PART I. FINANCIAL INFORMATION
FLIR SYSTEMS, INC.
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, |
| 2021 | | 2020 |
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 amortization | 23,861 | | | 24,225 | |
Stock-based compensation | 9,760 | | | 7,646 | |
| | | |
(Gain) loss on disposal of assets | (30) | | | 2,991 | |
| | | |
Deferred income taxes | 23 | | | (165) | |
Other, net | (6,987) | | | (3,152) | |
(Decrease) increase in cash, net of acquisitions, resulting from changes in: | | | |
Accounts receivable | (40,407) | | | 12,118 | |
Inventories | 8,542 | | | (14,453) | |
Prepaid expenses and other current assets | 3,273 | | | 382 | |
Other assets | 3,443 | | | (391) | |
Accounts payable | (5,783) | | | 1,592 | |
Deferred revenue | 2,927 | | | 2,140 | |
Accrued payroll and other liabilities | (16,777) | | | 11,084 | |
Accrued income taxes | 5,410 | | | (6,259) | |
Other long-term liabilities | (1,758) | | | (2,316) | |
Net cash provided by operating activities | 24,304 | | | 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 portion | 0 | | | 175,000 | |
Repayment of credit facility and long-term debt | (3,285) | | | (3,021) | |
| | | |
| | | |
| | | |
Repurchase of common stock | 0 | | | (150,000) | |
Dividends paid | (22,319) | | | (22,728) | |
Proceeds from shares issued pursuant to stock-based compensation plans | 1,082 | | | 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 year | 297,795 | | | 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 amortization | 71,217 |
| | 76,037 |
|
Stock-based compensation | 30,547 |
| | 27,371 |
|
Loss on debt extinguishment | 9,126 |
| | 0 |
|
Loss on disposal of assets | 3,352 |
| | 0 |
|
Minority interest impairment charges | 4,803 |
| | 0 |
|
Deferred income taxes | (458 | ) | | (1,197 | ) |
Other, net | 3,693 |
| | 39 |
|
Increase (decrease) in cash, net of acquisitions, resulting from changes in: | | | |
Accounts receivable | 7,970 |
| | 5,460 |
|
Inventories | (83,215 | ) | | (30,215 | ) |
Prepaid expenses and other current assets | 1,317 |
| | 43 |
|
Other assets | (3,503 | ) | | 11,474 |
|
Accounts payable | (11,182 | ) | | 38,873 |
|
Deferred revenue | (2,862 | ) | | 7,087 |
|
Accrued payroll and other liabilities | 7,700 |
| | (4,120 | ) |
Accrued income taxes | 35,153 |
| | (19,555 | ) |
Other long-term liabilities | (14,813 | ) | | (4,385 | ) |
Net cash provided by operating activities | 196,189 |
|
| 276,825 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Additions to property and equipment, net | (37,136 | ) | | (32,034 | ) |
Proceeds from sale of assets | 0 |
| | 6,365 |
|
Business acquisitions, net of cash acquired | 0 |
| | (601,927 | ) |
Minority interest and other investments | 304 |
| | (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 portion | 175,000 |
| | 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 Notes | 494,234 |
| | 0 |
|
Repurchase of common stock | (150,000 | ) | | (124,996 | ) |
Dividends paid | (67,297 | ) | | (68,852 | ) |
Proceeds from shares issued pursuant to stock-based compensation plans | 7,309 |
| | 20,776 |
|
Tax paid for net share exercises and issuance of vested restricted stock units | (10,234 | ) | | (10,458 | ) |
Other financing activities | 0 |
| | (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 equivalents | 35,403 |
|
| (216,753 | ) |
Cash and cash equivalents, beginning of year | 284,592 |
| | 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.
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.
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.
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 development | 1,863 |
| | 2,296 |
| | 5,817 |
| | 5,981 |
|
Selling, general and administrative | 7,306 |
| | 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, |
| 2021 | | 2020 |
Cost of goods sold | $ | 1,268 | | | $ | 1,067 | |
Research and development | 2,228 | | | 1,677 | |
Selling, general and administrative | 6,264 | | | 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, |
| 2021 | | 2020 |
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 outstanding | 131,125 |
| | 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 method | 558 |
| | 1,309 |
| | 993 |
| | 1,562 |
|
Diluted shares outstanding | 131,683 |
| | 136,050 |
| | 132,841 |
| | 136,826 |
|
| | | | | | | | | | | |
| Three Months Ended |
| March 31, |
| 2021 | | 2020 |
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 outstanding | 131,183 | | | 133,596 | |
Assumed exercise of stock options and vesting of restricted stock awards, net of shares assumed reacquired under the treasury stock method | 1,413 | | | 1,331 | |
Diluted shares outstanding | 132,596 | | | 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.
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).
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 Contracts | 255,000 |
| | 340,000 |
|
Derivative instruments not formally designated as hedges: | | | |
Currency Forward Contracts | 149,591 |
| | 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, |
| 2021 | | 2020 |
Derivative instruments designated as cash flow hedges: | | | |
Interest Rate Swap | $ | 143,005 | | | $ | 154,633 | |
Derivative instruments designated as fair value hedges: | | | |
Currency Forward Contracts | 198,333 | | | 226,667 | |
Derivative instruments not formally designated as hedges: | | | |
Currency Forward Contracts | 53,865 | | | 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, |
| | Classification | | 2021 | | 2020 |
Derivative instruments designated as cash flow hedges: | | | | |
Derivative instruments in asset positions: | | | | |
Interest Rate Swap | | Prepaid expense and other current assets | | $ | 333 | | | $ | 519 | |
| | | | | | |
Derivative instruments in liability positions: | | | | |
Interest Rate Swap | | Other current liabilities | | 890 | | | 982 | |
Interest Rate Swap | | Other long-term liabilities | | 1,130 | | | 1,628 | |
| | | | | | |
Derivative instruments designated as fair value hedges: | | | | |
| | | | |
| | | | | | |
| | | | | | |
Derivative instruments in liability positions: | | | | |
Currency forward contracts | | Other current liabilities | | 5,043 | | | 13,295 | |
Currency forward contracts | | Other long-term liabilities | | 3,179 | | | 12,211 | |
| | | | | | |
Derivative instruments not formally designated as hedges: | | | | |
Derivative instruments in asset positions: | | | | |
Currency forward contracts | | Prepaid expenses and other current assets | | 15,494 | | | 5,704 | |
Derivative instruments in liability positions: | | | | |
Currency forward contracts | | Other current liabilities | | 4,831 | | | 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, |
| | Classification | | 2021 | | 2020 |
Derivative instruments designated as cash flow hedges: | | | | |
Gain (loss) recognized in other comprehensive income (loss), net of tax | | Other comprehensive income (loss) | | $ | 304 | | | $ | (1,117) | |
Loss reclassified from other comprehensive loss to earnings for the effective portion | | Interest expense | | 222 | | | 171 | |
| | | | | | |
Derivative instruments designated as fair value hedges: | | | | |
Gain recognized in earnings for effective portion | | Other income (loss), net | | 13,444 | | | 22,766 | |
Gain recognized in income for amount excluded from effectiveness testing | | Other income (loss), net | | 858 | | | 1,139 | |
(Loss) gain recognized in other comprehensive income (loss), net of tax | | Other comprehensive income (loss) | | (882) | | | 3,870 | |
| | | | | | |
Derivative instruments not formally designated as hedges: | | | | |
Loss recognized in earnings | | Other 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.
Inventories consist of the following (in thousands):
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2021 | | 2020 |
Raw material and subassemblies | $ | 268,409 | | | $ | 281,641 | |
Work-in-progress | 56,930 | | | 51,763 | |
Finished goods | 131,668 | | | 138,833 | |
| $ | 457,007 | | | $ | 472,237 | |
|
| | | | | | | |
| September 30, | | December 31, |
| 2020 | | 2019 |
Raw material and subassemblies | $ | 269,062 |
| | $ | 224,239 |
|
Work-in-progress | 61,624 |
| | 44,344 |
|
Finished goods | 144,159 |
| | 120,179 |
|
| $ | 474,845 |
| | $ | 388,762 |
|
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 | | 2019 | | 2021 | | 2020 |
Operating lease expense | $ | 2,999 |
| | $ | 3,239 |
| | $ | 9,066 |
| | $ | 8,711 |
| Operating lease expense | $ | 2,974 | | | $ | 3,022 | |
Short-term lease expense | 28 |
| | 277 |
| | 81 |
| | 850 |
| Short-term lease expense | 0 | | | 27 | |
Variable lease expense | 516 |
| | 555 |
| | 1,632 |
| | 1,671 |
| Variable lease expense | 920 | | | 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, |
| 2021 | 2020 |
Operating lease right-of-use assets | $ | 30,156 | | $ | 32,833 | |
Operating lease liabilities | $ | 34,005 | | $ | 36,745�� | |
|
| | | | | | |
| September 30, 2020 | December 31, 2019 |
Operating lease right-of-use assets | $ | 34,562 |
| $ | 35,479 |
|
Operating lease liabilities | $ | 38,249 |
| $ | 39,291 |
|
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.
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 Technologies | | Defense Technologies | | Consolidated |
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.
The Company's debt consists of the following (in thousands):
|
| | | | | | | | | | | | | | | | | |
| | | September 30, 2020 | | December 31, 2019 |
| Maturity Date | | Amount | Stated Rate | Effective Rate | | Amount | Stated Rate | Effective 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, 2021 | | December 31, 2020 |
| Maturity Date | | Amount | Stated Rate | Effective Rate | | Amount | Stated Rate | Effective Rate |
Senior Unsecured Notes: | | | | | | | | | |
2030 Notes | August 1, 2030 | | $ | 500,000 | | 2.500 | % | 2.630 | % | | $ | 500,000 | | 2.500 | % | 2.630 | % |
Credit Agreement: | | | | | | | | | |
U.S. dollar term loan | March 29, 2024 | | 90,000 | | 1.359 | % | 1.627 | % | | 91,250 | | 1.504 | % | 1.769 | % |
Swedish kronor term loan | March 29, 2024 | | 143,005 | | 1.250 | % | 1.503 | % | | 154,632 | | 1.250 | % | 1.484 | % |
| | | | | | | | | |
Total | | | 733,005 | | | | | 745,882 | | | |
Unamortized discounts and issuance costs | | | (7,194) | | | | | (7,490) | | | |
Total debt | | | $ | 725,811 | | | | | $ | 738,392 | | | |
Reported as: | | | | | | | | | |
| | | | | | | | | |
Long-term debt, current portion | | | 12,945 | | | | | 13,473 | | | |
Long-term debt, net of current portion | | | 712,866 | | | | | 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.
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, |
| 2021 | | 2020 |
Accrued product warranties, beginning of period | $ | 21,522 | | | $ | 19,143 | |
Amounts paid for warranty services | (1,720) | | | (2,003) | |
Warranty provisions for products sold | 3,097 | | | 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 | |
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 sold | 2,375 |
| | 4,329 |
| | 7,464 |
| | 10,536 |
|
Business acquisition | 0 |
| | 0 |
| | 0 |
| | 899 |
|
Currency translation adjustments and other | 117 |
| | (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.
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.
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.
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 rate | 24.1 | % | | 7.6 | % | | 25.8 | % | | 15.0 | % |
| | | | | | | | | | | |
| Three Months Ended |
| March 31, |
| 2021 | | 2020 |
Income tax provision | $ | 11,203 | | | $ | 7,774 | |
Effective tax rate | 22.4 | % | | 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.
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 Federal | 2017 | - | 2019 |
State of California | 2015 | - | 2019 |
State of Massachusetts | 2016 | - | 2019 |
State of Oregon | 2017 | - | 2019 |
Sweden | 2012 | - | 2019 |
United Kingdom | 2016 | - | 2019 |
Belgium | 2012 | - | 2019 |
|
| |
| Tax Years: |
United States Federal | 2016-2018 |
State of California | 2015-2018 |
State of Massachusetts | 2015-2018 |
State of Oregon | 2016-2018 |
Sweden | 2012-2018 |
United Kingdom | 2015-2018 |
Belgium | 2012-2018 |
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
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 | | 2021 | | 2020 |
Revenue—External Customers: | | | | | | | | Revenue—External Customers: | | | |
Industrial Technologies | $ | 281,119 |
| | $ | 257,900 |
| | $ | 857,732 |
| | $ | 813,775 |
| Industrial Technologies | $ | 274,864 | | | $ | 276,415 | |
Defense Technologies | 185,295 |
| | 213,348 |
| | 541,620 |
| | 584,207 |
| Defense Technologies | 192,449 | | | 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 Technologies | 2,289 |
| | 959 |
| | 5,562 |
| | 3,906 |
| Defense Technologies | 1,230 | | | 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 Technologies | 38,811 |
| | 53,809 |
| | 113,120 |
| | 146,485 |
| Defense Technologies | 25,376 | | | 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):
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):
Information related to revenue by significant geographical location, determined by the end customer, is as follows (in thousands):