prevent us from supplying products to our customers and could have a material adverse effect on our business, financial condition and results of operations.

We may be unable to integrate successfully recent or future acquisitions into our operations, thereby disrupting our business and harming our financial condition and results of operations

We have made twelve acquisitions of various sizes in the past five years. The integration of businesses, personnel, product lines and technologies can be difficult, time consuming and subject to significant risks. For example, we could lose key personnel from companies that we acquire, incur unanticipated costs, lose major sources of revenue, fail to integrate critical technologies, suffer business disruptions, fail to capture anticipated synergies, fail to establish satisfactory internal controls, or incur unanticipated liabilities. Any of these difficulties could disrupt our ongoing business, distract our management and employees, increase our expenses and decrease our revenue.

We frequently evaluate strategic opportunities available to us and it is likely that we will make additional acquisitions in the future. Such acquisitions may vary in size and complexity. Any future acquisitions are subject to the risks described above. Furthermore, we might assume or incur additional debt or issue additional equity securities to pay for future acquisitions. Additional debt may negatively impact our results and increase our financial risk, and the issuance of any additional equity securities could dilute our then existing shareholders’ ownership. No assurance can be given that we will realize anticipated benefits of any future acquisitions, or that any such acquisition or investment will not have a material adverse effect on our business, financial condition and results of operations.

We have indebtedness as a result of the issuance of our 3.125 percent senior unsecured notes (the “Notes”) and borrowings against our unsecured credit facility, and we are subject to certain restrictive covenants under our unsecured credit facility and the indenture governing the Notes, and changes in the rate at which we can obtain indebtedness, any of which may limit our operational and financial flexibility

Our ability to meet our debt service obligations and comply with the financial covenants under our credit facility will be dependent upon our future performance, which will be subject to financial, business and other factors affecting our operations, many of which are beyond our control. Our inability to meet our debt service obligations or comply with the required covenants could result in a default under the credit facility or indenture. In the event of any such default, under the credit facility, the lenders thereunder could elect to declare all outstanding debt, accrued interest and fees under the facility to be due and immediately payable. In the event of any such default under our indenture, either the trustee or the holders of at least 25 percent of the outstanding principal amount of the Notes could declare the principal amount of all of the Notes to be due and payable immediately.

Our indebtedness may use LIBOR as a benchmark for establishing the interest rate. LIBOR has been the subject of recent national, international and other regulatory guidance and proposals for reform and it is expected that a number of banks currently reporting information used to set LIBOR will stop doing so after 2021. Such an occurrence could cause LIBOR to stop publication or cause LIBOR to no longer be representative of the underlying market. While we believe our exposure to market risk associated with the expected discontinuation of LIBOR is limited because our Notes carry a fixed-rate coupon and our unsecured credit facility agreement includes provisions for a successor rate, the consequences of these developments cannot be entirely predicted. If LIBOR is no longer available or if our lenders have increased costs due to changes in LIBOR, it could adversely impact our interest expense, results of operations and cash flows.

We may not be able to refinance our indebtedness on favorable terms, if at all, which could materially and adversely affect our liquidity and our ongoing results of ~~operations.~~operations

Our ability to refinance indebtedness, including the Notes, will depend in part on our operating and financial performance, which, in turn, is subject to prevailing economic conditions and to financial, business, legislative, regulatory and other factors beyond our control. In addition, prevailing interest rates or other factors at the time of refinancing could increase our interest expense. A refinancing of our indebtedness, including the Notes, could also require us to comply with more onerous covenants and further restrict our business operations. Our inability to refinance our indebtedness or to do so upon favorable terms could materially and adversely affect our business, results of operations, financial condition and cash flows, and make us vulnerable to adverse industry and general economic conditions.

We are effectively self-insured against many potential liabilities

Although we maintain insurance policies with respect to a broad range of risks, including automobile liability, general liability, workers’ compensation and employee group health, these policies do not cover all possible claims and certain of the policies are subject to large deductibles. Accordingly, we are effectively self-insured for a substantial number of actual and potential claims. In addition, if any of our insurance carriers defaulted on its obligations to provide insurance coverage by reason of its insolvency or for other reasons, our exposure to claims would increase and our profits would be adversely affected. Our estimates for unpaid claims and expenses are based on known facts, historical trends and industry averages, utilizing the assistance of actuarial services. The determination of such estimated liabilities and their appropriateness are reviewed and updated at least quarterly. However, these liabilities are difficult to assess and estimate due to many relevant factors, the effects of which are often unknown, including the severity of an injury or damage, the determination of liability in proportion to other parties, the timeliness of reported claims, the effectiveness of our risk management and safety programs and the terms and conditions of our insurance policies. Our accruals are based upon known facts, historical trends and our reasonable estimate of future expenses, and we believe such accruals are adequate. However, unknown or changing trends, risks or circumstances, such as increases in claims, a weakening economy, increases in medical costs, changes in case law or legislation or changes in the nature of the work we perform, could render our current estimates and accruals inadequate. In such case, adjustments to our balance sheet may be required and these increased liabilities would be recorded in the period that the experience becomes known. Insurance carriers may be unwilling, in the future, to provide our current levels of coverage without a significant increase in insurance premiums and/or collateral requirements to cover our obligations to them. Increased collateral requirements may be in the form of additional letters of credit and/or cash, and an increase in collateral requirements could significantly reduce our liquidity. If insurance premiums increase, and/or if insurance claims are higher than our estimates, our profitability could be adversely affected.

Changes in our effective income tax rate may have an adverse effect on our results of operations

We are subject to taxes in the United States and numerous foreign jurisdictions, including Belgium, where a number of our subsidiaries are organized. Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant change. Our future effective tax rate could be affected by changes in the mix of earnings in countries with different statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in the enforcement environment, and changes in tax laws or their interpretations, ~~including~~ in the United States and in foreign jurisdictions. For example, in January 2016, the European Commission announced a decision concluding that certain rules under Belgian tax legislation are deemed to be incompatible with European Union regulations on state aid. As a result of this decision, the European Commission has directed the Belgian Government to recover past taxes from certain entities, reflective of disallowed state aid, which impacts one of the Company’s international subsidiaries. The Belgian Government announced they have appealed this decision and filed action for an annulment in the General Count of the European Union, and in July 2016 the Company filed a separate appeal with the General Court of the European Union. The Company recorded discrete tax expense of $39.6 million during 2016 related to this matter and on January 10, 2017, received tax assessments from the Belgium government for a similar amount. The Company has filed a complaint against the Belgian tax assessments, and the result of this complaint, the appeal with the General Court of the European Union, new information received from the Belgian Government, or other future events may cause the income tax provision associated with the decision to be entirely or partially reversed.

Our future effective tax rate may be adversely affected by a number of additional factors including:

the jurisdictions in which profits are determined to be earned and taxed;

the resolution of issues arising from tax audits with various tax authorities;

changes in the valuation of our deferred tax assets and liabilities;

adjustments to estimated taxes upon finalization of various tax returns;

increases in expenses not deductible for tax purposes;

changes in available tax credits;

changes in share-based compensation expense;

changes in tax laws or the interpretation of such tax laws and changes in generally accepted accounting principles;

changes in foreign tax rates or agreed upon foreign taxable base; and/or

the repatriation of earnings from outside the United States for which we have not previously provided for United States taxes.

Any significant increase in our future effective tax rates could adversely impact net income for future periods. In addition, the United States Internal Revenue Service (“IRS”) and other tax authorities regularly examine our income tax returns. Our financial condition and results of operations could be adversely impacted if any assessments resulting from the examination of our income tax returns by the IRS or other taxing authorities are not resolved in our favor. For example, during the three-month period ending December 31, 2018, the Swedish Tax Authority (“STA”) issued a reassessment of tax for the year ending December 31, 2012 to one of the Company's non-operating subsidiaries in Sweden. The reassessment concerns the use of tax credits applied against capital gains pursuant to European Union Council Directive 2009/133/EC, commonly referred to as the EU Merger Directive, and assesses taxes and penalties totaling approximately $306.6 million (Swedish kronor 3.0 billion). We believe the STA’s assertions in the reassessment are not in accordance with Swedish tax regulations and plan to defend our positions with the STA and through the Swedish court system, as necessary. Consequently, no adjustment to our unrecognized tax benefits has been recorded in relation to this matter. We believe that our recorded tax liabilities are adequate in the aggregate for its income tax exposures.

As well, during the period ended September 30, 2019, the European Commission announced the opening of a separate review to assess whether an excess profit tax ruling granted by Belgium to one of our international subsidiaries is in breach of European

Union state aid rules. We believe we have paid all taxes assessed by Belgium, yet an adverse opinion from the European Commission regarding the applicability of state aid rules could be cause for accrual of tax in a future period.

New tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”), was enacted on December 22, 2017. The Tax Act, among other things, (i) permanently reduces the U.S. corporate income tax rate to 21 percent beginning in 2018, (ii) provides for a five year period of 100 percent bonus depreciation followed by a phase-down of the bonus depreciation percentage, and (iii) provides for more general changes to the taxation of corporations, including changes to the deductibility of interest expense, the adoption of a modified territorial tax system, assessing a repatriation tax or “toll-charge” on undistributed earnings and profits of U.S.-owned foreign corporations, and introducing certain anti-base erosion provisions. The long-term impact of the Tax Act on the general economy cannot be reliably predicted at this time and continues to require rule-making and interpretation in a number of areas.

The Tax Act requires complex computations not previously required by U.S. tax law. As such, the application of certain accounting guidance is currently evolving. Further, compliance with the Tax Act and the accounting for certain provisions require accumulation of information not previously required or regularly produced. As additional interpretative guidance is issued by the applicable authorities, we will continue our analysis on the application of the Tax Act and may need to revise our current estimates in future periods. The revisions to our current estimates could materially affect our results of operations, cash flow and financial position.

State of Oregon law and our charter documents contain provisions that could discourage or prevent a potential takeover, even if the transaction would benefit our shareholders

Other companies may seek to acquire or merge with us. An acquisition or merger of our Company could result in benefits to our shareholders, including an increase in the value of our common stock. Some provisions of our Articles of Incorporation and Bylaws, including our ability to issue preferred stock without further action by our shareholders, as well as provisions of the State of Oregon law, may discourage, delay or prevent a merger or acquisition that a shareholder may consider favorable.


ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~None.~~During the three months ended September 30, 2019, the Company repurchased the following shares:



Period	Total Number of Shares Purchased⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plan or Programs
July 1 to July 31, 2019	147,908	$	50.71	147,908
August 1 to August 31, 2019	1,413,415	47.76		1,413,415
September 1 to September 30, 2019	—	—		—
Total	1,561,323	$	48.04	1,561,323	12,451,563

All share repurchases are subject to applicable securities law, and are at times and in amounts as management deems appropriate. These repurchases were through open market transactions under the authorization by our Board of Directors on February 7, 2019 to repurchase of up to 15.0 million shares of our outstanding common stock. This authorization will expire on February 7, 2021.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.


ITEM 5.	OTHER INFORMATION

None.


ITEM 6.	EXHIBITS



Number	Description

10.1	^{Separation and ReleaseForm of Claims Agreement between FLIR Systems, Inc. and Thomas A. Surran effective as of September 30, 2017.(1)}
~~10.2~~	^{Executive OfficerChange in Control Severance Benefit Plan Agreement between FLIR Systems, Inc. and Thomas A. Surran dated April 24, 2017.(1)}
~~10.3~~	^{FLIR Systems, Inc. Executive Officer Severance Plan, effective May 1, 2017.(1)}
~~10.4~~	^{Offer Letter (the “Offer Letter”) between FLIR Systems, Inc. and Carol P. Lowe dated as of October 16, 2017 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K8-k filed on October 24, 2017)22, 2019 (File Number 000-21918)).(1)}
~~10.5~~10.2	^{ChangeForm of Control Agreement between FLIR Systems, Inc. and Carol P. Lowe attached to the Offer Letter as Attachment AExecutive Severance Benefit Plan (incorporated by reference to Exhibit 10.210.1 of the Current Report on Form 8-K8-k filed on October 24, 2017)22, 2019 (File Number 000-21918)).(1)}
31.1	^{Principal Executive Officer Certification Pursuant to Sarbanes-Oxley Act of 2002, Section 302.}
31.2	^{Principal Financial Officer Certification Pursuant to Sarbanes-Oxley Act of 2002, Section 302.}
32.1	^{Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.}
32.2	^{Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.}
101.INS	Inline XBRL Instance Document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

~~____________~~

~~(1) This exhibit constitutes a management contract or compensatory plan or arrangement.~~

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		FLIR SYSTEMS, INC.

Date October ~~27, 2017~~31, 2019		/s/ ~~Shane R. Harrison~~Carol P. Lowe
		~~Shane R. Harrison~~Carol P. Lowe
		~~Sr.~~Executive Vice President ~~Corporate Development & Strategy~~ and ~~Interim~~ Chief Financial Officer
		(Duly Authorized and Principal Financial Officer)

3945



Oregon		93-0708501
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

27700 SW Parkway Avenue, ~~Wilsonville, Oregon~~		97070
Wilsonville,	Oregon	97070
(Address of principal executive offices)		(Zip Code)



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	FLIR	NASDAQ	Global Select Stock Market



Large accelerated filer	x ☒	Accelerated filer	¨ ☐
Non-accelerated filer	¨ ☐	Smaller reporting company	¨ ☐
		Emerging growth company	¨ ☐



PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Income - Three and Nine Months Ended September 30, ~~2017~~2019 and ~~2016~~2018 (unaudited)	1
	Consolidated Statements of Comprehensive Income - Three and Nine Months Ended September 30, ~~2017~~2019 and ~~2016~~2018 (unaudited)	2
	Consolidated Balance Sheets - September 30, ~~2017~~2019 and December 31, ~~2016~~2018 (unaudited)	3
	Consolidated Statements of Shareholders' Equity - Three and Nine Months Ended September 30, 2019 and 2018 (unaudited)	4
	Consolidated Statements of Cash Flows - Nine Months Ended September 30, ~~2017~~2019 and ~~2016~~2018 (unaudited)	46
	Notes to the Consolidated Financial Statements (unaudited)	57
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2025
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2832
Item 4.	Controls and Procedures	2932
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	3033
Item 1A.	Risk Factors	3033
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3843
Item 3.	Defaults Upon Senior Securities	3843
Item 4.	Mine Safety Disclosures	3843
Item 5.	Other Information	3843
Item 6.	Exhibits	3844
Signature		3945

FLIR SYSTEMS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) (Unaudited)	FLIR SYSTEMS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) (Unaudited)												FLIR SYSTEMS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) (Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,					Nine Months Ended September 30,
	2017			2016			2017			2016			2019			2018		2019			2018
Net earnings	$	63,529		$	58,633		$	157,513		$	105,126		$	62,047		$	73,151	$	169,913		$	183,909
Other comprehensive income (loss), net of tax:
Interest rate swap contracts:
Other comprehensive (loss) income, net of tax:
Fair value adjustment on interest rate swap contracts	—			292			187			(573		)	(132		)	—		(1,718		)	—
Realized gain reclassified to earnings	(494		)	—			(494		)	—
Unrealized gain on available-for-sale investments	(3		)	—			(4		)	—
Amount reclassified to earnings													—			—		4			—
Foreign currency translation adjustments	19,993			(7,724		)	55,788			(9,250		)	(19,953		)	5,308		(22,729		)	(26,296		)
Total other comprehensive income (loss)	19,496			(7,432		)	55,477			(9,823		)
Total other comprehensive (loss) income													(20,085		)	5,308		(24,443		)	(26,296		)
Comprehensive income	$	83,025		$	51,201		$	212,990		$	95,303		$	41,962		$	78,459	$	145,470		$	157,613



x☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.



¨ ☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

FLIR SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except for par value) (Unaudited)	FLIR SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except for par value) (Unaudited)						FLIR SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except for par value) (Unaudited)

	September 30,			December 31,			September 30,			December 31,
	2017			2016			2019			2018
ASSETS
Current assets:
Cash and cash equivalents	$	436,961		$	361,349		$	295,391		$	512,144
Accounts receivable, net	345,542			352,020			329,552			323,746
Inventories	413,005			371,371			397,547			352,107
Prepaid expenses and other current assets	86,570			79,917			94,692			104,650
Total current assets	1,282,078			1,164,657			1,117,182			1,292,647
Property and equipment, net	270,023			271,785			253,338			247,407
Deferred income taxes, net	51,179			45,243			101,211			100,620
Goodwill	930,846			801,406			1,354,795			904,571
Intangible assets, net	183,677			168,460			262,095			146,845
Other assets	48,472			168,155			109,259			89,152
Total assets	$	2,766,275		$	2,619,706		$	3,197,880		$	2,781,242
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	127,420		$	114,225		$	144,284		$	95,496
Deferred revenue	29,015			34,420			41,631			32,703
Accrued payroll and related liabilities	67,759			52,874			73,023			81,118
Accrued product warranties	16,193			17,476			14,371			15,204
Advance payments from customers	19,260			26,019			30,253			19,691
Accrued expenses	47,528			34,022			43,406			41,761
Accrued income taxes	46,175			51,017			—			13,855
Other current liabilities	14,588			16,659			23,816			16,186
Credit facility							87,500			—
Current portion, long-term debt	—			15,000			12,104			—
Total current liabilities	367,938			361,712			470,388			316,014
Long-term debt	420,369			501,921			644,880			421,948
Deferred income taxes	14,569			2,331			50,700			22,927
Accrued income taxes	14,054			9,643			62,327			76,435
Pension and other long-term liabilities	59,827			65,773			99,935			67,132
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $0.01 par value, 10,000 shares authorized; no shares issued at September 30, 2017, and December 31, 2016	—			—
Common stock, $0.01 par value, 500,000 shares authorized, 138,414 and 136,334 shares issued at September 30, 2017, and December 31, 2016, respectively, and additional paid-in capital	72,117			12,139
Preferred stock, $0.01 par value, 10,000 shares authorized; no shares issued at September 30, 2019, and December 31, 2018							—			—
Common stock, $0.01 par value, 500,000 shares authorized, 134,148 and 135,516 shares issued at September 30, 2019, and December 31, 2018, respectively, and additional paid-in capital							1,341			1,355
Retained earnings	1,927,875			1,832,138			2,041,844			2,024,523
Accumulated other comprehensive loss	(110,474		)	(165,951		)	(173,535		)	(149,092		)
Total shareholders’ equity	1,889,518			1,678,326			1,869,650			1,876,786
Total liabilities and shareholders' equity	$	2,766,275		$	2,619,706		$	3,197,880		$	2,781,242



	Common Stock and Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Earnings (Loss)			Total Shareholders' Equity

Balance, June 30, 2019	$	1,356		$	2,063,985		$	(153,450	)	$	1,911,891

Net earnings	—			62,047			—			62,047
Repurchase of common stock	(13,600		)	(61,400		)	—			(75,000		)
Common stock issued pursuant to stock-based compensation plans, net of shares withheld for taxes	3,314			—			—			3,314
Stock-based compensation	10,271			—			—			10,271
Dividends paid:
Common stock, $0.17/share	—			(22,788		)	—			(22,788		)
Other comprehensive loss:
Fair value adjustment on interest rate swap contracts	—			—			(132		)	(132		)
Foreign currency translation adjustment	—			—			(19,953		)	(19,953		)
Balance, September 30, 2019	$	1,341		$	2,041,844		$	(173,535	)	$	1,869,650



	September 30, 2017				December 31, 2016
	Prepaid Expenses and Other Current Assets		Other Current Liabilities		Prepaid Expenses and Other Current Assets		Other Current Liabilities
Foreign exchange contracts	$	2,269	$	2,737	$	2,369	$	75



Balance, December 31, 2016	$	801,406
Goodwill from acquisitions	100,022
Currency translation adjustments	29,418
Balance, September 30, 2017	$	930,846



	Three Months Ended September 30, 2018								Nine Months Ended September 30, 2018
	Industrial		Government and Defense		Commercial		Total		Industrial		Government and Defense		Commercial		Total
United States	$	95,896	$	114,176	$	30,463	$	240,535	$	271,451	$	312,106	$	115,957	$	699,514
Europe	28,208		25,378		35,024		88,610		96,361		61,281		121,479		279,121
Asia	37,881		14,326		10,343		62,550		121,593		46,373		28,646		196,612
Middle East/Africa	5,015		13,757		6,255		25,027		13,553		65,029		18,262		96,844
Canada/Latin America	10,151		4,318		3,707		18,176		33,273		7,524		14,335		55,132
	$	177,151	$	171,955	$	85,792	$	434,898	$	536,231	$	492,313	$	298,679	$	1,327,223



			December 31, 2016
	September 30, 2017		(as reclassified)
United States	$	686,191	$	676,007
Europe	485,216		490,089
Canada/Latin America	253,051		235,921
Other foreign	8,560		7,789
	$	1,433,018	$	1,409,806



Cash acquired	$	2,994
Other tangible assets and liabilities, net	35,064
Net deferred taxes	(2,438		)
Identifiable intangible assets	39,800
Goodwill	183,741
Total purchase price	$	259,161



	Estimated Useful Life	Amount
Developed technology	10 years	$	23,100
Customer relationships	7 years	13,200
Backlog	1 year	2,300
Non-Competition Agreements	5 years	1,000
Other	n/a	200
		$	39,800


Note 20.	Business Acquisitions and Divestitures - (Continued)



Cash acquired	$	11,706
Other tangible assets and liabilities, net	(900		)
Net deferred taxes	(7,387		)
Identifiable intangible assets	31,400
Goodwill	99,269
Total purchase price	$	134,088

Effective Date

Current Notional Amount (in millions Swedish Kronor)

Fixed Rate

Maturity Date

March 29, 2019

March 31, 2024