CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

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.

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

Revenue includes certain shipping and handling costs and is stated net of third-party agency fees. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as 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.

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 June 30, 2020March 31, 2021 and December 31, 2019.2020.

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.

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

The Company has granted time-based options, time-based restricted stock unit awards, market-based restricted stock unit awards and performance-based restricted stock unit awards. 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, 20182020, 2019 and 20192018 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 and the market-based restricted stock unit awards must be held by the participant for a period of one year from the vest date.

The Company has an Employee Stock Purchase Plan (the “ESPP”) whichthat 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.

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):

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

As of June 30, 2020,March 31, 2021, the Company had approximately $70.9$73.1 million of total unrecognized stock-based compensation costs, net of estimated forfeitures, to be recognized over a weighted average period of approximately 2.12.2 years.

The effect of stock-based compensation awards for the three and six months ended June 30,March 31, 2021 and 2020 that aggregated approximately 1,082,000119,000 and 570,0006,000 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 six months ended June 30, 2019 that aggregated approximately 52,000 and 192,000 shares, respectively, has been excluded for purposes of diluted earnings per share since the effect of their inclusion would have been anti-dilutive.

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

The Company has categorized its cash equivalents as a Level 1 financial asset,assets, measured at fair value based on quoted prices in active markets of identical assets. All cash equivalents are in instruments that are convertible to cash daily.

The fair valuevalues of the Company’s derivative contracts as of June 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 June 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 $432.3$488.3 million and $430.1$527.7 million based upon Level 2 inputs at June 30, 2020March 31, 2021 and 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 three months ended June 30, 2020, the Company recognized impairments of $4.8 million associated with its equity minority investments which are included in other expense (income), 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.

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.

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 June 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 expense (income)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 expense (income)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 expense (income)income (loss), net. At June 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.

The Company's outstanding debt at June 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).

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):

The following table presents the balance sheet classification and fair value of derivative instruments (in thousands):

The following table presents the statement of income classification of derivative instruments (in thousands):

The following table presents changes in the carrying value of goodwill and the activity by reportable segment for the sixthree months ended June 30, 2020March 31, 2021 (in thousands):

See Note 18, "Business Acquisitions"Acquisitions and Combinations" for additional information on goodwill from acquisitions.

Intangible assets are net of accumulated amortization of $151.0$184.6 million and $129.9$173.2 million at June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. The aggregate amortization expense for the three months ended June 30,March 31, 2021 and 2020 and 2019 was $11.8$12.0 million and $21.1 million, respectively. The aggregate amortization expense for the six months ended June 30, 2020 and 2019 was $23.7 million and $27.0$11.9 million, respectively.

The Company's debt consists of the following (in thousands):

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 aggregate principal amount of its 3.125 percent senior unsecured notes due June 15, 2021 (the “2021 Notes”). The net proceeds from the issuance of the 2021 Notes were approximately $421.0 million, after deducting underwriting discounts, and offering expenses, which are being amortized over a period of five years. Interest on the 2021 Notes is payable semiannually in arrears on December 15 and June 15. The proceeds from the 2021 Notes were used for general corporate purposes, includingwhich may include funding for working capital, andinvestments in Company's subsidiaries, capital expenditure needs, businessexpenditures, acquisitions, and repurchases of the Company’s common stock.stock repurchases.

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 provides for a $650.0 million unsecured revolving credit facility, a $100.0 million unsecured term loan facility available in U.S. dollars amortizing at 5.000 percent per annum, and a $150.0 million unsecured term loan facility available in Swedish kronor amortizing at 5.0 percent per annum. The Credit Agreement has a term of five years and matures on March 29, 2024. In connection with the closing of the Credit Agreement, the Company made an initial borrowing of $100.0 million in revolving loans, $100.0 million in term loans in U.S. dollars, and the equivalent of $150.0 million in term loans in Swedish kronor and repaid all outstanding amounts under its prior credit agreement.

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. At June 30, 2020, the borrowing rate on the revolving loan was 1.553 percent per annum, the borrowing rate on the U.S. dollar term loan was 1.683 percent per annum and the borrowing rate on the Swedish kronor term loan was 1.444 percent per annum.