UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-Q

(Mark one)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2020
OR
☐For the quarterly period endedMarch 31, 2021
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from             to             
Commission file number 000-21918
FLIR SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware93-0708501
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
Delaware93-0708501
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
27700 SW Parkway Avenue,97070
Wilsonville,Oregon
(Address of principal executive offices)(Zip Code)
(503) (503) 498-3547
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueFLIRNASDAQGlobal Select Stock Market
Indicate by check mark whether the 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  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the 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.
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
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 23, 2020,April 30, 2021, there were 131,144,505131,932,461 shares of the registrant’s common stock, $0.01 par value, outstanding.



INDEX
 
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements
1
2
3
4
65
86
Item 2.
2621
Item 3.
3429
Item 4.
3429
PART II. OTHER INFORMATION
Item 1.
3530
Item 1A.
3530
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
3530
Item 3.
3530
Item 4.
3530
Item 5.
3530
Item 6.
3631
3732




PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS
FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(Unaudited)

Three Months Ended
 March 31,
 20212020
Revenue$467,313 $450,923 
Cost of goods sold258,115 231,555 
Gross profit209,198 219,368 
Operating expenses:
Research and development52,246 53,847 
Selling, general and administrative103,868 116,242 
Restructuring expenses622 20,784 
Total operating expenses156,736 190,873 
Earnings from operations52,462 28,495 
Interest expense6,115 6,961 
Interest income(41)(349)
Other income (loss), net(3,622)(1,315)
Earnings before income taxes50,010 23,198 
Income tax provision11,203 7,774 
Net earnings$38,807 $15,424 
Net earnings per share:
Basic$0.30 $0.12 
Diluted$0.29 $0.11 
Weighted average shares outstanding:
Basic131,183 133,596 
Diluted132,596 134,927 









The accompanying notes are an integral part of these consolidated financial statements.
1
FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(Unaudited)

 Three Months Ended September 30,
Nine Months Ended September 30,
 2020
2019
2020
2019
Revenue$466,414
 $471,248
 $1,399,352
 $1,397,982
Cost of goods sold237,500
 241,501
 698,870
 700,966
Gross profit228,914
 229,747
 700,482
 697,016
Operating expenses:       
Research and development47,848
 49,800
 157,707
 150,437
Selling, general and administrative94,196
 103,393
 299,114
 321,596
Restructuring expenses293
 2,166
 28,779
 5,776
Total operating expenses142,337
 155,359
 485,600
 477,809
Earnings from operations86,577
 74,388
 214,882
 219,207
Interest expense7,273
 7,582
 21,196
 20,370
Interest income(55) (612) (531) (2,107)
Loss on debt extinguishment9,126
 0
 9,126
 0
Other (income) expense, net(9,688) 292
 78
 938
Earnings before income taxes79,921
 67,126
 185,013
 200,006
Income tax provision19,258
 5,079
 47,669
 30,093
Net earnings$60,663
 $62,047
 $137,344
 $169,913
        
Net earnings per share:       
Basic$0.46
 $0.46
 $1.04
 $1.26
Diluted$0.46
 $0.46
 $1.03
 $1.24
        
Weighted average shares outstanding:       
Basic131,125
 134,741
 131,848
 135,264
Diluted131,683
 136,050
 132,841
 136,826











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

 Three Months Ended September 30, Nine Months Ended September 30,
 2020 2019 2020 2019
Net earnings$60,663
 $62,047
 $137,344
 $169,913
Other comprehensive income (loss), net of tax:       
Fair value adjustment on derivatives instruments designated as hedges (1)
(604) (132) 2,557
 (1,718)
Unrealized gain on available-for-sale investments0
 0
 0
 4
Foreign currency translation adjustments10,181
 (19,953) (12,844) (22,729)
Total other comprehensive income (loss)9,577
 (20,085) (10,287) (24,443)
Comprehensive income$70,240
 $41,962
 $127,057
 $145,470
FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(Unaudited)

Three Months Ended
 March 31,
 20212020
Net earnings$38,807 $15,424 
Other comprehensive income (loss), net of tax:
Fair value adjustment on derivatives instruments designated as hedges (1)
(578)2,753 
Foreign currency translation adjustments256 (20,285)
Total other comprehensive income (loss)(322)(17,532)
Comprehensive income (loss)$38,485 $(2,108)
_________________________
(1) The tax effects on interest rate swap contracts for the three months ended September 30,March 31, 2021 and 2020 and 2019 were immaterial. The tax effects on interest rate swap contracts for the nine months ended September 30, 2020 and 2019 were $0.5a gain of $0.1 million and $0.6a loss of $0.1 million, respectively.



































The accompanying notes are an integral part of these consolidated financial statements.
2
FLIR SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except for par value)
(Unaudited)
 September 30, December 31,
 2020 2019
ASSETS   
Current assets:   
Cash and cash equivalents$319,995
 $284,592
Accounts receivable, net310,989
 318,652
Inventories474,845
 388,762
Prepaid expenses and other current assets122,857
 116,728
Total current assets1,228,686
 1,108,734
Property and equipment, net255,457
 255,905
Deferred income taxes, net37,902
 39,983
Goodwill1,350,647
 1,364,596
Intangible assets, net211,206
 247,514
Other assets129,014
 120,809
          Total assets$3,212,912
 $3,137,541
LIABILITIES AND SHAREHOLDERS’ EQUITY   
Current liabilities:   
Accounts payable$148,026
 $158,033
Deferred revenue25,802
 28,587
Accrued payroll and related liabilities88,097
 72,476
Accrued product warranties16,786
 14,611
Advance payments from customers13,631
 28,005
Accrued expenses35,421
 40,815
Accrued income taxes36,702
 14,735
Other current liabilities45,031
 27,349
Credit facility65,000
 16,000
Long-term debt, current portion12,743
 12,444
Total current liabilities487,239
 413,055
Long-term debt, net of current portion715,220
 648,419
Deferred income taxes38,148
 53,544
Accrued income taxes72,678
 55,514
Other long-term liabilities90,761
 95,576
Shareholders’ equity:   
Preferred stock, $0.01 par value, 10,000 shares authorized; no shares issued at September 30, 2020, and December 31, 20190
 0
Common stock, $0.01 par value, 500,000 shares authorized, 131,144 and 134,394 shares issued at September 30, 2020, and December 31, 2019, respectively, and additional paid-in capital20,994
 16,692
Retained earnings1,964,104
 2,020,686
Accumulated other comprehensive loss(176,232) (165,945)
Total shareholders’ equity1,808,866
 1,871,433
          Total liabilities and shareholders' equity$3,212,912
 $3,137,541

FLIR SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except for par value)
(Unaudited)
 March 31,December 31,
 20212020
ASSETS
Current assets:
Cash and cash equivalents$277,303 $297,795 
Accounts receivable, net391,331 353,561 
Inventories457,007 472,237 
Prepaid expenses and other current assets97,568 104,646 
Total current assets1,223,209 1,228,239 
Property and equipment, net269,269 267,682 
Deferred income taxes, net35,610 36,210 
Goodwill1,386,847 1,394,364 
Intangible assets, net197,632 209,636 
Other assets116,235 116,217 
          Total assets$3,228,802 $3,252,348 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable$150,541 $157,592 
Deferred revenue28,568 25,862 
Accrued payroll and related liabilities77,330 98,911 
Accrued product warranties18,397 17,019 
Advance payments from customers13,730 10,940 
Accrued expenses34,617 41,347 
Accrued income taxes27,852 28,941 
Other current liabilities44,708 44,053 
Long-term debt, current portion12,945 13,473 
Total current liabilities408,688 438,138 
Long-term debt, net of current portion712,866 724,919 
Deferred income taxes43,159 43,708 
Accrued income taxes60,699 60,248 
Other long-term liabilities93,516 101,961 
Shareholders’ equity:
Preferred stock, $0.01 par value, 10,000 shares authorized; no shares issued at March 31, 2021, and December 31, 20200 0 
Common stock, $0.01 par value, 500,000 shares authorized; 131,575 and 131,360 shares issued, 131,368 and 131,153 shares outstanding at March 31, 2021, and December 31, 2020, respectively, and additional paid-in capital42,101 31,767 
Retained earnings2,033,585 2,017,097 
Treasury stock - at cost - 207 shares of common stock at March 31, 2021, and December 31, 2020, respectively(7,504)(7,504)
Accumulated other comprehensive loss(158,308)(157,986)
Total shareholders’ equity1,909,874 1,883,374 
          Total liabilities and shareholders' equity$3,228,802 $3,252,348 
The accompanying notes are an integral part of these consolidated financial statements.
3


FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except for per share amounts)
(Unaudited)


For the ninethree months ended September 30,March 31, 2021:
Common Stock and
Additional
Paid-in Capital		Retained
Earnings		Treasury StockAccumulated
Other
Comprehensive
Earnings (Loss)		Total
Shareholders'
Equity
Balance, December 31, 2020$31,767 $2,017,097 $(7,504)$(157,986)$1,883,374 
Net earnings0 38,807 0 0 38,807 
Stock issued for business acquisition - unearned205 0 0 0 205 
Common stock issued pursuant to stock-based compensation plans, net of shares withheld for taxes249 0 0 0 249 
Stock-based compensation9,880 0 0 0 9,880 
Dividends paid of $0.17 per share0 (22,319)0 0 (22,319)
Other comprehensive loss, net of taxes0 0 0 (322)(322)
Balance, March 31, 2021$42,101 $2,033,585 $(7,504)$(158,308)$1,909,874 


For the three months ended March 31, 2020:
Common Stock and
Additional
Paid-in Capital		Retained
Earnings		Treasury StockAccumulated
Other
Comprehensive
Earnings (Loss)		Total
Shareholders'
Equity
Balance, December 31, 2019$16,692 $2,020,686 $0 $(165,945)$1,871,433 
Net earnings0 15,424 0 0 15,424 
Repurchase of common stock(23,371)(126,629)0 0 (150,000)
Common stock issued pursuant to stock-based compensation plans, net of shares withheld for taxes580 0 0 0 580 
Stock-based compensation7,403 0 0 0 7,403 
Dividends paid of $0.17 per share0 (22,728)0 0 (22,728)
Other comprehensive loss, net of taxes0 0 0 (17,532)(17,532)
Balance, March 31, 2020$1,304 $1,886,753 $0 $(183,477)$1,704,580 

The accompanying notes are an integral part of these consolidated financial statements.
4
  Common Stock and
Additional
Paid-in Capital		 Retained
Earnings		 Accumulated
Other
Comprehensive
Earnings (Loss)		 Total
Shareholders'
Equity
Balance, December 31, 2019 $16,692
 $2,020,686
 $(165,945) $1,871,433
Net earnings 0
 15,424
 0
 15,424
Repurchase of common stock (23,371) (126,629) 0
 (150,000)
Common stock issued pursuant to stock-based compensation plans, net of shares withheld for taxes 580
 0
 0
 580
Stock-based compensation 7,403
 0
 0
 7,403
Dividends paid of $0.17 per share 0
 (22,728) 0
 (22,728)
Other comprehensive loss, net of taxes 0
 0
 (17,532) (17,532)
Balance, March 31, 2020 1,304
 1,886,753
 (183,477) 1,704,580
Net earnings 0
 61,257
 0
 61,257
Common stock issued pursuant to stock-based compensation plans, net of shares withheld for taxes (3,341) 0
 0
 (3,341)
Stock-based compensation 12,815
 0
 0
 12,815
Dividends paid of $0.17 per share 0
 (22,278) 0
 (22,278)
Other comprehensive loss, net of taxes 0
 0
 (2,332) (2,332)
Balance, June 30, 2020 10,778
 1,925,732
 (185,809) 1,750,701
Net earnings 0
 60,663
 0
 60,663
Common stock issued pursuant to stock-based compensation plans, net of shares withheld for taxes (163) 0
 0
 (163)
Stock-based compensation 10,379
 0
 0
 10,379
Dividends paid of $0.17 per share 0
 (22,291) 0
 (22,291)
Other comprehensive income, net of taxes 0
 0
 9,577
 9,577
Balance, September 30, 2020 $20,994
 $1,964,104
 $(176,232) $1,808,866


















FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITYCASH FLOWS
(in thousands, except for per share amounts)thousands)
(Unaudited)


For the nine months ended September 30, 2019:
Three Months Ended
 March 31,
 20212020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings$38,807 $15,424 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization23,861 24,225 
Stock-based compensation9,760 7,646 
(Gain) loss on disposal of assets(30)2,991 
Deferred income taxes23 (165)
Other, net(6,987)(3,152)
(Decrease) increase in cash, net of acquisitions, resulting from changes in:
Accounts receivable(40,407)12,118 
Inventories8,542 (14,453)
Prepaid expenses and other current assets3,273 382 
Other assets3,443 (391)
Accounts payable(5,783)1,592 
Deferred revenue2,927 2,140 
Accrued payroll and other liabilities(16,777)11,084 
Accrued income taxes5,410 (6,259)
Other long-term liabilities(1,758)(2,316)
Net cash provided by operating activities24,304 50,866 
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, net(14,183)(12,717)
Net cash used in investing activities(14,183)(12,717)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from credit facility and long-term debt, including current portion0 175,000 
Repayment of credit facility and long-term debt(3,285)(3,021)
Repurchase of common stock0 (150,000)
Dividends paid(22,319)(22,728)
Proceeds from shares issued pursuant to stock-based compensation plans1,082 1,459 
Tax paid for net share exercises and issuance of vested restricted stock units(833)(879)
Net cash used in financing activities(25,355)(169)
Effect of exchange rate changes on cash and cash equivalents(5,258)(13,957)
Net (decrease) increase in cash and cash equivalents(20,492)24,023 
Cash and cash equivalents, beginning of year297,795 284,592 
Cash and cash equivalents, end of period$277,303 $308,615 
The accompanying notes are an integral part of these consolidated financial statements.
5
  Common Stock and
Additional
Paid-in Capital		 Retained
Earnings		 Accumulated
Other
Comprehensive
Earnings (Loss)		 Total
Shareholders'
Equity
Balance, December 31, 2018 $1,355
 $2,024,523
 $(149,092) $1,876,786
Adjustment of DTA under ASU 2016-16(1)
 0
 3,439
 0
 3,439
Net earnings 0
 61,748
 0
 61,748
Repurchase of common stock (16,999) (7,999) 0
 (24,998)
Common stock issued pursuant to stock-based compensation plans, net of shares withheld for taxes 8,709
 0
 0
 8,709
Stock-based compensation 8,289
 0
 0
 8,289
Dividends paid of $0.17 per share 0
 (23,031) 0
 (23,031)
Other comprehensive loss, net of taxes 0
 0
 (8,247) (8,247)
Balance, March 31, 2019 1,354
 2,058,680
 (157,339) 1,902,695
Net earnings 0
 46,118
 0
 46,118
Repurchase of common stock (7,218) (17,780) 0
 (24,998)
Common stock issued pursuant to stock-based compensation plans, net of shares withheld for taxes (1,704) 0
 0
 (1,704)
Stock-based compensation 8,924
 0
 0
 8,924
Dividends paid of $0.17 per share 0
 (23,033) 0
 (23,033)
Other comprehensive income, net of taxes 0
 0
 3,889
 3,889
Balance, June 30, 2019 1,356
 2,063,985
 (153,450) 1,911,891
Net earnings 0
 62,047
 0
 62,047
Repurchase of common stock (13,600) (61,400) 0
 (75,000)
Common stock issued pursuant to stock-based compensation plans, net of shares withheld for taxes 3,314
 0
 0
 3,314
Stock-based compensation 10,271
 0
 0
 10,271
Dividends paid of $0.17 per share 0
 (22,788) 0
 (22,788)
Other comprehensive loss, net of taxes 0
 0
 (20,085) (20,085)
Balance, September 30, 2019 $1,341
 $2,041,844
 $(173,535) $1,869,650
_________________________

(1) The Company recorded an immaterial correction which increased both retained earnings and deferred income taxes related to the Company's adoption of Accounting Standards Update 2016-16 "Intra-Entity Transfers of Assets Other Than Inventory" ("ASU 2016-16").

FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

 Nine Months Ended September 30,
 2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES:   
Net earnings$137,344
 $169,913
Adjustments to reconcile net earnings to net cash provided by operating activities:   
Depreciation and amortization71,217
 76,037
Stock-based compensation30,547
 27,371
Loss on debt extinguishment9,126
 0
Loss on disposal of assets3,352
 0
Minority interest impairment charges4,803
 0
Deferred income taxes(458) (1,197)
Other, net3,693
 39
Increase (decrease) in cash, net of acquisitions, resulting from changes in:   
Accounts receivable7,970
 5,460
Inventories(83,215) (30,215)
Prepaid expenses and other current assets1,317
 43
Other assets(3,503) 11,474
Accounts payable(11,182) 38,873
Deferred revenue(2,862) 7,087
Accrued payroll and other liabilities7,700
 (4,120)
Accrued income taxes35,153
 (19,555)
Other long-term liabilities(14,813) (4,385)
Net cash provided by operating activities196,189

276,825
CASH FLOWS FROM INVESTING ACTIVITIES:   
Additions to property and equipment, net(37,136) (32,034)
Proceeds from sale of assets0
 6,365
Business acquisitions, net of cash acquired0
 (601,927)
Minority interest and other investments304
 (5,000)
Net cash used in investing activities(36,832)
(632,596)
CASH FLOWS FROM FINANCING ACTIVITIES:   
Net proceeds from credit facility and long-term debt, including current portion175,000
 723,054
Repayment of credit facility and long-term debt(135,352) (393,634)
Repayment of 2021 Unsecured Notes(425,000) 0
Redemption premium of 2021 Unsecured Notes(8,509) 0
Net proceeds from issuance of 2030 Unsecured Notes494,234
 0
Repurchase of common stock(150,000) (124,996)
Dividends paid(67,297) (68,852)
Proceeds from shares issued pursuant to stock-based compensation plans7,309
 20,776
Tax paid for net share exercises and issuance of vested restricted stock units(10,234) (10,458)
Other financing activities0
 (525)
Net cash (used in) provided by financing activities$(119,849)
$145,365

FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(in thousands)
(Unaudited)

 Nine Months Ended September 30,
 2020 2019
Effect of exchange rate changes on cash and cash equivalents$(4,105) $(6,347)
Net increase (decrease) in cash and cash equivalents35,403

(216,753)
Cash and cash equivalents, beginning of year284,592
 512,144
Cash and cash equivalents, end of period$319,995
 $295,391

FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Note 1.
Note 1.    Basis of Presentation and Accounting Standards Updates
The accompanying consolidated financial statements of FLIR Systems, Inc. and its consolidated subsidiaries (the “Company”(“FLIR,” the “Company,” “we,” “us,” or “our”) 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, 2019.2020.
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, 2020.2021.
Recently Adopted Accounting Pronouncements
Financial Accounting Standards Board ("FASB"(“FASB”) Accounting Standards Update ("ASU"(“ASU”) No. 2016-13, 2019-12, “"Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13" or "Topic 326"): Effective January 1, 2020, the Company adopted ASU 2016-13 using a modified-retrospective approach. The standard changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life. Adoption of the standard did not have a material impact on the Company's consolidated financial statements.
FASB ASU No. 2018-18, "Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606" ("ASU 2018-18"): Effective January 1, 2020, the Company adopted ASU 2018-18. The standard clarifies that certain transactions between collaborative arrangement participants should be accounted for under ASC 606, when one participant is a customer, and specifies that a distinct good or service is the unit of account for evaluating whether the transaction is with a customer. The standard also provides guidance on presentation of transactions not in the scope of ASC 606. Adoption of the standard did not have a material impact on the Company's consolidated financial statements.
Recently Issued Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes"Taxes..” Effective January 1, 2021, the Company adopted ASU 2019-12. The standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 including recognizing deferred taxes for investments, performing intra-period allocations and calculating taxes in interim periods. ASU 2019-12 also improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The standard is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company plans to adoptAdoption of the standard as of January 1, 2021 and is currently evaluating this guidance to determinedid not have a material impact on the impact it may have on itsCompany's consolidated financial statements.
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, ““Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting””, which temporarily simplifies the accounting for contract modifications, including hedging relationships, due to the transition from LIBOR and other interbank offered rates to alternative reference interest rates. Subsequently, the FASB issued ASU 2021-01 (Topic 848), which clarifies the scope of ASC 848. This ASU is effective as of January 1, 2020, and applies prospectively to contract modifications and hedging relationships. For example, entities can elect not to remeasure the contracts at the modification date or reassess a previous accounting determination if certain conditions are met. Additionally, entities can elect to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain conditions are met. The new standardASU 2020-04 guidance was effective upon issuance, and generally can be appliedupon adoption of this ASU, we may elect to applicable contract modificationsapply the amendments prospectively from now through December 31, 2022. The Company has not yet adopted this guidance and is currently evaluating the potential impact of adoption on the transition from LIBOR to alternative reference interest rates as well as the impact it may have on itsCompany's consolidated financial statements.
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)Note 2.    Revenue


Note 1.Basis of Presentation and Accounting Standards Updates - (Continued)
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, 2020. These reclassifications had no effect on consolidated financial position, net earnings, shareholders' equity, or net cash flows for any of the periods presented.

Note 2.
Revenue
Revenue Recognition
The Company designs, markets and sells products primarily as 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 fulfillment costs 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.
6
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Note 2.    Revenue - (Continued)
Revenue Recognition - (Continued)
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 17, "Operating Segments and Related Information - Revenue and Long-Lived Assets by Geographic Area" for information related to the Company’s revenues disaggregated by significant geographical region and operating segment.
Contract Balances
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 Sheets as of September 30, 2020March 31, 2021 and December 31, 2019.2020.
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, 2020March 31, 2021 and December 31, 20192020 were $37.5$75.4 million and $9.4$45.0 million, respectively.
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, 2020March 31, 2021 and December 31, 2019,2020, contract liability balances totaled $51.4$54.7 million and $69.1$48.8 million, respectively. These balances included amounts classified as long-term as of September 30, 2020March 31, 2021 and December 31, 20192020 which were $12.0$12.4 million and $12.5$12.0 million, respectively, and are included within other long-term liabilities in the accompanying Consolidated Balance Sheets. Approximately $41.8$11.5 million of revenue recognized during the ninethree months ended September 30, 2020March 31, 2021 was included in the combined contract liability balances as of December 31, 2019.2020.
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Note 2.        Revenue - (Continued)
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, 2020,March 31, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $329.8$300.0 million. The Company expects to recognize revenue on approximately 74 percenta majority of the remaining performance obligations over the next twelve months, and the remainder recognized thereafter.months.


Note 3.
Note 3.    Stock-based Compensation
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 the FLIR Systems, Inc. 2011 Stock Incentive Plan, as amended (the “2011 Plan”).
The Company has granted time-based options, time-based restricted stock unit awards, and performance-based restricted stock unit awards. Performance-basedOptions generally expire ten years from the grant date. Time-based options and restricted stock unit awards granted during the year ended December 31, 2017 were earned based upon the Company's operating margin performancegenerally vest over a three-year period. Performance-based restricted stock unit awards granted during the years ended December 31, 2018,2020, 2019 and 20202018 may be earned based upon a combination of the Company's revenue and operating performance over a three-year period. Certain shares vested under the performance-based restricted stock unit awards must 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”) that allows employees to purchase shares of the Company’s common stock at 85 percent ofa discount to the fair market value at the lower of either the date of enrollment or the purchase date.
7
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Note 3.    Stock-based Compensation - (Continued)
Employee Stock Purchase Plan - (Continued)
The discount may be fixed at any amount up to 15 percent by the plan administrator from time to time, and is presently set at 10 percent. 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. The Company reserved 1,500,000 shares of common stock for issuance under the ESPP. Shares purchased under the ESPP have no holding period requirements. At March 31, 2021 and December 31, 2020, respectively, there were approximately 1,136,841 shares remaining available under the ESPP for future issuance. Shares issued for ESPP purchases are new shares. Effective as of May 1, 2021, in connection with the previously announced acquisition by Teledyne Technologies Incorporated, a Delaware corporation (“Teledyne”), the Company suspended the ESPP such that no new offering period under the ESPP shall commence, and no additional contributions shall be made to the ESPP on or after such date.
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,
 2020 2019 2020 2019
Cost of goods sold$491
 $769
 $3,226
 $2,326
Research and development1,863
 2,296
 5,817
 5,981
Selling, general and administrative7,306
 7,028
 21,504
 19,064
Stock-based compensation expense before income taxes$9,660
 $10,093
 $30,547
 $27,371

Three Months Ended
 March 31,
 20212020
Cost of goods sold$1,268 $1,067 
Research and development2,228 1,677 
Selling, general and administrative6,264 4,902 
Stock-based compensation expense before income taxes$9,760 $7,646 
Stock-based compensation expense capitalized in the Consolidated Balance Sheets is as follows (in thousands):
 September 30,
 2020 2019
Capitalized in inventory$1,171
 $1,194

FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Note 3.        Stock-based Compensation - (Continued)
 March 31,
 20212020
Capitalized in inventory$1,493 $879 
As of September 30, 2020,March 31, 2021, the Company had approximately $61.7$73.1 million of total unrecognized stock-based compensation costs, net of estimated forfeitures, to be recognized over a weighted average period of approximately 22.2 years.


Note 4.
Note 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,
 2020 2019 2020 2019
Numerator for earnings per share:       
Net earnings for basic and diluted earnings per share$60,663
 $62,047
 $137,344
 $169,913
Denominator for earnings per share:       
Weighted average number of common shares outstanding131,125
 134,741
 131,848
 135,264
Assumed exercise of stock options and vesting of restricted stock awards, net of shares assumed reacquired under the treasury stock method558
 1,309
 993
 1,562
Diluted shares outstanding131,683
 136,050
 132,841
 136,826

Three Months Ended
 March 31,
 20212020
Numerator for earnings per share:
Net earnings for basic and diluted earnings per share$38,807 $15,424 
Denominator for earnings per share:
Weighted average number of common shares outstanding131,183 133,596 
Assumed exercise of stock options and vesting of restricted stock awards, net of shares assumed reacquired under the treasury stock method1,413 1,331 
Diluted shares outstanding132,596 134,927 
The effect of stock-based compensation awards for the three and nine months ended September 30,March 31, 2021 and 2020 that aggregated approximately 632,000119,000 and 522,0006,000 shares, respectively, has been excluded for purposes of diluted earnings per share since the effect of their inclusion would have been anti-dilutive. The effect of stock-based compensation awards for the three and nine months ended September 30, 2019 that aggregated approximately 80,000 and 76,000 shares, respectively, has been excluded for purposes of diluted earnings per share since the effect of their inclusion would have been anti-dilutive.


Note 5.
Note 5.    Fair Value of Financial Instruments
The Company had approximately $0.7$0.1 million and $0.1 million of cash equivalents at September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively, which were primarily investments in money market funds and overnight deposits.

8
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Note 5.    Fair Value of Financial Instruments - (Continued)
The Company has categorized its cash equivalents as Level 1 financial assets, measured at fair value based on quoted prices in active markets of identical assets. All cash equivalents are instruments that are convertible to cash daily.
The fair values of the Company’s derivative contracts as of September 30, 2020March 31, 2021 and December 31, 20192020 are disclosed in Note 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, "Debt," as of September 30, 2020March 31, 2021 approximates the carrying value. The fair value of the Company’s senior unsecured 2030 notes as described in Note 13, "Debt," was $513.0$488.3 million and $527.7 million based upon Level 2 inputs at September 30, 2020. The Company’s senior unsecuredMarch 31, 2021 notes were redeemed in full in connection with the Company’s August 2020 issuance of the Company’s senior unsecured 2030 notes in a public offering. The fair value of the Company’s senior unsecured 2021 notes as described in Note 13, "Debt," was $430.1 million based upon Level 2 inputs atand December 31, 2019.2020, respectively. The fair value of observable price changes related to the Company's minority interest equity investments are based on Level 3 inputs. During the nine months ended September 30, 2020, the Company recognized impairments of $4.8 million associated with its equity minority investments which are included in other (income) expense, net in the Consolidated Statements of Income. The Company does not have any other significant financial assets or liabilities that are measured at fair value.
See the discussion of accounting guidance for fair value measurements and the factors used in determining the fair value of financial assets and liabilities as reported in Note 1, "Nature of Business and Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2019.2020.


FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Note 6.        Derivative Financial Instruments
The Company's financial position and results of operations are subject to certain financial market risks. The Company regularly assesses these risks and has established risk management practices designed to mitigate the impact of certain foreign currency exchange rate and interest rate risk exposures. The Company does not engage in speculative trading in any financial market.
Foreign Currency Contracts
The Company uses currency forward contracts, not formally designated as hedges, to manage the consolidated exchange rate risk associated with the remeasurement of certain non-functional currency denominated monetary assets and liabilities primarily by subsidiaries that use U.S. dollars, European euros, Canadian dollars, Swedish kronor, Norwegian kroner, Brazilian real and British pound sterling as their functional currency. Changes in fair value of foreign currency forward contracts are recognized in other (income) expense,income (loss), net at the end of each reporting period. In general, these gains and losses are offset in the Consolidated Statements of Income by the reciprocal gains and losses from the underlying assets or liabilities which originally gave rise to the exposure. At September 30, 2020,March 31, 2021, the Company’s foreign currency forward contracts, not formally designated as hedges, had maturities of three months or less.
In addition, the Company manages the risk of changes in the fair value of certain monetary liabilities attributable to changes in exchange rates. The Company manages these risks by using currency forward contracts formally designated and effective as fair value hedges. Hedge effectiveness is generally determined by evaluating the alignment of the hedging instrument's critical terms with the critical terms of the hedged item. The forward points attributable to the hedging instruments are excluded from the assessment of effectiveness and amortized to other (income) expense,income (loss), net using a systematic and rational methodology. Differences between the change in fair value of the excluded component and amounts recognized under the systematic and rational method are recognized in other comprehensive income.income (loss). The change in fair value of the hedging instruments attributable to the hedged risk is reported in other (income) expense,income (loss), net. The change in fair value of the hedged item attributable to the hedged risk is reported as an adjustment to its carrying value and also included in other (income) expense,income (loss), net. At September 30, 2020,March 31, 2021, the Company’s foreign currency forward contracts formally designated as fair value hedges had maturities of threetwo years or less.
Interest Rate Swap
The Company's outstanding debt at September 30, 2020March 31, 2021 consists of fixed rate notes and an unsecured credit facility consisting of an unsecured revolving loan facility, an unsecured U.S. dollar term loan and an unsecured Swedish kronor term loan, all of which accrue interest at a floating rate. As discussed in Note 13, "Debt," interest expense on the Company's floating rate debt is calculated based on a fixed spread over the applicable Eurocurrency rate (e.g. LIBOR) subject to a floor of zero percent. 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 related to certain floating rate debt through an interest rate swap (“swap”) in which the Company receives floating rate payments subject to a floor of zero percent and makes fixed rate payments. The impact of the swap is to fix the floating rate basis for the calculation of interest on the unsecured Swedish kronor term loan at 0.590 percent. The swap is designated and effective as a cash flow hedge with individual swap cash flows recorded as an asset or liability in the Company's Consolidated Balance Sheets at fair value. Hedge effectiveness is generally determined by evaluating the alignment of the hedging instrument's critical terms with the critical terms of the hedged item. Fair value adjustments are recorded as an adjustment to accumulated other comprehensive income. income (loss).
9
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Note 6.        Derivative Financial Instruments - (Continued)
Interest Rate Swap - (Continued)
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 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.
The following table presents the gross notional amounts of outstanding derivative instruments (in thousands):
 September 30, 2020 December 31, 2019
Derivative instruments designated as cash flow hedges:   
Interest Rate Swap$143,249
 $143,302
Derivative instruments designated as fair value hedges:   
Currency Forward Contracts255,000
 340,000
Derivative instruments not formally designated as hedges:   
Currency Forward Contracts149,591
 104,835
    

FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Note 6.        Derivative Financial Instruments - (Continued)
Interest Rate Swap - (Continued)
March 31,December 31,
20212020
Derivative instruments designated as cash flow hedges:
Interest Rate Swap$143,005 $154,633 
Derivative instruments designated as fair value hedges:
Currency Forward Contracts198,333 226,667 
Derivative instruments not formally designated as hedges:
Currency Forward Contracts53,865 70,338 
The following table presents the balance sheet classification and fair value of derivative instruments (in thousands):
    September 30, December 31,
  Classification 2020 2019
Derivative instruments designated as cash flow hedges:    
Derivative instruments in asset positions:    
Interest Rate Swap Prepaid expense and other current assets $726
 $404
Derivative instruments in liability positions:    
Interest Rate Swap Other current liabilities 911
 453
Interest Rate Swap Other long-term liabilities 1,814
 1,012
Derivative instruments designated as fair value hedges:    
Derivative instruments in liability positions:    
Currency forward contracts Other current liabilities 2,831
 454
Currency forward contracts Other long-term liabilities 2,099
 1,189
Derivative instruments not formally designated as hedges:    
Derivative instruments in asset positions:    
Currency forward contracts Prepaid expenses and other current assets 142
 3,010
Derivative instruments in liability positions:    
Currency forward contracts Other current liabilities 6,629
 391

March 31,December 31,
Classification20212020
Derivative instruments designated as cash flow hedges:
Derivative instruments in asset positions:
Interest Rate SwapPrepaid expense and other current assets$333 $519 
Derivative instruments in liability positions:
Interest Rate SwapOther current liabilities890 982 
Interest Rate SwapOther long-term liabilities1,130 1,628 
Derivative instruments designated as fair value hedges:
Derivative instruments in liability positions:
Currency forward contractsOther current liabilities5,043 13,295 
Currency forward contractsOther long-term liabilities3,179 12,211 
Derivative instruments not formally designated as hedges:
Derivative instruments in asset positions:
Currency forward contractsPrepaid expenses and other current assets15,494 5,704 
Derivative instruments in liability positions:
Currency forward contractsOther current liabilities4,831 506 
The following table presents the statement of income classification of derivative instruments (in thousands):
    Three Months Ended September 30, Nine Months Ended September 30,
  Classification 2020 2019 2020 2019
Derivative instruments designated as cash flow hedges:        
Loss recognized in other comprehensive income (loss), net of tax Other comprehensive income (loss) $54
 $132
 $704
 $1,718
Loss reclassified from other comprehensive income (loss) to earnings for the effective portion Interest expense 199
 218
 474
 438
Derivative instruments designated as fair value hedges:        
Loss recognized in earnings for effective portion Other (income) expense, net 9,109
 0
 9,670
 0
Gain recognized in income for amount excluded from effectiveness testing Other (income) expense, net (1,051) 0
 (3,239) 0
Loss (gain) recognized in other comprehensive income (loss), net of tax Other comprehensive income (loss) 550
 0
 (3,261) 0
Derivative instruments not formally designated as hedges:        
(Gain) loss recognized in earnings Other (income) expense, net (9,747) 2,319
 (2,970) 2,611
10

FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Note 6.        Derivative Financial Instruments - (Continued)
Three Months Ended
March 31,
Classification20212020
Derivative instruments designated as cash flow hedges:
Gain (loss) recognized in other comprehensive income (loss), net of taxOther comprehensive income (loss)$304 $(1,117)
Loss reclassified from other comprehensive loss to earnings for the effective portionInterest expense222 171 
Derivative instruments designated as fair value hedges:
Gain recognized in earnings for effective portionOther income (loss), net13,444 22,766 
Gain recognized in income for amount excluded from effectiveness testingOther income (loss), net858 1,139 
(Loss) gain recognized in other comprehensive income (loss), net of taxOther comprehensive income (loss)(882)3,870 
Derivative instruments not formally designated as hedges:
Loss recognized in earningsOther income (loss), net(5,686)(12,890)

Note 7.
Note 7.    Accounts Receivable
Accounts receivable are net of an allowance for credit losses of $8.1$6.3 million and $6.1$6.6 million at September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively.


Note 8.
Note 8.    Inventories
Inventories consist of the following (in thousands):
 March 31,December 31,
 20212020
Raw material and subassemblies$268,409 $281,641 
Work-in-progress56,930 51,763 
Finished goods131,668 138,833 
$457,007 $472,237 
 September 30, December 31,
 2020 2019
Raw material and subassemblies$269,062
 $224,239
Work-in-progress61,624
 44,344
Finished goods144,159
 120,179
 $474,845
 $388,762


Note 9.     Leases
Note 9.
Leases
Operating leases are included in other assets, other current liabilities, and other long-term liabilities on the Consolidated Balance Sheets. The Company does not have any finance leases at September 30, 2020.
March 31, 2021. 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 were as follows (in thousands):
Three Months Ended
Three Months Ended September 30, Nine Months Ended September 30,March 31,
2020 2019 2020 201920212020
Operating lease expense$2,999
 $3,239
 $9,066
 $8,711
Operating lease expense$2,974 $3,022 
Short-term lease expense28
 277
 81
 850
Short-term lease expense0 27 
Variable lease expense516
 555
 1,632
 1,671
Variable lease expense920 570 
Total lease expense$3,543
 $4,071
 $10,779
 $11,232
Total lease expense$3,894 $3,619 
Supplemental balance sheet information related to operating leases is as follows (in thousands):
March 31,December 31,
20212020
Operating lease right-of-use assets$30,156 $32,833 
Operating lease liabilities$34,005 $36,745��
 September 30, 2020December 31, 2019
Operating lease right-of-use assets$34,562
$35,479
Operating lease liabilities$38,249
$39,291
11
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Note 10.        Property and Equipment
Property and equipment are net of accumulated depreciation of $402.0$405.2 million and $370.1$400.5 million at September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. Depreciation expense for the three months ended September 30,March 31, 2021 and 2020 and 2019 was $11.0$11.4 million and $11.2$11.8 million, respectively. Depreciation expense for the nine months ended September 30, 2020 and 2019 was $34.0 million and $32.4 million, respectively.


Note 11.
Goodwill
In the first quarter of 2020, the Company completed a business reorganization as part of its “Project Be Ready” restructuring plan which resulted in identification of two reportable segments (Industrial Technologies and Defense Technologies). The Company commenced operating and reporting under the new organization structure effective January 1, 2020. See Note 19, “Restructuring” for further information on Project Be Ready and Note 17, "Operating Segments and Related Information" for additional information on the two new reportable operating segments.11.    Goodwill was allocated to identified reporting units using a relative fair value approach. In conjunction with the change in reportable segments, the Company evaluated goodwill for impairment, both before and after the segment change and determined that goodwill was not impaired.
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Note 11.Goodwill - (Continued)
The following table presents changes in the carrying value of goodwill and the activity by reportable segment for the ninethree months ended September 30, 2020March 31, 2021 (in thousands):
  Industrial Technologies Defense Technologies Consolidated
Balance, December 31, 2019 $635,899
 $728,697
 $1,364,596
Adjustments to goodwill 0
 (12,617) (12,617)
Currency translation adjustments 4,266
 (5,598) (1,332)
Balance, September 30, 2020 $640,165
 $710,482
 $1,350,647

During the third quarter of 2020, the Company performed its annual goodwill impairment analysis. The Company performed a qualitative analysis for all reporting units and determined that it was more likely than not that the fair values of the reporting units were in excess of the individual reporting units carrying values, and as a result, a quantitative step one analysis was not necessary. There were no goodwill impairments during the nine months ended September 30, 2020 and 2019, respectively.
Industrial TechnologiesDefense TechnologiesConsolidated
Balance, December 31, 2020$651,439 $742,925 $1,394,364 
Currency translation adjustments(6,773)(744)(7,517)
Balance, March 31, 2021$644,666 $742,181 $1,386,847 
See Note 18, "Business Acquisitions"Acquisitions and Combinations" for additional information on goodwill from acquisitions.


Note 12.        Intangible Assets
Intangible assets are net of accumulated amortization of $164.1$184.6 million and $129.9$173.2 million at September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. The aggregate amortization expense for the three months ended September 30,March 31, 2021 and 2020 was $12.0 million and 2019 was $11.9 million, and $15.5 million, respectively. The aggregate amortization expense for the nine months ended September 30, 2020 and 2019 was $35.6 million and $42.5 million, respectively.


Note 13.
Note 13.    Debt
The Company's debt consists of the following (in thousands):
   September 30, 2020 December 31, 2019
 Maturity Date AmountStated RateEffective Rate AmountStated RateEffective Rate
Senior Unsecured Notes:         
Senior 2030 Notes
August 1, 2030
 $500,000
2.500%2.630% $0
0%0%
Senior 2021 Notes (1)
June 15, 2021
 0
0%0% 425,000
3.125%3.343%
Credit Agreement:         
U.S. dollar term loan
March 29, 2024
 92,500
1.470%1.732% 96,250
1.945%2.196%
Swedish kronor term loan
March 29, 2024
 143,248
1.250%1.503% 143,302
0.098%0.351%
Revolving credit facility
March 29, 2024
 65,000
1.397%1.397% 16,000
1.799%1.799%
Total  800,748
   680,552
  
Unamortized discounts and issuance costs  (7,785)   (3,689)  
Total debt  $792,963
   $676,863
  
Reported as:         
Credit facility  $65,000
   $16,000
  
Long-term debt, current portion  12,743
   12,444
  
Long-term debt, net of current portion  715,220
   648,419
  
Total  $792,963
   $676,863
  

(1) The Senior 2021 Notes were redeemed in full in connection with the Company’s August 2020 issuance of the Senior 2030 Notes in a public offering described below under “Senior Unsecured Notes”.
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Note 13.        Debt - (Continued)    
 March 31, 2021December 31, 2020
 Maturity DateAmountStated RateEffective RateAmountStated RateEffective Rate
Senior Unsecured Notes:
2030 NotesAugust 1, 2030$500,000 2.500 %2.630 %$500,000 2.500 %2.630 %
Credit Agreement:
U.S. dollar term loanMarch 29, 202490,000 1.359 %1.627 %91,250 1.504 %1.769 %
Swedish kronor term loanMarch 29, 2024143,005 1.250 %1.503 %154,632 1.250 %1.484 %
Total733,005 745,882 
Unamortized discounts and issuance costs(7,194)(7,490)
Total debt$725,811 $738,392 
Reported as:
Long-term debt, current portion12,945 13,473 
Long-term debt, net of current portion712,866 724,919 
Total$725,811 $738,392 
Senior Unsecured Notes
On August 3, 2020, the Company issued and sold its $500.0 million senior unsecured notes maturing on August 1, 2030 (the “2030 Notes”) in an underwritten public offering. The aggregate net proceeds from the offering were approximately $494.2 million after deducting underwriting fees, debt discount and transaction issuance costs, which are being amortized over a period of ten years. Interest on the 2030 Notes is payable semiannually in arrears on February 1 and August 1 of each year beginning on February 1, 2021. The net proceeds from the sale of the 2030 Notes were used to redeem the Company’s outstanding $425.0 million senior unsecured notes due June 15, 2021 (the “2021 Notes”), and for general corporate purposes, which may include funding for working capital, investments in Company's subsidiaries, capital expenditures, acquisitions, and stock repurchases. In connection with the redemption of the 2021 Notes, during the three months ended September 30, 2020, the Company recorded a $9.1 million loss on debt extinguishment on the Consolidated Statements of Income, which consisted of a $8.5 million redemption premium payment and $0.6 million for the unamortized portion of the original issue discount and previously incurred issuance costs.
12
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Note 13.    Debt - (Continued)
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 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 and repaid all outstanding amounts under its prior credit agreement. The Company borrowed anhas the right, subject to certain conditions, including approval of additional $175.0 million and made payments of $126.0 millioncommitments by qualified lenders, to increase the availability under the revolving credit facility during the nine months ended September 30, 2020.by an additional $200.0 million until March 29, 2024.
The Credit Agreement allows the Company 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 published term Eurocurrency rate (e.g. LIBOR) in which the loan is denominated. The Eurocurrency rate loans have a floor of zero percent and an applicable margin that ranges from 1.000 percent to 1.375 percent depending on the Company’s consolidated total leverage ratio.
The Credit Agreement requires the Company to pay a commitment fee on the amount of unused revolving commitments at a rate, based on ourthe consolidated total leverage ratio, which ranges from 0.125 percent to 0.200 percent of unused revolving commitments. At September 30, 2020,March 31, 2021, the commitment fee on the amount of unused revolving credit was 0.175 percent per annum. The Credit Agreement contains one financial covenant that requires maintenance of a consolidated total leverage ratio with which the Company was in compliance at September 30, 2020.March 31, 2021.
The facilities available under the Credit Agreement are unsecured. The Credit Agreement also contains language providing for the adoption of a LIBOR successor rate in anticipation of the possibility of LIBOR benchmark reform, consistent with market practice. The Company is engaged in regular dialogue with its lenders and derivatives counterparties to keep apprised of the proposed successor rates in each of the jurisdictions that might be impacted by a need to execute a financial transaction. Although progress has been made by the various working groups, the Company believes it is too early to accurately assess any financial impact of the LIBOR benchmark reform.
As disclosed in Note 5, "Fair Value of Financial Instruments", the Company entered into a floored interest rate swap with a Swedish kronor notional amount initially equivalent to $150.0 million to hedge the cash flows associated with the interest rate risk arising from the variability in interest expense attributable to amounts drawn under the Swedish kronor term loan.
Letters of Credit
At September 30, 2020,March 31, 2021, the Company had $10.8$15.4 million of letters of credit outstanding under the Credit Agreement, which reduced the total availability under the revolving commitments under the Credit Agreement.
On January 11, 2019, a standby letter of credit, not to exceed 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 Authority in order to grant the original respite from paying the tax reassessment described in Note 16, "Income Taxes." The outstanding amount of the L/C Agreement was equivalent to approximately $248.0$254.6 million at September 30, 2020.March 31, 2021. While outstanding amounts under the L/C Agreement do not reduce the available revolving credit from the Credit Agreement, they are considered indebtedness and influence the incremental debt capacity governed by our Credit Agreement covenants. The standby letter of credit was further amended on April 24, 2020 to reflect the new respite.

Note 14.    Accrued Product Warranties

The following table summarizes the Company's warranty liability and activity (in thousands):
Three Months Ended March 31,
 20212020
Accrued product warranties, beginning of period$21,522 $19,143 
Amounts paid for warranty services(1,720)(2,003)
Warranty provisions for products sold3,097 2,860 
Currency translation adjustments and other(137)(191)
Accrued product warranties, end of period$22,762 $19,809 
Current accrued product warranties, end of period$18,397 $15,018 
Long-term accrued product warranties, end of period$4,365 $4,791 

13
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Note 14.
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,
 2020 2019 2020 2019
Accrued product warranties, beginning of period$20,348
 $18,541
 $19,143
 $18,583
Amounts paid for warranty services(1,908) (3,853) (5,714) (10,983)
Warranty provisions for products sold2,375
 4,329
 7,464
 10,536
Business acquisition0
 0
 0
 899
Currency translation adjustments and other117
 (100) 39
 (118)
Accrued product warranties, end of period$20,932
 $18,917
 $20,932
 $18,917
        
Current accrued product warranties, end of period    $16,786
 $14,371
Long-term accrued product warranties, end of period    $4,146
 $4,546
Note 14.    Accrued Product Warranties - (Continued)
The Company generally provides a twelve12 to twenty-four-monthNaN month warranty on its products. A provision for the estimated future costs of warranty, based upon historical cost and product performance experience, is recorded when revenue is recognized. Long-term accrued product warranties are included in other long-term liabilities on the Consolidated Balance Sheets.


Note 15.
Note 15.    Contingencies
Matters Involving the United States Department of State and Department of Commerce
On April 24, 2018, the Company 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 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 potential violation of the 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 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 the Company’s 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 recorded a $15.0 million charge for the portion of the penalty that is not subject to suspension. In April 2018, 2019, 2020, and 2020,2021 the Company paid $1.0 million, $3.5 million, $3.5 million and $3.5 million, respectively, of the $15.0 million charge and ascharge. As of September 30, 2020, the remaining amounts payableMarch 31, 2021, $7.0 million of penalties were recorded with $3.5 million and $3.5 million have been recorded in other current liabilities and $3.5 million in other long-term liabilities, respectively. The remaining $7.0 million is payable in annual installments of $3.5 million through April 2022.liabilities. The Company's investments in remedial compliance measures to date have been sufficient to cover the $15.0 million suspension amount.
As part of the Consent Agreement, DDTC acknowledged that the Company 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 number ofseveral compliance program improvements.
In 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"). This matter remains under review by DDTC, BIS and the Department of Justice ("DOJ"). DDTC and BIS both acknowledged the submissions, and the Company executed tolling agreements for this matter with each of DDTC, BIS and DOJ. The DDTC tolling agreement has lapsed, and the BIS and DOJ tolling agreements have been extended to December 1, 2020May 3, 2021 and DecemberJuly 15, 2020, respectively; FLIR is2021, respectively. On April 29, 2021, the Company executed a settlement agreement with BIS that resulted in discussion witha civil penalty of approximately $0.3 million and an obligation of the Company to conduct two internal audits of its export controls compliance program. The DOJ on resolving the matter.
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Note 15.        Contingencies - (Continued)
Matters Involving the United States Department of State and Department of Commerce - (Continued)matter remains ongoing.
In June 2017, BIS informed the Company of additional export licensing requirements that restrict the Company’s ability to sell 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 the Export Administration Regulations ("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.
At this time, based on available information regarding these proceedings, 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 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. The Company identified the cause of these quality issues, notified customers of their option to request repair and modification of their 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 $2.7 million and $9.1 million. As no single amount within the range is a better estimate than any other amount within the range, the Company has recorded an accrual of $2.7 million in other current liabilities as of September 30, 2020. 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 June 2020, a shareholder filed a derivative lawsuit in the Court of Chancery for the State of Delaware, Case No. 2020-0464, against the Company, as a nominal defendant, and certain current and former directors of the Company.
14
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Note 15.    Contingencies - (Continued)
Shareholder Derivative Lawsuit - (Continued)
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, among other matters, 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. The Company filed a motion to dismiss in the third quarter of 2020,2020. Following the announcement on January 4, 2021 of the acquisition of the Company by Teledyne Technologies Incorporated, a Delaware corporation (“Teledyne”), the parties stipulated to stay the action pending the close of the transaction, termination of the transaction, or through June 30, 2021, whichever occurs first.
Merger-Related Litigation
In connection with the Company’s pending acquisition by Teledyne, six lawsuits have been filed against the Company and oral arguments are scheduledthe board of directors of the Company (“Board of Directors”) in federal court: Baird v. FLIR Systems Inc., et al.; Johnson v. FLIR Systems, Inc., et al.; Hayman v. FLIR Systems, Inc., et al.; Keller v. FLIR Systems, Inc., et al.; Coffman v. FLIR Systems et al.; and Sheridan v. FLIR Systems, Inc. et al. The Johnson action also names Teledyne and certain of its subsidiaries as defendants. Each of the aforementioned complaints assert claims for violations of Securities Exchange Act Section 14(a) and Rule 14a-9 based on allegations that the first quarterRegistration Statement on Form S-4 filed by Teledyne with the SEC omits material facts and/or includes materially incomplete and misleading information. The lawsuits also assert control person claims under Securities Exchange Act Section 20(a) against the Board of 2021.Directors and, in the case of the Johnson action, against Teledyne’s board of directors. The plaintiffs in the individual complaints agreed that supplemental disclosures included in Amendment No. 1 to the Form S-4 mooted their disclosure-related claims and voluntarily dismissed their complaints, and in April 2021, the Company agreed to pay a mootness fee to plaintiffs’ counsel totaling approximately $0.4 million.
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.
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Note 15.        Contingencies - (Continued)
Other Matters - (Continued)
While the outcome of each of these matters cannot be predicted with certainty, the Company believes the probability is remote that the outcome of each of these matters 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.
Note 16.    Income Taxes
The provision for income taxes was as follows (in thousands, except percentages):
 Three Months Ended September 30, Nine Months Ended September 30,
 2020 2019 2020 2019
Income tax provision$19,258
 $5,079
 $47,669
 $30,093
Effective tax rate24.1% 7.6% 25.8% 15.0%

Three Months Ended
 March 31,
 20212020
Income tax provision$11,203 $7,774 
Effective tax rate22.4 %33.5 %
The effective tax rate for the three and nine months ended September 30, 2020March 31, 2021 is higher than the United States Federal tax rate of 21.0 percent mainly due to the tax effects of intercompany transfers, non-recognition of the tax benefit of current year operating losses of a foreign subsidiary, an increase in unrecognized tax benefits related to positions taken or expected to be taken on prior and current year tax returns, higher tax rates applied to income earned in certain foreign jurisdictions, United States tax applied to global intangible income, and state taxes. These amounts were offset partially by benefits related to United States export sales, excess tax benefits from stock compensation, and research credits and lower global intangible income subject to United States tax.
credits. As of September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively, the Company has accrued income tax liabilities of $37.1 million related to the transition tax enacted on December 22, 2017 as part of the Tax Cuts and Jobs Act.
15
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Note 16.        Income Taxes - (Continued)
Of the amounts accrued, $2.7 million is expected to be due within one year. The remaining transition tax will not accrue interest and will be paid in annual installments beginning in 2021 through 2024.
The Company has not provided United States, state or foreign income taxes for earnings generated after January 1, 2018 by certain subsidiaries outside the United States as management currently intends to reinvest the earnings in operations and other activities outside of the United States indefinitely. Should the Company subsequently elect to repatriate such foreign earnings, the Company would need to accrue and pay 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 Cuts and Jobs Act.
As of September 30, 2020,March 31, 2021, the Company had approximately $35.7$26.2 million of unrecognized tax benefits, of which $34.4$24.9 million would affect the Company’s effective tax rate if recognized. The Company anticipates approximately $10.1$3.1 million of the net unrecognized tax benefits will be recognized within 12 months as a 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, 2020,March 31, 2021, the Company had $5.3$2.8 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 Sheets.
During the fourth quarter of 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 $334.2$342.9 million (Swedish kronor 3.0 billion). On March 26, 2020, the Company received an adverse judgment from the First Instance Court of Sweden (the “Court”) regarding the STA's reassessment. The Company does not agree with the Court’s ruling, continues to believe the STA's arguments in the reassessment are not in accordance with Swedish tax regulations or the treaty for the avoidance of double taxation between Sweden and Belgium, and has appealed the decision to the Administrative Court of Appeal in Stockholm. Consequently, no adjustment to the Company's unrecognized tax benefits has been recorded in relation to this matter. The Company has received a respite from paying the reassessment until after a decision by the Administrative Court of Appeal by putting in place a bank guarantee to secure possible future payment of the tax and interest. There can be no assurance that the Company’s appeal will be successful.
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Note 16.        Income Taxes - (Continued)
During the third quarter of 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.
On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), the bipartisan $2.0 trillion economic relief package aimed at helping American workers and businesses impacted by the coronavirusCOVID-19 pandemic. Through September 30, 2020March 31, 2021 the CARES Act has not materially affected the Company'sour income tax provision or deferred tax assets or liabilities. The CompanyWe will continue to monitor the effect of the CARES Act and ongoing government guidance related to COVID-19 that may be issued.
The Company currently has the following tax years open to examination by major taxing jurisdictions:
 Tax Years:
United States Federal2017-2019
State of California2015-2019
State of Massachusetts2016-2019
State of Oregon2017-2019
Sweden2012-2019
United Kingdom2016-2019
Belgium2012-2019
Tax Years:
United States Federal2016-2018
State of California2015-2018
State of Massachusetts2015-2018
State of Oregon2016-2018
Sweden2012-2018
United Kingdom2015-2018
Belgium2012-2018


Note 17.        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. In the first quarter of 2020, the
16
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Note 17.        Operating Segments and Related Information - (Continued)
Operating Segments - (Continued)
The Company completed a business reorganization as part of its "Project Be Ready" restructuring plan which resulted in identification ofhas 2 reportable segments (Industrial Technologies and Defense Technologies). The Company commenced operating and reporting under the new organization structure effective January 1, 2020. See Note 19, “Restructuring” for further information on Project Be Ready.as follows:
Industrial Technologies Segment. The Industrial Technologies 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, manufactures, and services offerings that image, measure, and analyze thermal energy, gases, and other environmental elements for industrial, commercial, and scientific applications, imaging payloads for Unmanned Aerial Systems ("UAS"), and machine vision cameras. Additionally, the segment develops, manufactures, and services fixed-mounted visible and thermal imaging cameras and related analytics software for perimeter security, critical infrastructure, recreational and commercial maritime, and traffic monitoring and control. Offerings include thermal imaging cameras, analytics software, gas detection cameras, firefighting cameras, process automation cameras, environmental test and measurement devices, security cameras, marine electronics, and traffic cameras.
Defense Technologies Segment. The Defense Technologies segment 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. The segment also 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. The segment also produces advanced multi-mission unmanned air and ground based systems serving US Department of Defense and Federal government agencies, public safety, and governmental customers in international markets.
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Note 17.        Operating Segments and Related Information - (Continued)
Operating Segments - (Continued)
The following tables present revenue, segment operating income, and segment assets for the two segments. Segment operating income as reviewed by the CODM is revenue less cost of goods sold and operating expenses, excluding general corporate expenses, separation, transaction, and integration costs, amortization of acquired intangible assets, restructuring expenses and asset impairment charges, and discrete legal and compliance matters. Net accounts receivable, inventories and 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.
Segment operating income information is as follows (in thousands):
Three Months Ended
Three Months Ended September 30, Nine Months Ended September 30,March 31,
2020 2019 2020 2019 20212020
Revenue—External Customers:       Revenue—External Customers:
Industrial Technologies$281,119
 $257,900
 $857,732
 $813,775
Industrial Technologies$274,864 $276,415 
Defense Technologies185,295
 213,348
 541,620
 584,207
Defense Technologies192,449 174,508 
$466,414
 $471,248
 $1,399,352
 $1,397,982
$467,313 $450,923 
Revenue—Intersegments:       Revenue—Intersegments:
Industrial Technologies$3,639
 $3,759
 $10,269
 $12,221
Industrial Technologies$3,378 $2,702 
Defense Technologies2,289
 959
 5,562
 3,906
Defense Technologies1,230 1,834 
Eliminations(5,928) (4,718) (15,831) (16,127)Eliminations(4,608)(4,536)
$0
 $0
 $0
 $0
$0 $0 
Segment operating income:       Segment operating income:
Industrial Technologies$87,743
 $63,713
 $259,145
 $204,365
Industrial Technologies$76,906 $64,265 
Defense Technologies38,811
 53,809
 113,120
 146,485
Defense Technologies25,376 33,154 
$126,554
 $117,522
 $372,265
 $350,850
$102,282 $97,419 
A reconciliation of the Company's consolidated segment operating income to consolidated earnings before income taxes is as follows (in thousands):
17
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
 Three Months Ended September 30, Nine Months Ended September 30,
 2020 2019 2020 2019
Consolidated segment operating income$126,554
 $117,522
 $372,265
 $350,850
Unallocated corporate expenses(27,812) (25,491) (93,082) (83,416)
Amortization of purchased intangible assets(11,872) (15,477) (35,522) (42,451)
Restructuring expenses(293) (2,166) (28,779) (5,776)
Consolidated earnings from operations86,577
 74,388
 214,882
 219,207
Loss on debt extinguishment(9,126) 0
 (9,126) 0
Interest and non-operating income (expense)2,470
 (7,262) (20,743) (19,201)
Consolidated earnings before income taxes$79,921
 $67,126
 $185,013
 $200,006
Note 17.        Operating Segments and Related Information - (Continued)
Three Months Ended
 March 31,
 20212020
Consolidated segment operating income$102,282 $97,419 
Unallocated corporate expenses(37,274)(36,244)
Amortization of purchased intangible assets(11,924)(11,896)
Restructuring expenses(622)(20,784)
Consolidated earnings from operations52,462 28,495 
Interest and non-operating expense(2,452)(5,297)
Consolidated earnings before income taxes$50,010 $23,198 
Unallocated corporate expenses include general corporate expenses, separation, transaction, and integration costs, amortization of acquired intangible assets, restructuring expenses and asset impairment charges, and discrete legal and compliance matters.
A reconciliation of the Company's consolidated segment operating assets to consolidated total assets is 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,
 2020 2019
Operating segment assets:   
 Net accounts receivable, inventories and demonstration assets:   
Industrial Technologies$420,319
 $405,166
Defense Technologies395,752
 332,639
 $816,071
 $737,805
Goodwill:   
Industrial Technologies640,165
 635,899
Defense Technologies710,482
 728,697
 $1,350,647
 $1,364,596
Total operating segment assets$2,166,718
 $2,102,401
    
Assets not allocated:   
 Cash and cash equivalents$319,995
 $284,592
 Prepaid expenses and other current assets92,620
 86,337
 Property and equipment, net255,457
 255,905
 Deferred income taxes37,902
 39,983
 Intangible assets, net211,206
 247,514
 Other assets129,014
 120,809
Total assets$3,212,912
 $3,137,541

 March 31,December 31,
 20212020
Operating segment assets:
 Net accounts receivable, inventories and demonstration assets:
Industrial Technologies$425,274 $419,323 
Defense Technologies454,023 436,595 
$879,297 $855,918 
Goodwill:
Industrial Technologies644,666 651,439 
Defense Technologies742,181 742,925 
$1,386,847 $1,394,364 
Total operating segment assets$2,266,144 $2,250,282 
Assets not allocated:
 Cash and cash equivalents$277,303 $297,795 
 Prepaid expenses and other current assets66,609 74,526 
 Property and equipment, net269,269 267,682 
 Deferred income taxes35,610 36,210 
 Intangible assets, net197,632 209,636 
 Other assets116,235 116,217 
Total assets$3,228,802 $3,252,348 
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):
Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020 Three Months Ended March 31, 2021
Industrial Technologies Defense Technologies Total Industrial Technologies Defense Technologies Total Industrial TechnologiesDefense TechnologiesTotal
United States$127,594
 $134,518
 $262,112
 $362,232
 $362,165
 $724,397
United States$120,678 $135,105 $255,783 
Europe73,031
 24,312
 $97,343
 216,197
 69,733
 $285,930
Europe82,194 22,549 $104,743 
Asia53,991
 11,214
 $65,205
 188,329
 39,292
 $227,621
Asia41,422 12,571 $53,993 
Middle East/Africa9,072
 10,135
 $19,207
 41,887
 60,357
 $102,244
Middle East/Africa14,747 18,565 $33,312 
Canada/Latin America17,431
 5,116
 $22,547
 49,087
 10,073
 $59,160
Canada/Latin America15,823 3,659 $19,482 
$281,119
 $185,295
 $466,414
 $857,732
 $541,620
 $1,399,352
$274,864 $192,449 $467,313 
18
 Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
 Industrial Technologies Defense Technologies Total Industrial Technologies Defense Technologies Total
United States$123,495
 $146,421
 $269,916
 $391,574
 $389,940
 $781,514
Europe61,695
 24,537
 86,232
 209,998
 76,133
 286,131
Asia50,736
 16,080
 66,816
 145,750
 51,014
 196,764
Middle East/Africa7,395
 24,571
 31,966
 23,046
 60,793
 83,839
Canada/Latin America14,579
 1,739
 16,318
 43,407
 6,327
 49,734
 $257,900
 $213,348
 $471,248
 $813,775
 $584,207
 $1,397,982
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Note 17.        Operating Segments and Related Information - (Continued)
Revenue and Long-Lived Assets by Geographic Area - (Continued)
 Three Months Ended March 31, 2020
 Industrial TechnologiesDefense TechnologiesTotal
United States$103,337 $115,947 $219,284 
Europe65,335 19,476 84,811 
Asia73,387 11,864 85,251 
Middle East/Africa18,027 25,128 43,155 
Canada/Latin America16,329 2,093 18,422 
$276,415 $174,508 $450,923 
Long-lived assets consist of net property and equipment, net identifiable intangible assets, goodwill and other long-term assets. Long-lived assets by significant geographic locations are as follows (in thousands):
September 30, December 31, March 31,December 31,
2020 201920212020
United States$1,125,851
 $1,137,375
United States$1,139,267 $1,144,758 
Europe415,105
 435,024
Europe426,619 440,549 
Other foreign405,368
 416,425
Other foreign404,097 402,592 
$1,946,324
 $1,988,824
$1,969,983 $1,987,899 
Major Customers
Revenue derived from major customers is as follows (in thousands):
Three Months Ended
 March 31,
 20212020
United States government$156,719 $132,149 
 Three Months Ended September 30, Nine Months Ended September 30,
 2020 2019 2020 2019
United States government$155,437
 $165,682
 $417,632
 $459,336


Note 18.    Business Acquisitions and Combinations
Note 18.
Business Acquisitions
Endeavor Robotics Holdings, Inc.
On March 4, 2019, the Company acquired 100% of the outstanding stock of Endeavor Robotics Holdings, Inc. ("Endeavor"), 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. The acquisition enhances the Company’s offerings in unmanned ground systems and expands distribution channels in adjacent markets. During the first quarter of 2020, the Company completed the tax assessment for the short–period return that resulted in a goodwill adjustment of $12.6 million. Accordingly, the Company finalized the purchase price allocation and recorded $102.7 million of identified intangible assets and $271.4 million of goodwill in the Defense Technologies segment.
Altavian, Inc.
On December 2, 2020, the Company acquired 100% of the outstanding stock of Altavian, a privately held manufacturer of small unmanned aerial systems (sUAS) for defense and public safety customers. The transaction consideration of $34.1 million included a cash payment of $26.8 million and Company’s common stock valued at $7.3 million. In addition to the above transaction consideration, $2.5 million in Company shares will be payable as share-based compensation over a three-year period. The acquisition advances the Company's strategic pillars and expands franchise program opportunities in defense, public safety, and industrial markets.
The final allocationCompany recorded $6.1 million of identified intangible assets and $22.9 million of goodwill, in conjunction with the Altavian acquisition, in the Defense Technologies segment. Goodwill consists largely of the purchase price for Endeavor is as follows (in thousands):
Cash acquired $6,687
Other tangible assets and liabilities 14,915
Net deferred taxes (9,776)
Identified intangible assets 102,740
Goodwill 271,365
Total purchase price $385,931

The goodwillability of $271.4 million represents intellectual capitalthe Company and Altavian, working together, to further expand the acquired assembled workforce, none ofCompany unmanned aerial systems product offering, which qualify for recognition aswill allow the Company to offer customers a separate intangible asset. Allmore comprehensive solution portfolio than any other American sUAS provider. None of the goodwill presented aboverecognized is not expected to be deductible for tax purposes. The Company identified $102.7 million of intangible assets. The following table summarizes the acquired intangible assets and their estimated fair values and estimated useful lives (in thousands, except years):
 Estimated Useful Life Amount
Developed technology5.0 years $60,400
In-process research and development9.0 years 28,000
Trademarks and trade name4.5 years 9,990
Backlog1.0 year 3,850
Customer contracts1.0 year 500
   $102,740
19

FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Note 18.    Business Acquisitions and Combinations - (Continued)
Acquisition-dateAltavian, Inc.- (Continued)
The final allocation of the purchase price related to tax attributes remains open as the Company anticipates finalizing calculations for positions to be included on pre-closing tax returns during the second quarter of 2021.
The preliminary allocation of the purchase price was as follows (in thousands):
Cash acquired$157 
Other tangible assets and liabilities1,491 
Net deferred taxes3,526 
Identified intangible assets6,075 
Goodwill22,857 
Total purchase price$34,106 
The identifiable intangible assets primarily consist of intangibles derived from developed technology, in-process research and development, trademarkstheir preliminary estimated fair values and backlog. Developed technology represents the economic advantage of having certain technologies in place that lower manufacturing and operating costs and drive higher margins. In-process research and development consist of proprietary robot technology. Trademarks provide value to the marketing or promotion of an entity and its products or services. 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.estimated useful lives were as follows (in thousands, except years):
The developed technology and in-process research and development were valued using the income approach and relief from royalty method. The trade names and backlog were valued using an income approach method.
New England Optical Systems, Inc.
 On May 1, 2019, the Company acquired 100% of 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 transaction consideration included a $21.9 million cash payment with up to an additional $12.0 million in deferred compensation payable over a two-year period. During the first quarter of 2020, the Company finalized the purchase price allocation and concluded that there were no changes to the previously recorded $6.4 million of identified intangible assets and $14.0 million of goodwill in the Industrial Technologies segment as presented in Note 20, "Business Acquisitions and Divestitures" of the Notes to the Consolidated Financial Statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2019. All of the goodwill is expected to be deductible for tax purposes.Estimated
Useful Life		Amount
Developed technology10.0 years$5,100 
Internally developed software5.0 years800 
Noncompete agreement5.0 years175 
$6,075 
The business acquisitions listed above are not significant as defined in Regulation 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.

Acquisition by Teledyne
On January 4, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), with Teledyne, Firework Merger Sub I, Inc., a Delaware corporation and a wholly owned subsidiary of Teledyne (“Merger Sub I”), and Firework Merger Sub II, LLC, a Delaware limited liability company and a wholly owned subsidiary of Teledyne (“Merger Sub II”). Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub I will merge with and into the Company, with the Company surviving the merger as a wholly owned subsidiary of Teledyne (the “First Merger”) and immediately thereafter, the Company will merge with and into Merger Sub II, with Merger Sub II surviving the subsequent merger (the “Second Merger”, and, together with the First Merger, the “Mergers”).
Subject to the terms and conditions set forth in the Merger Agreement, upon completion of the Mergers, the Company stockholders will receive, in exchange for each share of our common stock held immediately prior to the Mergers, (i) $28.00 in cash and (ii) 0.0718 shares of Teledyne common stock. The Merger Agreement provides each of the Company and Teledyne with certain termination rights and, under certain circumstances, may require the Company or Teledyne to pay a termination fee.
The transaction is expected to close on May 14, 2021 subject to the receipt of approvals of Teledyne and the Company stockholders and other customary closing conditions.

Note 19.     Restructuring
In the first quarter of 2020, the Company initiated a strategy-driven restructuring plan, Project Be Ready, to simplify the Company’s product portfolio and better align resources with higher growth opportunities while reducing costs. Project Be Ready includes an organizational realignment, targeted workforce reductions, and facility optimization initiatives. All previously approved ongoing restructuring activities that were in process as of January 1, 2020 were consolidated into Project Be Ready.
The Company expects to incur total costs of approximately $40.0 million to $55.0 million related to Project Be Ready, including approximately $20.0 million to $25.0 million of employee separation costs, approximately $5.0 million to $10.0 million of facility consolidation expenses, and approximately $15.0 million to $20.0 million of third party and other costs. The Company estimates that a majority of the cumulative pretax costs will be cash outlays related to employee separation, facility consolidation, and third-party expenses and that the costs will continue through 2021.
20
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Note 19.     Restructuring- (Continued)
Restructuring expenses related to Project Be Ready, which are recorded in “Restructuring Expenses” on the Consolidated Statements of Income, were as follows (in thousands):
 Three Months Ended September 30, Nine Months Ended September 30,
 2020 2019 2020 2019
Employee separation costs$(200) $0
 $17,153
 $0
Lease consolidation expenses0
 0
 204
 0
Third party and other costs493
 0
 11,422
 0
Total Restructuring Program Expenses$293
 $0
 $28,779
 $0

Three Months Ended
 March 31,
 20212020
Employee separation costs$276 $10,465 
Lease consolidation expenses0 204 
Third party and other costs346 10,115 
Total Restructuring Program Expenses$622 $20,784 
The restructuring liability related to Project Be Ready for the three months ended March 31, 2021 was as follows (in thousands):
 Employee separation costsThird party and other costsTotal
Balance at December 31, 2020$4,217 $267 $4,484 
Accrual and accrual adjustments276 346 622 
Cash payments(1,387)(576)(1,963)
Balance at March 31, 2021$3,106 $37 $3,143 
 Employee separation costs Third party and other costs Total
Balance at December 31, 2019$1,343
 $2,780
 $4,123
Accrual and accrual adjustments17,151
 11,628
 28,779
Cash payments(11,253) (14,121) (25,374)
Balance at September 30, 2020$7,241
 $287
 $7,528

FLIR SYSTEMS, INC.Note 20.    Subsequent Events
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Note 19.Restructuring - (Continued)
During the three and nine months ended September 30, 2019, the Company recognized a total of $2.2 million and $5.8 million, respectively, of expense in connection with other restructuring activities which have been recorded in “Restructuring Expenses” on the Consolidated Statements of Income.

Note 20.
Subsequent Events
On October 29, 2020,April 28, 2021, the Company’s Board of Directors declared a quarterly dividend of $0.17 per share on itsthe Company's common stock, payable on DecemberJune 4, 2020,2021, to shareholders of record as of the close of business on November 20, 2020.May 21, 2021. The total cash payment of this dividend will be approximately $22.3$22.4 million. In the event that the Mergers with Teledyne close prior to May 21, 2021, the dividend will not be paid.


ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Acquisition by Teledyne
On January 4, 2021, Teledyne and the Company announced that the companies have entered into the Merger Agreement under which Teledyne will acquire FLIR in a cash and stock transaction valued at approximately $8.0 billion. Under the terms of the Merger Agreement, FLIR stockholders will receive $28.00 per share in cash and 0.0718 shares of Teledyne common stock for each FLIR share, which implies a total purchase price of approximately $56.00 per FLIR share based on Teledyne’s 5-day volume weighted average price as of December 31, 2020. The transaction is expected to close on May 14, 2021 subject to the receipt of approvals of Teledyne and the Company stockholders and other customary closing conditions. We cannot guarantee that the Mergers contemplated by the Merger Agreement will be completed or that, if completed, it will be exactly on the terms as set forth in the Merger Agreement. Should the Mergers not be completed, the Company may receive or pay a breakup fee, as provided for in the Merger Agreement.
Impact of COVID-19
On January 30, 2020,The ongoing COVID-19 pandemic has caused significant disruptions to the World Health Organization declared the coronavirus disease 2019 (“COVID-19”) outbreak as aUnited States and global health emergency. On March 11, 2020, the World Health Organization raised the COVID-19 outbreakeconomy and has contributed to “pandemic” status. Early on, the transmissionsignificant volatility in financial markets. Transmission of COVID-19 and efforts to contain its spread resulted in international, national and local border closings and other significant travel restrictions and disruptions, significant disruptions to business operations, supply chains and customer activity, event cancellations and restrictions, service cancellations, reductions and other changes, significant challenges in healthcare service preparation and delivery, quarantines and related government actions and policies, as well as general concern and uncertainty that has negatively affected the U.S. and global economy and financial environments. More recently, state and local jurisdictions started to lift mandatory stay-at-home or shelter-in-place orders and started gradually to ease restrictions. In addition, as cases have resurged in parts of the U.S., including areas in which we maintain large facilities, we have seen governments slow or reverse efforts to reopen or shift into later phases of recovery, with increased risks to our operations.
21

The health and safety of our employees across the globe remain our top priority during this crisis. We have enacted stringent safety protocols to protect our employees and ensure we can continue to service our customers. We initiated a site entry restriction policy for external visitors to our facilities. We have also developed contingency plans for staggered work schedules designed to reduce the number of employees working at a given time. We are regularly deep cleaning our facilities, advising all employees to follow safe hygiene practices, and requiring employees to stay home if they have any of the known symptoms or have come into contact with people who have tested positive for COVID-19. We have also implemented a global employee travel banrestrictions and allowed employees to work remotely if they are able to do so.
In aggregate, the outbreak did not have a material impact on our consolidated financial results infor the first ninethree-month periods ended March 31, 2021 and 2020. However, during the three months of 2020. Whileended March 31, 2021, the Industrial Technologies segment has experienced an increase ina reduced demand for its Elevated Skin Temperature (“EST”) cameras during 2020 as a result of the COVID-19 pandemic,solutions, which arewere being deployed to help prevent the spread of COVID-19, when compared to the virus, this increase has been partially offset by lower volume in certain commercial end markets.prior year quarter. The Defense Technologies segment has experienced administrative processing delays impactingan increased volume on several unmanned systems programs during the timing of bookings and revenue. These trends are likelythree months ended March 31, 2021 when compared to affect the segment’s results in subsequent quarters, although it is not yet possible to estimate the longer-term effects of the pandemic on demand for EST screening technology and other products.prior year quarter.
We continue to monitor the evolving situation related to COVID-19. The extent to which COVID-19 impacts our operations or financial results will further depend on future developments, which are highly uncertain and cannot be predicted, including the status of state and local government reopening plans and any resurgence of illness and the reimposition of certain restrictions in connection therewith, additional actions taken by governments, businesses and individuals to contain the virus or address its impact, new information which may emerge concerning the severity or treatability of the virus, the successful rollout of vaccines, new strains of the virus, and the extent of the economic downturn resulting from the response to the virus, among others.


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”FLIR,” the “Company,” “we,” “us,” or the “Company”“our”) 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. Such statements, including management’s expectations regarding the Company’s ability to keep manufacturing facilities operational, the ability of the Company to rely on existing suppliers and vendors in its supply chain and management’s expectations to be able to mitigate future disruptions to the Company’s business operations are based on current expectations, estimates, and projections about FLIR’s business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks and uncertainties 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, as well as the following:
•risks related to the pending acquisition of FLIR by Teledyne, including parties’ ability to satisfy the conditions required to complete the transaction and, during the pendency of the transaction, diversion of management and employees’ attention, retention and recruiting challenges, uncertainty in business relationships and restrictions on operations set forth in the definitive acquisition agreement;
•risks related to United States government spending decisions and applicable procurement rules and regulations;
•negative impacts to operating margins due to reductions in sales or changes in product mix;
•impairments in the value of tangible and intangible assets;

•unfavorable results of legal proceedings;
•risks associated with international sales and business activities, including the regulation of the export and sale of our products worldwide and our ability to obtain and maintain necessary export licenses, as well as the imposition of significant tariffs or other trade barriers;
risks related to subcontractor and supplier performance and financial viability as well as raw material and component availability and pricing;
risks related to currency fluctuations;
adverse general economic conditions or volatility in our primary markets;
our ability to compete effectively and to respond to technological change;
risks related to product defects or errors;
our ability to protect our intellectual property and proprietary rights;
cybersecurity and other security threats and technology disruptions;
our ability to successfully manage acquisitions, investments and divestiture activities and integrate acquired companies;
our ability to achieve the intended benefits of our strategic restructuring;
our ability to attract and retain key senior management and qualified technical, sales and other personnel;
•risks to our supply chain, production facilities or other operations, and changes to general, domestic, and foreign economic conditions, due to the COVID-19 pandemic;
•risks related to subcontractor and supplier performance and financial viability as well as raw material and component availability and pricing;
•risks related to currency fluctuations;
22

•adverse general economic conditions or volatility in our primary markets;
•our ability to compete effectively and to respond to technological change;
•risks related to product defects or errors;
•our ability to protect our intellectual property and proprietary rights;
•cybersecurity and other security threats and technology disruptions;
•our ability to successfully manage acquisitions, investments and divestiture activities and integrate acquired companies;
•our ability to achieve the intended benefits of our strategic restructuring;
•risks related to our senior unsecured notes and other indebtedness;
•our ability to attract and retain key senior management and qualified technical, sales and other personnel;
•changes in our effective tax rate and the results of pending tax matters; and
•other risks discussed from time to time in filings and reports filed with the Securities and Exchange Commission.Commission (“SEC”).
COVID-19 may exacerbate one or more of the aforementioned and/or other risks, uncertainties and other factors more fully described in the Company’s reports filed with the SEC. In addition, such statements could be affected by general industry and market conditions and growth rates, and general domestic and international economic conditions. Such forward-looking statements speak only as of the date on which they are made and except as required by law, the Company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this release, or for changes made to this document by wire services or internet service providers, whether as a result of new information, future events, or otherwise.


Consolidated Operating Results
The following discussion provides an overview of our operating results 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. Given the nature of our business, we believe revenue and earnings from operations, or operating income (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 no revenue has been recognized. Backlog is not an absolute indicator of future revenue because a portion of the orders in backlog could be delayed or canceled at the customer's discretion. Further, due to the COVID-19 pandemic, as described above within “Impact of COVID-19,” we are unsure how future results will compare to historic trends in the conversion of backlog to revenue.
The following table summarizes our consolidated operating results for the periods presented (in thousands, except percentages):

 Three Months Ended
March 31,DollarPercent
 20212020ChangeChange
Revenue$467,313 $450,923 $16,390 3.6 %
Cost of goods sold258,115 231,555 26,560 11.5 %
Gross profit209,198 219,368 (10,170)(4.6)%
Gross Margin44.8 %48.6 %
Research and development52,246 53,847 (1,601)(3.0)%
Selling, general and administrative103,868 116,242 (12,374)(10.6)%
Restructuring expenses622 20,784 (20,162)(97.0)%
Earnings from operations52,462 28,495 23,967 84.1 %
Interest expense6,115 6,961 (846)(12.2)%
Interest income(41)(349)308 (88.3)%
Other income (loss), net(3,622)(1,315)(2,307)175.4 %
Earnings before income taxes50,010 23,198 26,812 115.6 %
Income tax provision11,203 7,774 3,429 44.1 %
Net earnings$38,807 $15,424 $23,383 151.6 %
23
 Three Months Ended Nine Months Ended
 September 30, Dollar Percent September 30, Dollar Percent
 2020 2019 Change Change 2020 2019 Change Change
Revenue$466,414
 $471,248
 $(4,834) (1.0)% $1,399,352
 $1,397,982
 $1,370
 0.1 %
Cost of goods sold237,500
 241,501
 (4,001) (1.7)% 698,870
 700,966
 (2,096) (0.3)%
Gross profit228,914
 229,747
 (833) (0.4)% 700,482
 697,016
 3,466
 0.5 %
Research and development47,848
 49,800
 (1,952) (3.9)% 157,707
 150,437
 7,270
 4.8 %
Selling, general and administrative94,196
 103,393
 (9,197) (8.9)% 299,114
 321,596
 (22,482) (7.0)%
Restructuring expenses293
 2,166
 (1,873) (86.5)% 28,779
 5,776
 23,003
 398.3 %
Earnings from operations86,577
 74,388
 12,189
 16.4 % 214,882
 219,207
 (4,325) (2.0)%
Interest expense7,273
 7,582
 (309) (4.1)% 21,196
 20,370
 826
 4.1 %
Interest income(55) (612) 557
 (91.0)% (531) (2,107) 1,576
 (74.8)%
Loss on debt extinguishment9,126
 —
 9,126
 NM
 9,126
 —
 9,126
 NM
Other (income) expense, net(9,688) 292
 (9,980) NM
 78
 938
 (860) (91.7)%
Earnings before income taxes79,921
 67,126
 12,795
 19.1 % 185,013
 200,006
 (14,993) (7.5)%
Income tax provision19,258
 5,079
 14,179
 279.2 % 47,669
 30,093
 17,576
 58.4 %
Net earnings$60,663
 $62,047
 $(1,384) (2.2)% $137,344
 $169,913
 $(32,569) (19.2)%
Gross Margin49.1% 48.8%     50.1% 49.9%    
NM -
Not meaningful
Revenue. The decreaseincrease for the three months ended September 30, 2020March 31, 2021 as compared to the prior year quarter was primarily attributable to increased volume on several unmanned systems programs in Defense Technologies as well as increased demand in certain commercial end markets such as maritime products in Industrial Technologies. The increase was partially offset by shipment timing and the completion of certain contracts that contributed to revenue in the prior year quarter in Defense Technologies. The decrease was partially offset by increased demand for Elevated Skin Temperature ("EST") cameras in Industrial Technologies as a result of the COVID-19 pandemic. The increase for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 was primarily associated with increased demandand reduced volume for EST camerassolutions in Industrial Technologies as a result of the COVID-19 pandemic and contributions of unmanned revenues from the Aeryon Labs and Endeavor Robotics acquisitions in Defense Technologies. These increases were partially offset by lower volume in certain commercial end markets in Industrial Technologies and the completion of certain contracts that contributed to revenue in the prior year in Defense Technologies.
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. We currently expect total annual revenue for 20202021 to be in line with 20192020 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 43.845.3 percent and 42.751.4 percent of total revenue for the three months ended September 30,March 31, 2021 and 2020, and 2019, respectively. International sales accounted for 48.2 percent and 44.1 percent of total revenue for the nine months ended September 30, 2020 and 2019, 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. The decreaseincrease for the three months ended September 30, 2020March 31, 2021 as compared to the prior year quarter was primarily attributable to the lowerincreased revenue volume. The decrease for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 was primarily attributable to favorablevolume and unfavorable product mix in Industrial Technologies, partially offset by an increase in intangible asset amortization.Defense Technologies.

Cost of goods sold includes materials, labor and overhead costs incurred in the manufacturing of products and services sold in the period as well as warranty costs. Material costs include raw materials, purchased components and sub-assemblies, outside processing and inbound freight costs. Labor and overhead costs consist of direct and indirect manufacturing costs, including wages and fringe benefits, operating supplies, depreciation and amortization, occupancy costs, and purchasing, receiving and inspection costs.
Research and development expenses. 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, 2019,2020, our annual research and development expenses have varied between 8.58.9 percent and 10.810.9 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. The reductionsdecrease for both the three and nine months ended September 30, 2020 wereMarch 31, 2021 as compared to the prior year quarter was primarily attributable to operating expense reductions from Project Be Ready and decreases in intangible asset amortization, marketing and travel expenses.costs.
Restructuring expenses. In the first quarter of 2020, we initiated a strategy-driven restructuring plan, Project Be Ready, to simplify our product portfolio and better align resources with higher growth opportunities while reducing costs. Project Be Ready includes an organizational realignment, targeted workforce reductions, and facility optimization initiatives. All previously approved ongoing restructuring activities that were in process as of January 1, 2020 were consolidated into Project Be Ready. The decrease in net pre-tax restructuring charges recorded for these programs during the three and nine months ended September 30, 2020 primarily representMarch 31, 2021 as compared to the prior year quarter was driven by reduced Project Be Ready activity including lower employee separation costs and reduced third party and other costs. During the three and nine months ended September 30, 2019, we also recorded net pre-tax restructuring charges in connection with other restructuring activities. Refer to Note 19, "Restructuring" of the Notes to the Consolidated Financial Statements for further discussion.
Interest expense. Interest expense for the three and nine months ended September 30,March 31, 2021 was primarily associated with our 2.500 percent senior unsecured notes (the “2030 Notes”) in aggregate principal amount of $500.0 million that were issued and sold on August 3, 2020 and 2019, respectively,interest on amounts drawn under our credit facility. Interest expense for the three months ended March 31, 2020 was primarily associated with our previous 3.125 percent senior unsecured notes (the “2021 Notes”) in aggregate principal amount of $425.0 million and interest on amounts drawn under our credit facility. In addition, for the three months ended September 30, 2020, the interest expense was also associated with our 2.500 percent senior unsecured notes (the “2030 Notes”) in aggregate principal amount of $500.0 million that were issued and sold on August 3, 2020. The 2021 Notes were redeemed in full in connection with the August 2020 issuance of the 2030 Notes in a public offering.
Loss on debt extinguishment. During the three months ended September 30, 2020, we recorded a $9.1 million loss on debt extinguishment due to the redemption of our 2021 Notes, which consisted of a $8.5 million payment of redemption premium and $0.6 million for the unamortized portion of the original issue discount and previously incurred issuance costs.
Other (income) expense,income (loss), net. The change in other (income) expense,income (loss), net for the three months ended September 30, 2020March 31, 2021 as compared to the prior year quarter was primarily attributable to increased gains in our deferred compensation plan as well as increased gains on currency exchange rate fluctuations. The decrease in other expense, net for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019 was primarily attributed to impairments associated with our equity investments partially offset by increased gains on currency exchange rate fluctuations.plans.
Income taxes. Our income tax provision for the three and nine months ended September 30,March 31, 2021 and 2020 represents an effective tax rate of 24.122.4 percent and 25.8 percent, respectively. Our income tax provision for the three and nine months ended September 30, 2019 represented an effective tax rate of 7.6 percent and 15.033.5 percent, respectively. The effective tax rate for the three and nine months ended September 30,March 31, 2021 is higher than the United States Federal tax rate of 21 percent due to an increase in unrecognized tax benefits related to positions taken on prior year tax returns, higher tax rates applied to income earned in certain foreign jurisdictions, United States tax applied to global intangible income, and state taxes. These amounts were offset partially by benefits related to United States export sales, excess tax benefits from stock compensation, and research credits.
24

The effective tax rate for the three months ended March 31, 2020 is higher than the United States Federal tax rate of 21 percent due to the tax effects of intercompany transfers, non-recognition of the tax benefit of current year operating losses of a foreign subsidiary, an increase in unrecognized tax benefits related to positions taken or expected to be taken on prior and current year tax returns, and state taxes. These amounts were offset partially by benefits related to United StatesUS export sales and research credits and lower global intangible income subject to United States tax. The effective tax rate for the three and nine months ended September 30, 2019 is lower than the United States Federal tax rate of 21 percent mainly due to a reduction in previously non-deductible interest expense and excess tax benefits from stock compensation, offset partially by state taxes, higher tax rates applied to income earned in certain foreign jurisdictions, and other discrete items.credits.
During the fourth quarter of 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 $334.2$342.9 million (Swedish kronor 3.0 billion). On March 26, 2020, we received an adverse judgment from the First Instance Court of Sweden (the “Court”) regarding the STA's reassessment. We do not agree with the Court’s ruling, continue to believe the STA's arguments in the reassessment are not in accordance with Swedish tax regulations or the treaty for the avoidance of double taxation between Sweden and Belgium, and have appealed the decision to the Administrative Court of Appeal in Stockholm. Consequently, no adjustment to the unrecognized tax benefits has been recorded

in relation to this matter. We received a respite from paying the reassessment until after a decision by the Administrative Court of Appeal by putting in place a bank guarantee to secure possible future payment of the tax and interest. There can be no assurance that the appeal will be successful.
During the third quarter of 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 all taxes assessed by Belgium have been paid and have not adjusted unrecognized tax benefits in relation to this matter.
On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), the bipartisan $2.0 trillion economic relief package aimed at helping American workers and businesses impacted by the coronavirusCOVID-19 pandemic. Through September 30, 2020March 31, 2021 the CARES Act has not materially affected our income tax provision or deferred tax assets or liabilities. We will continue to monitor the effect of the CARES Act and ongoing government guidance related to COVID-19 that may be issued.


Segment Operating Results
In the first quarter of 2020, we completed a business reorganization as part of our "Project Be Ready" restructuring program, which resulted in identification ofThe Company is currently organized into two reportable segments. The two reportable segments (Industrialare Industrial Technologies and Defense Technologies). We commenced operating and reporting under the new organization structure effective January 1, 2020.Technologies. See Note 17, “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. See Note 19, “Restructuring” for further information on Project Be Ready.
Industrial Technologies Segment
Industrial Technologies operating results are as follows (in thousands, except percentages):
Three Months Ended Nine Months Ended Three Months Ended
September 30, Dollar Percent September 30, Dollar PercentMarch 31,DollarPercent
2020 2019 Change Change 2020 2019 Change Change 20212020ChangeChange
Revenue$281,119
 $257,900
 $23,219
 9.0% $857,732
 $813,775
 $43,957
 5.4%Revenue$274,864 $276,415 $(1,551)(0.6)%
Segment operating income87,743
 63,713
 24,030
 37.7% 259,145
 204,365
 54,780
 26.8%Segment operating income76,906 64,265 12,641 19.7 %
Segment operating margin31.2% 24.7%     30.2% 25.1%    Segment operating margin28.0 %23.2 %
Total backlog, end of period        $342,373
 $273,578
 $68,795
 25.1%Total backlog, end of period$273,483 $330,030 $(56,547)(17.1)%
The increasedecrease in revenue for both the three and nine month periodsmonths ended March 31, 2021 as compared to the prior year quarter was primarily attributable to increased demandreduced volume for EST cameras as a result of the COVID-19 pandemic,solutions, partially offset by lower volumeincreased demand in certain commercial end markets.markets such as maritime products.
The increase in segment operating margin for both the three and nine month periodsmonths ended March 31, 2021 as compared to the prior year quarter was primarily attributable to the aforementioned higher revenueoperating expense reductions from Project Be Ready and associated gross profit volume, favorable product mix, and lowerdecreases in marketing and travel expenses.costs.
The increasedecrease in total backlog at September 30, 2020March 31, 2021 as compared to the prior year quarter was primarily the result of award timing and anlower EST volume, partially offset by increased volume of long-term orders.order activity in certain commercial end markets such as maritime products.
Defense Technologies Segment
Defense Technologies operating results are as follows (in thousands, except percentages):

25

Three Months Ended Nine Months Ended Three Months Ended
September 30, Dollar Percent September 30, Dollar PercentMarch 31,DollarPercent
2020 2019 Change Change 2020 2019 Change Change 20212020ChangeChange
Revenue$185,295
 $213,348
 $(28,053) (13.1)% $541,620
 $584,207
 $(42,587) (7.3)%Revenue$192,449 $174,508 $17,941 10.3 %
Segment operating income38,811
 53,809
 (14,998) (27.9)% 113,120
 146,485
 (33,365) (22.8)%Segment operating income25,376 33,154 (7,778)(23.5)%
Segment operating margin20.9% 25.2%     20.9% 25.1%    Segment operating margin13.2 %19.0 %
Total backlog, end of period        $556,293
 $536,718
 $19,575
 3.6 %Total backlog, end of period$541,763 $529,306 $12,457 2.4 %
The decreaseincrease in revenue for both the three and nine month periodsmonths ended March 31, 2021 as compared to the prior year quarter was primarily attributable to increased volume on several unmanned systems programs, partially offset by shipment timing and the completion of certain contracts that contributed to revenue in the prior year periods, partially offset by increased volumes for unmanned revenues from the Aeryon Labs and Endeavor Robotics acquisitions.quarter.
The decrease in segment operating margin for both the three and nine month periods was primarily attributable to the lower revenue and associated gross profit volume, product mix and an increase in research and development expenses.
The increase in total backlog at September 30, 2020months ended March 31, 2021 as compared to the prior year quarter was primarily a resultattributable to the ramp up of increased orderslower margin programs and product mix.
The increase in total backlog at March 31, 2021 as compared to the prior year quarter was primarily due to program awards for unmanned systems.


Liquidity and Capital Resources
Overview
At September 30, 2020,March 31, 2021, we had a total of $320.0$277.3 million in cash and cash equivalents, $101.9$80.6 million of which was in the United States and $218.1$196.7 million was at our foreign subsidiaries, compared to cash and cash equivalents at December 31, 20192020 of $284.6$297.8 million, of which $77.8$88.8 million was in the United States and $206.8$209.0 million at our foreign subsidiaries.
At September 30, 2020March 31, 2021 and December 31, 2019,2020, we had outstanding debt of $793.0$725.8 million and $676.9$738.4 million, respectively, which consists of unsecured term loans and borrowings under the revolving credit facility that we entered into during 2019 (collectively referred to as the "Credit Agreement") and senior unsecured notes. On August 3, 2020, we issued and sold our $500.0 million senior unsecured notes maturing on August 1, 2030 (the “2030 Notes”)Notes in an underwritten public offering. The aggregate net proceeds from the offering were approximately $494.2 million after deducting underwriting fees, debt discount and transaction issuance costs. Interest on the 2030 Notes is payable semiannually in arrears on February 1 and August 1 of each year beginning on February 1, 2021. The net proceeds from the sale of the 2030 Notes were used to redeem the outstanding $425.0 million senior unsecured notes due June 15, 2021 (the “2021 Notes”),Notes, and for general corporate purposes, which may include funding for working capital, investments in our subsidiaries, capital expenditures, acquisitions, and stock repurchases. In connection with the redemption of the 2021 Notes, during the three months ended September 30, 2020, we recorded a $9.1 million loss on debt extinguishment on the Consolidated Statements of Income. The Credit Agreement contains one financial covenant that requires maintenance of a consolidated total leverage ratio with which we complied at September 30, 2020.March 31, 2021. We had $10.8$15.4 million of letters of credit outstanding under the Credit Agreement at September 30, 2020,March 31, 2021, which reduced the total availability under the revolving commitments under the Credit Agreement. See Note 13, "Debt" of the Notes to the Consolidated Financial Statements for more details.
On January 11, 2019, a standby letter of credit not to exceed 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 Authority in order to grant the original respite from paying the tax reassessment described in Note 16, "Income Taxes" of the Notes to the Consolidated Financial Statements. The outstanding amount of the L/C Agreement was equivalent to approximately $248.0$254.6 million at September 30, 2020.March 31, 2021. While outstanding amounts under the L/C Agreement do not reduce the available revolving credit from the Credit Agreement, they are considered indebtedness and influence the incremental debt capacity governed by our Credit Agreement covenants. The standby letter of credit was further amended on April 24, 2020 to reflect the new respite.
We repurchasehave repurchased shares of our common stock from time to time after considering market conditions and in accordance with repurchase limits authorized by our Board of Directors. Under theTo date, all share repurchase authorization, we may repurchase our shares periodically until the share repurchase authorization expiresrepurchases were subject to applicable securities laws and were at times and in February 2021, depending on market conditions and other factors, and may do so inamounts as management deemed appropriate. The repurchases were conducted through open market purchases. Ourtransactions under the authorization by the Board of Directors on February 7, 2019 to repurchase program may be suspended or discontinued at any time. As of September 30, 2020,up to 15.0 million shares of the Company's total remaining number of shares that may yet be repurchased underoutstanding common stock. This authorization expired on February 7, 2021. During the current authorization was approximately 8.3 million.

three months ended March 31, 2021 the Company did not repurchase shares.
We paid dividends of $22.3 million and $67.3$22.7 million during the three and nine months ended September 30,March 31, 2021 and March 31, 2020, respectively,respectively.
We have entered into the Merger Agreement with Teledyne and $22.8have agreed to pay a termination fee of $250.0 million to Teledyne if the Merger Agreement is terminated under any of the following circumstances:
•the Company’s Board makes a change in recommendation;
26

•the Company enters into a definitive agreement to effect a superior proposal; or
•the Company’s stockholders do not approve the proposed transaction and $68.9an alternative proposal for the Company has been publicly disclosed and not withdrawn, the Company materially breaches the Merger Agreement and an alternative proposal for the Company has been publicly disclosed and not withdrawn or the Company willfully and materially breaches the non-solicitation covenant, in each case, only if within twelve months of such termination, the Company enters into a definitive agreement with respect to an alternative proposal that is subsequently consummated.
Pursuant to the terms of the Merger Agreement, Teledyne would be required to pay the Company a termination fee of $250.0 million duringif the threeMerger Agreement is terminated under any of the following circumstances:
•Teledyne’s Board makes a change in recommendation; or
•Teledyne’s stockholders do not approve the proposed transaction and ninean alternative proposal for Teledyne has been publicly disclosed and not withdrawn or Teledyne materially breaches the Merger Agreement and an alternative proposal for Teledyne has been publicly disclosed and not withdrawn, in each case, only if within twelve months ended September 30, 2019, respectively.of such termination, Teledyne enters into a definitive agreement with respect to an alternative proposal that is subsequently consummated.
In addition, the Company has incurred and expects to continue to incur significant costs, expenses and fees for professional services and other transaction costs in connection with the Mergers. The substantial majority of these costs will be non-recurring expenses relating to the Mergers. Many of these costs are payable regardless of whether or not the Mergers are consummated.
For the next 12 months, we anticipate that we will be able to meet our liquidity needs, including servicing our debt, through existing cash on hand, cash generated from operations and, if needed, amounts available on our existing credit facilities or financing available from other sources. However, as the impact of the COVID-19 pandemic on the global economy and our operations evolve, we will continue to assess our liquidity needs. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition, and could materially adversely impact our customers or suppliers. In the event of a sustained market deterioration, we may need additional liquidity, which would require us to evaluate available alternatives and take appropriate actions. In addition to the acquisitions disclosed elsewhere herein, we have evaluated and expect to continue to evaluate possible transactions. Such transactions may be material and involve cash, our securities or the assumption or incurrence of additional indebtedness.
Summary of Cash Flows
The following table summarizes cash flow information for the periods presented (in thousands):
Three Months Ended
Three Months Ended September 30, Nine Months Ended September 30, March 31,
2020 2019 2020 2019 20212020
Net cash provided by operating activities$82,174
 $153,524
 $196,189
 $276,825
Net cash provided by operating activities$24,304 $50,866 
Net cash used in investing activities(9,894) (10,332) (36,832) (632,596)Net cash used in investing activities(14,183)(12,717)
Net cash (used in) provided by financing activities(90,946) (110,016) (119,849) 145,365
Net cash used in financing activitiesNet cash used in financing activities(25,355)(169)
Net cash provided by operating activities decreased $71.4$26.6 million for the three months ended September 30, 2020,March 31, 2021, when compared to the prior year quarter, primarily due to less favorable timing of working capital changes partially offset by higher net earnings after adding back non-cash adjustments.
Net cash provided by operatingused in investing activities decreased $80.6increased $1.5 million for the ninethree months ended September 30, 2020,March 31, 2021, when compared to the prior year quarter, primarily due to less favorable timing of workingdriven by increased capital changes as well as lower net earnings after adding back non-cash adjustments.
Net cash used in investing activities was relatively flat for the three months ended September 30, 2020, when compared to the prior year quarter.
Net cash used in investing activities decreased $595.8 million for the nine months ended September 30, 2020, when compared to the prior year, primarily due to cash paid for business acquisitionsexpenditures in the prior year.ordinary course of business.
Net cash used in financing activities decreased $19.1increased $25.2 million for the three months ended September 30, 2020,March 31, 2021, when compared to the prior year quarter, primarily due to repurchasesthe net proceeds of common stock totaling $75.0$175.0 million on our Credit Agreement in the prior year quarter partially offset by lower net proceeds of $53.0 million on our Credit Agreement and senior unsecured notes, which included the 2030 Notes proceeds that were issued and sold on August 3, 2020.
Net cash used in financing activities decreased $265.2 million for the nine months ended September 30, 2020, when compared to the prior year, primarily due to lower net proceeds of $229.0 million from our Credit Agreement and senior unsecured notes, which included the 2030 Notes proceeds that were issued and sold on August 3, 2020, an increase of $25.0 million in repurchases of common stock and lower proceeds of $13.5totaling $150.0 million from shares issued.also in the prior year quarter.

27


Off-Balance Sheet Arrangements
As of September 30, 2020,March 31, 2021, we did 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.

Recently Issued Accounting Pronouncements
For a discussion of these items, see Note 1, "Basis of Presentation and Accounting Standards Updates" of the Notes to the Consolidated Financial Statements.

Critical Accounting Policies and Estimates
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. See Management's Discussion and Analysis and the discussion of critical accounting policies and use of estimates as reported in Note 1, "Nature of Business and Significant Accounting Policies" and Note 15,14, "Contingencies" of the Notes to the Consolidated Financial Statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2019.2020. 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 ninethree months ended September 30, 2020.March 31, 2021.

Contractual Obligations
There were no material changes to the Company's contractual obligations outside the ordinary course of its business during the ninethree months ended September 30, 2020. The Company borrowed an additional $175.0 million and made payments of $126.0 million under the revolving credit facility during the nine months ended September 30, 2020.March 31, 2021.
On August 3, 2020, the Company issued and sold its $500.0 million senior unsecured notes maturing on August 1, 2030 (the “2030 Notes”) in an underwritten public offering. The aggregate net proceeds from the offering were approximately $494.2 million after deducting underwriting fees, debt discount and transaction issuance costs. Interest on the 2030 Notes is payable semiannually in arrears on February 1 and August 1 of each year beginning on February 1, 2021. The net proceeds from the sale of the 2030 Notes were used to redeem the Company's outstanding $425.0 million senior unsecured notes due June 15, 2021 (the “2021 Notes”), and for general corporate purposes, which may include funding for working capital, investments in Company's subsidiaries, capital expenditures, acquisitions, and stock repurchases. See Note 13, "Debt" of the Notes to the Consolidated Financial Statements for more details.

Contingencies
See Note 15, "Contingencies" of the Notes to the Consolidated Financial Statements for 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, among other matters.

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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of September 30, 2020,March 31, 2021, 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, 2019,2020, 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.
ItOn March 5, 2021 the ICE Benchmark Administration (“IBA”) formalized the timetable for cessation of LIBOR. Pursuant to the IBA's Cessation Statement, certain USD LIBOR tenors along with all tenors of EUR, CHF, GBP and JPY LIBOR will cease publication after December 31, 2021. A complete phase out of all tenors of USD LIBOR is expected following the June 30, 2023 publication. While management believes that the Company exposure to market risk associated with the discontinuation of LIBOR is limited because the Notes carry a numberfixed-rate coupon and the unsecured credit facility agreement includes provisions for a successor rate, the consequences of banks currently reporting information used to set LIBOR will stop doing so after 2021. Such an occurrence could cause LIBOR to stop publicationthese developments cannot be entirely predicted 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.reasonably estimated.
See Note 6, "Derivative Financial Instruments - Interest Rate Swap" and Note 13, "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 debt and interest rate risk.


ITEM 4.CONTROLS AND PROCEDURES
ITEM 4.    CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of September 30, 2020,March 31, 2021, 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 have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s three months ended September 30, 2020,March 31, 2021, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.


29

PART II. OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS
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, “Contingencies” of the Notes to the Consolidated Financial Statements for additional information on the Company’s legal proceedings.

ITEM 1A.    RISK FACTORS
There have been no material changes from the risk factors described in Part I, Item 1A. Risk Factors in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 and2020, or in Part II, Item 1A. Risk Factors“Risk Factors” in the Company's subsequent Quarterly ReportsCompany’s definitive joint proxy statement/prospectus on Form 10-Q.Schedule 14A relating to the Mergers, filed with the SEC on April 12, 2021.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended September 30, 2020,March 31, 2021, the Company did not repurchase shares.
AllTo date, all share repurchases arewere subject to applicable securities laws and arewere at times and in amounts as management deemsdeemed appropriate. The repurchases arewere conducted through open market transactions under the authorization by ourthe Board of Directors on February 7, 2019 to repurchase of up to 15.0 million shares of ourthe Company's outstanding common stock. This authorization will expireexpired on February 7, 2021 and may be suspended or discontinued at any time.2021.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.    MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.OTHER INFORMATION
ITEM 5.    OTHER INFORMATION

None.

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ITEM 6.    EXHIBITS

ITEM 6.NumberEXHIBITS

Description
NumberDescription
4.12.1
Indenture,Agreement and Plan of Merger, dated as of August 3, 2020, betweenJanuary 4, 2021, by and among Teledyne Technologies Incorporated, Firework Merger Sub I, Inc., Firework Merger Sub II, LLC and FLIR Systems, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.12.1 to the Current Report on Form 8-K filed on August 4, 2020January 6, 2021 (File Number 000-21918)).
4.231.1  
4.3
Form of 2.500% Note due August 1, 2030 (included in Exhibit 4.2 hereto).
31.1  
Principal Executive Officer Certification Pursuant to Sarbanes-Oxley Act of 2002, Section 302.
31.2  
32.1  
32.2  
101.INSInline XBRL Instance Document
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)



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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 May 6, 2021FLIR SYSTEMS, INC.
Date October 30, 2020    /s/ Carol P. Lowe
Carol P. Lowe
Executive Vice President and Chief Financial Officer
(Duly Authorized and Principal Financial Officer)


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