| Nature of Business and Significant Accounting Policies | Nature of Business and Significant Accounting Policies FLIR Systems, Inc. (the "Company") is a world leader in sensor systems that enhance perception and awareness. The Company was founded in 1978 and has since become a premier designer, manufacturer, and marketer of thermal imaging and other sensing products and systems. The Company’s advanced sensors and integrated sensor systems enable the gathering and analysis of critical information through a wide variety of applications in government, industrial and commercial markets worldwide. The Company’s goal is to both enable its customers to benefit from the valuable information produced by advanced sensing technologies and to deliver sustained superior financial performance for its shareholders. The Company creates value for its customers by improving personal and public safety and security, providing advanced intelligence, surveillance, reconnaissance, and tactical defense capabilities, facilitating air, ground, and maritime-based situational awareness, detecting electrical, mechanical and building envelope problems, displaying process irregularities, detecting volatile organic gas emissions, and enhancing advanced driver-assistance systems and autonomous driving solutions, as well as a variety of other uses of thermal and other sensing technologies. The Company's business model and range of solutions allow it to sell products to various end markets, including industrial, original equipment manufacturing, military, homeland security, enterprise, infrastructure, and environmental. The Company sells off-the-shelf products and customized solutions in configurations to suit specific customer requirements in an efficient, timely, and affordable manner, and supports those customers with training and ongoing support and services. Centered on the design of products for low-cost manufacturing and high-volume distribution, the Company's commercial operating model has been developed over time and provides it with a unique ability to adapt to market changes and meet its customers’ needs. Principles of consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Reclassification The Company made certain reclassifications to the prior years' financial statements to conform them to the presentation as of and for the year ended December 31, 2020. These reclassifications had no effect on consolidated financial position, net earnings, shareholders' equity, or net cash flows for any of the periods presented. Foreign currency translation The assets and liabilities of the Company’s subsidiaries outside the United States are translated into United States dollars at current exchange rates in effect at the balance sheet date. Revenues and expenses are translated at monthly average exchange rates. Resulting translation adjustments are reflected in accumulated other comprehensive earnings (loss) within shareholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in currencies other than the functional currency are reflected as other (income) expense, net, in the Consolidated Statements of Income as incurred. Revenue recognition The Company records revenue under Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers. 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. Note 1. Nature of Business and Significant Accounting Policies - (Continued) Revenue recognition - (Continued) 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 Company's products are sold with warranty provisions that require it to remedy deficiencies in quality or performance of the Company's products over a specified period of time, generally twelve to twenty-four months, at no cost to its customers. Warranty liabilities are established at the time that revenue is recognized at levels that represent the Company's estimate of the costs that will be incurred to fulfill those warranty requirements. Provisions for estimated losses on sales or related receivables are recorded when identified. Service revenue is deferred and recognized over the contract period, as is the case for extended warranty contracts, or recognized as services are provided. See Note 19, "Operating Segments and Related Information - Revenue and Long-Lived Assets by Geographic Area" for information related to the Company’s revenues disaggregated by significant geographical region and operating segment. Cost of goods sold Cost of goods sold includes materials, labor and overhead costs incurred in the manufacturing of products and services sold in the period as well as warranty costs. Material costs include raw materials, purchased components and sub-assemblies, outside processing and inbound freight costs. Labor and overhead costs consist of direct and indirect manufacturing costs, including wages and fringe benefits, operating supplies, depreciation, occupancy costs, and purchasing, receiving and inspection costs. Research and development Expenditures for research and development activities are expensed as incurred. Cash equivalents and restricted cash The Company considers short-term investments that are highly liquid, readily convertible into cash and have maturities of less than three months when purchased to be cash equivalents. Cash equivalents at December 31, 2020 and 2019 were $0.1 million and $0.7 million, respectively, which were primarily investments in money market funds and overnight deposits. Restricted cash includes cash that is subject to a legal or contractual restriction by a third party and restricted as to withdrawal or use, including restrictions that require the funds to be used for a specified purpose and restrictions that limit the purpose for which the funds can be used. The Company did not have any restricted cash balances at December 31, 2020 and 2019, respectively. Accounts receivable and allowance for doubtful accounts Accounts receivable are stated at the amounts the Company expects to collect. Credit limits are established through a process of reviewing the financial history and stability of each customer. The Company regularly evaluates the collectability of its trade receivables balances based on a combination of factors. If it is determined that a customer will be unable to fully meet its financial obligation, the Company records a specific allowance to reduce the related receivable to the amount expected to be recovered. In addition, in certain instances, the Company also records an allowance based on certain other factors including the length of time the receivables are past due and historical collection experience with individual customers. Note 1. Nature of Business and Significant Accounting Policies - (Continued) Fair value of financial instruments Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company considers the principal or most advantageous market in which the asset or liability would transact, and if necessary, considers assumptions that market participants would use when pricing the asset or liability. Assets and liabilities are classified in their entirety within the fair value hierarchy based on the lowest level input that is significant to the fair value measurement. Factors used in determining the fair value of financial assets and liabilities are summarized into three broad categories in accordance with FASB ASC Topic 820, “Fair Value Measurements”: Level 1 – quoted prices in active markets for identical securities as of the reporting date; Level 2 – other significant directly or indirectly observable inputs, including quoted prices for similar securities, interest rates, prepayment speeds, credit risk and observable market prices for identical instruments that are traded in less active markets; and Level 3 – significant inputs that are generally less observable than objective sources, including our own assumptions in determining fair value. Inventories Inventories are stated at the lower of cost or net realizable value and include materials, labor, and manufacturing overhead. Cost is determined based on a currently adjusted standard cost basis that approximates actual manufacturing cost on a first-in, first-out basis. Inventory write-downs are recorded when conditions exist to indicate that inventories are likely to be in excess of anticipated demand or are obsolete based upon the Company’s assumptions about future demand for its products and market conditions. The Company regularly evaluates its ability to realize the value of inventories based on a combination of factors including the following: historical usage rates, forecasted sales or usage, product end of life dates, estimated current and future market values and new product introductions. When recorded, write-downs reduce the carrying value of the Company’s inventories to their net realizable value and create a new cost-basis in the inventories. Write-downs are reflected in cost of goods sold in the Consolidated Statements of Income. Demonstration units The Company’s products which are being used as demonstration units are stated at the lower of cost or net realizable value and are included in prepaid expenses and other current assets in the Consolidated Balance Sheets. Demonstration units are available for sale and the Company periodically evaluates them as to marketability and realizable values. The carrying value of demonstration units was $30.1 million and $30.4 million at December 31, 2020 and 2019, respectively. Property and equipment Property and equipment are stated at cost and are depreciated using a straight-line methodology over their estimated useful lives. Repairs and maintenance are charged to expense as incurred. Goodwill Effective January 1, 2019, the Company adopted the requirements of ASU 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment". Goodwill represents the excess purchase price of an acquired enterprise over the estimated fair value of identifiable net assets acquired. The Company assesses goodwill for potential impairment at the reporting unit level during the third quarter of each year, or whenever events or circumstances indicate that the carrying value of these assets may exceed their fair value. The Company may assess qualitative factors to make this determination, or bypass such a qualitative assessment and proceed directly to testing goodwill for impairment using a two-step process. As a result of the adoption of ASU 2017-04, if it is determined that the goodwill is impaired, it is no longer required to compare the implied fair value of the reporting unit goodwill associated with the carrying amount of that goodwill, which is commonly referred to as Step 2. Note 1. Nature of Business and Significant Accounting Policies - (Continued) Goodwill - (Continued) The Company elects to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. When performing a qualitative assessment, the Company considers factors including, but not limited to, current macroeconomic conditions, industry and market conditions, the competitive environment, changes in the market for our products and services, regulatory and political developments and entity specific factors such as strategies and financial performance and other events relevant to the entity or reporting unit under evaluation. If, based on the review of qualitative factors, it is more likely than not that the fair value of a reporting unit is less than its carrying value, (of if the Company elected to bypass assessing the qualitative factors) the Company would perform a quantitative impairment test to identify goodwill impairment and measure the amount of goodwill impairment loss to be recognized (if any) by comparing the fair value of a reporting unit with its carrying amount. An impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. During the first quarter of 2020, as a result of a deterioration in macroeconomic conditions driven by COVID-19 as well as Company-specific events which combined resulted in declines to our stock price and market capitalization, the Company determined it was more likely than not that these factors had a significant adverse impact on its reporting units. An interim quantitative goodwill impairment analysis was performed as of March 31, 2020 and the Company determined that the fair values of its reporting units were greater than their carrying values. 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. The Company did not recognize any impairment charges on goodwill during the years ended December 31, 2020 and 2018, respectively. The impairment tests performed during the year ended December 31, 2019 indicated, based on the assessment of qualitative factors in the fourth quarter, that it was more likely than not that the fair value was less than the carrying value for the OTS reporting unit. As such, a quantitative impairment test was performed which determined that the fair value of the OTS reporting unit was approximately 63% of its carrying value. As a result, the Company recorded goodwill impairment charges in the Industrial Technologies Segment during the fourth quarter of 2019, which represents the difference between the carrying value and the fair value of the OTS reporting unit. See Note 9, "Goodwill" for additional information and discussion on impairment charges on goodwill recorded during the year ended December 31, 2019. Intangible assets Intangible assets are amortized using the method that best reflects how their economic benefits are utilized, or, if a pattern of economic benefits cannot be reliably determined, are amortized using a straight-line methodology over their estimated useful lives. Intangible assets with indefinite useful lives are evaluated annually for impairment, or more frequently if required. Impairment of long-lived assets Long-lived asset groups are reviewed for impairment when circumstances indicate that the carrying amounts may not be recoverable. Impairment exists when the carrying value is greater than the expected undiscounted future cash flows expected to be provided by the asset group. If impairment exists, the asset group is written down to its fair value. The Company did not recognize any impairment charges on intangible assets with indefinite lives during the years ended December 31, 2020 and 2018, respectively. See Note 10, "Intangibles Assets" for additional information and discussion on impairment charges associated with the OTS restructuring within Industrial Technologies Segment recognized during the year ended December 31, 2019. Advertising costs Advertising costs, including social media, which are included in selling, general and administrative expenses, are expensed as incurred. Advertising costs for the years ended December 31, 2020, 2019 and 2018 were $8.1 million, $10.7 million and $13.0 million, respectively. Note 1. Nature of Business and Significant Accounting Policies - (Continued) Minority interest equity investments The Company holds certain investments in equity instruments of non-publicly traded companies. Equity investments in which the Company does not have control, but has the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method. The Company's proportionate share of income or loss is recorded in other (income) expense, net in the Consolidated Statement of Income. All other non-marketable equity investments are measured at cost less impairment, if any, adjusted for changes resulting from qualifying observable price changes. The Company periodically reviews its equity investments for impairment. During the years ended December 31, 2020 and 2019, the Company recognized impairments of $4.8 million and $4.1 million, respectively associated with its equity investments which are included in other (income) expense, net in the Consolidated Statement of Income. During the year ended December 31, 2018, the Company did not recognize any impairments on its minority interest equity investments. The carrying values of the minority interest equity investments were $14.1 million and $19.9 million at December 31, 2020 and 2019, respectively, and are included in other assets in the Consolidated Balance Sheets. Contingencies The Company is subject to the possibility of loss contingencies arising in the normal course of business. An estimated loss is accrued when the Company determines that it is probable that an asset has been impaired or a liability has been incurred and the amount can be reasonably estimated. The Company regularly evaluates current available information to determine whether such accruals and disclosures should be adjusted. Income taxes The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of the assets and liabilities measured using the enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances against deferred tax assets are recorded when a determination is made that the deferred tax assets are not more likely than not to be realized in the future. In making that determination, on a jurisdiction by jurisdiction basis, the Company estimates the future taxable income based upon historical operating results and external market data. Future levels of taxable income are dependent upon, but not limited to, general economic conditions, competitive pressures and other factors beyond our control. The Company is subject to income taxes in the United States and in numerous foreign jurisdictions, and in the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain. The Company records a benefit on a tax position when it is more likely than not that the position is sustainable upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. For tax positions that are more likely than not to be sustained, the Company measures the tax position at the largest amount of benefit that has a greater than 50 percent likelihood of being realized when it is effectively settled, using information that is available at the reporting date. The Company reviews its tax positions as circumstances warrant, and updates its liability for additional taxes as changes in available facts arise. Supplemental cash flow disclosure (in thousands) Year Ended December 31, 2020 2019 2018 Cash paid for: Interest $ 20,806 $ 21,544 $ 14,183 Taxes $ 40,387 $ 52,146 $ 83,259 Non-cash transactions: Stock issued for business acquisition $ 7,335 $ — $ — Note 1. Nature of Business and Significant Accounting Policies - (Continued) Stock-based compensation The Company accounts for stock-based compensation at the grant date based on the fair value of the award and recognizes compensation expense on a straight-line basis over the requisite service period, which is generally the vesting period, net of an estimated forfeiture rate. For awards granted beginning in 2020, the fair value of restricted stock unit awards and restricted stock units containing performance-based vesting criteria was based on the fair market value of the closing price of the Company's common stock on the date of grant. For awards granted prior to 2020, the fair value of restricted stock unit awards and restricted stock units containing performance-based vesting criteria was valued based on the fair market value of the closing price of the Company's common stock, discounted for expected dividends, on the date of grant. The Company uses the Black-Scholes option pricing model to estimate the fair value of shares expected to be issued under the Company's employee stock purchase plan. The estimation of such fair value requires management to make estimates and judgments about, among other things, forfeiture rates and the expected volatility of FLIR common stock over the expected term. These judgments directly affect the amount of compensation expense that will ultimately be recognized. In addition, the fair value was discounted for an estimate for illiquidity. The estimated discount for illiquidity was relevant for share based awards that require the plan participant to hold the shares for a specified period of time after the award vests and was estimated using the protective put method. Treasury stock The Company accounts for treasury stock under the cost method. When treasury stock is re-issued at a price higher than its cost, the difference is recorded as a component of additional paid-in-capital in the Consolidated Balance Sheets. When treasury stock is re-issued at a price lower than its cost, the difference is recorded as a component of additional paid-in-capital to the extent that there are previously recorded gains to offset the losses. If there are no treasury stock gains in additional paid-in-capital, the losses upon re-issuance of treasury stock are recorded as a reduction of retained earnings in the Consolidated Balance Sheets. Concentration of risk Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of accounts receivable. Concentration of credit risk with respect to accounts receivable is limited because a relatively large number of geographically diverse customers make up the Company’s customer base, thus diversifying the trade credit risk. The Company controls credit risk through credit approvals, credit limits and monitoring procedures. The Company performs credit evaluations for all new customers and requires letters of credit, bank guarantees and advanced payments, if deemed necessary. A substantial portion of the Company’s revenue is derived from sales to United States and foreign government agencies (see Note 19, "Operating Segments and Related Information"). The Company also purchases certain key components from sole or limited source suppliers. The Company maintains cash deposits with major banks that from time to time may exceed federally insured limits. The Company periodically assesses the financial condition of the institutions and instruments in which it invests and adjusts its investment balances to mitigate the risk of principal loss. Use of estimates The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant estimates and judgments made by management of the Company include matters such as collectability of accounts receivable, realizability of inventories, recoverability of deferred tax assets, impairment tests of goodwill, intangible assets and other long-lived assets, recognition and measurement of loss contingencies and adequacy of warranty accruals. Actual results could differ from those estimates. The Company believes that the estimates used are reasonable. Note 1. Nature of Business and Significant Accounting Policies - (Continued) Accumulated other comprehensive earnings (loss) Accumulated other comprehensive earnings (loss) includes cumulative translation adjustments, fair value adjustments on interest rate swap contracts, fair value adjustments on currency forward contracts and changes in minimum liability for pension plans. Foreign currency translation adjustments included in comprehensive income were not tax affected as investments in international affiliates are deemed to be indefinite in duration. The following table sets forth the changes in the balances of each component of accumulated other comprehensive earnings (loss) for the year ended December 31, 2020. Pension Plans Interest Rate Swap Contracts Currency Forward Contracts Foreign Total Balance, December 31, 2019 $ (740) $ (796) $ — $ (164,409) $ (165,945) Other comprehensive income (loss) before reclassifications, net of tax (192) (772) 2,949 5,974 7,959 Balance, December 31, 2020 $ (932) $ (1,568) $ 2,949 $ (158,435) $ (157,986) Recently adopted accounting pronouncements Financial Accounting Standards Board ("FASB") ASU No. 2016-13, "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. FASB ASU No. 2016-02, "Leases ("ASC 842"). Effective January 1, 2019, the Company adopted ASC 842 and all the related amendments using the modified retrospective method, using the permitted practical expedients, to those contracts still outstanding as of January 1, 2019. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The most significant impact was the recognition, on a discounted basis, of right-of-use (ROU) assets totaling approximately $31.9 million and lease liabilities totaling approximately $34.2 million under non-cancelable operating leases as of January 1, 2019 and the related new required disclosures. The standard did not have an impact on the Company's consolidated income statements or consolidated statements of cash flows. For additional disclosures required under the new standard, see Note 7, "Leases." FASB ASU No. 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" ("ASU 2017-04"). Effective January 1, 2019, the Company adopted ASU 2017-04. The amendments in this update simplify the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment also requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The standard did not have a material impact on the Company's consolidated financial statements. FASB ASU No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" ("ASU 2018-02"). Effective January 1, 2019, the Company adopted ASU 2018-02. Note 1. Nature of Business and Significant Accounting Policies - (Continued) Recently adopted accounting pronouncements - (Continued) The standard allows companies to reclassify stranded tax effects in accumulated other comprehensive earnings (loss) that have been caused by the Tax Cuts and Jobs Act of 2017 (the "Tax Act") to retained earnings for each period in which the effect of the change in the U.S. federal corporate income tax rate is recorded. However, the FASB made the reclassification optional. As a result, the Company assessed the impact of the ASU on its financial statements and did not exercise the option to reclassify the stranded tax effects caused by the Tax Act. FASB ASU No. 2018-07, "Improvements to Nonemployee Share-Based Payment Accounting" ("ASU 2018-07"). Effective January 1, 2019, the Company adopted ASU 2018-07. The standard more closely aligns the accounting for employee and nonemployee share-based payments. The standard did not have a material impact on the Company's consolidated financial statements or disclosures. FASB ASU No. 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract” (“ASU 2018-15”). Effective January 1, 2019, the Company adopted ASU 2018-15. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The standard did not have a material impact on the Company’s consolidated financial statements. FASB ASU No. 2016-16, "Intra-Entity Transfers of Assets Other Than Inventory" ("ASU 2016-16"). Effective January 1, 2018, the Company adopted ASU 2016-16, which eliminates the exception of recognizing, at the time of transfer, current and deferred income taxes for intra-entity asset transfers other than inventory. This new standard has been applied on a modified retrospective transition basis with an adjustment to the opening balance of retained earnings in the amount of approximately $3.4 million and $79.3 million as of January 1, 2019 and 2018, respectively. Recently issued accounting pronouncements In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)", which temporarily simplifies the accounting for contract modifications, including hedgi |
