Contingencies

3 Months Ended

Mar. 31, 2021

Commitments and Contingencies Disclosure [Abstract]

Contingencies

Contingencies

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

On April 24, 2018, the Company entered into a Consent Agreement with the United States Department of State's Directorate of Defense Trade Controls (“DDTC”) to resolve allegations regarding the unauthorized export of technical data and defense services to dual and third country nationals from certain Company facilities, the failure to properly use and manage export licenses and export authorizations, and failures to report certain payments under 22 CFR Part 130 in potential violation of the International Traffic in Arms Regulation (“ITAR”). The Consent Agreement has a four-year term and provides for: (i) a civil penalty of $30.0 million with $15.0 million of this amount suspended on the condition that the funds have or will be used for Department-approved Consent Agreement remedial compliance measures, (ii) the appointment of an external Special Compliance Official to oversee compliance with the Consent Agreement and the ITAR; (iii) two external audits of the Company’s ITAR compliance program; and (iv) continued implementation of ongoing remedial compliance measures and additional remedial compliance measures related to automated systems and ITAR compliance policies, procedures, and training. During the three-month period ended March 31, 2018, the Company recorded a $15.0 million charge for the portion of the penalty that is not subject to suspension. In April 2018, 2019, 2020, and 2021 the Company paid $1.0 million, $3.5 million, $3.5 million and $3.5 million, respectively, of the $15.0 million charge. As of March 31, 2021, $7.0 million of penalties were recorded with $3.5 million in other current liabilities and $3.5 million in other long-term 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 several 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 May 3, 2021 and July 15, 2021, respectively. On April 29, 2021, the Company executed a settlement agreement with BIS that resulted in a 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 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.

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.

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. 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 the 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 Registration 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 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.

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.