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United States
Securities and Exchange Commission
Washington, D.C. 20549
 
FORM 10-Q  
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 28, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___

Commission file number 0-20388
LITTELFUSE, INC.  
(Exact name of registrant as specified in its charter)
Delaware
 
36-3795742
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
8755 West Higgins Road
 
 
 Suite 500
 
 
Chicago
Illinois
60631
(Address of principal executive offices)
 
(ZIP Code)
 
Registrant’s telephone number, including area code: 773 - 628-1000
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
 
Trading Symbol
 
Name of exchange on which registered
Common Stock, $0.01 par value
 
LFUS
 
NASDAQ
Global Select Market
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one): Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes [ ] No [ ]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No [X]

As of April 24, 2020, the registrant had outstanding 24,276,841 shares of Common Stock, net of Treasury Shares.



TABLE OF CONTENTS
 
 
Page
 
 
PART I
 
Item 1.
 
 
Condensed Consolidated Balance Sheets as of March 28, 2020 (unaudited) and December 28, 2019
 
Condensed Consolidated Statements of Net Income for the three months ended March 28, 2020 (unaudited) and March 30, 2019 (unaudited)
 
Condensed Consolidated Statements of Comprehensive Income for the three months ended March 28, 2020 (unaudited) and March 30, 2019 (unaudited)
 
Condensed Consolidated Statements of Cash Flows for the three months ended March 28, 2020 (unaudited) and March 30, 2019 (unaudited)
 
Condensed Consolidated Statements of Stockholders' Equity for the three months ended March 28, 2020 (unaudited) and March 30, 2019 (unaudited)
 
Item 2.
Item 3.
Item 4.
PART II  
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


2




LITTELFUSE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

 
 
(Unaudited)
 
 
(in thousands)
 
March 28,
2020
 
December 28,
2019
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
620,575

 
$
531,139

Short-term investments
 
43

 
44

Trade receivables, less allowances of $37,482 and $42,043 at March 28, 2020 and December 28, 2019, respectively
 
207,912

 
202,309

Inventories
 
227,282

 
237,507

Prepaid income taxes and income taxes receivable
 
4,253

 
4,831

Prepaid expenses and other current assets
 
32,418

 
28,564

Total current assets
 
1,092,483


1,004,394

Net property, plant, and equipment
 
334,829


344,617

Intangible assets, net of amortization
 
308,393

 
321,247

Goodwill
 
812,763

 
820,589

Investments
 
21,248

 
24,099

Deferred income taxes
 
7,608

 
8,069

Right of use lease assets, net
 
20,611

 
21,918

Other assets
 
14,694

 
14,965

Total assets
 
$
2,612,629


$
2,559,898

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
106,796

 
$
117,320

Accrued liabilities
 
73,512

 
84,120

Accrued income taxes
 
17,907

 
14,122

Current portion of long-term debt
 
10,000

 
10,000

Total current liabilities
 
208,215


225,562

Long-term debt, less current portion
 
764,195

 
669,158

Deferred income taxes
 
49,698

 
49,763

Accrued post-retirement benefits
 
35,904

 
38,198

Non-current operating lease liabilities
 
15,960

 
17,166

Other long-term liabilities
 
61,709

 
64,037

Shareholders’ equity:
 
 
 
 
Common stock, par value $0.01 per share: 34,000,000 shares authorized; shares issued, March 28, 2020–25,902,213; December 28, 2019–25,855,203
 
256

 
256

Treasury stock, at cost: 1,626,357 and 1,473,901 shares, respectively
 
( 239,817
)
 
( 216,447
)
Additional paid-in capital
 
874,360

 
867,996

Accumulated other comprehensive loss
 
( 121,802
)
 
( 106,823
)
Retained earnings
 
963,820

 
950,901

Littelfuse, Inc. shareholders’ equity
 
1,476,817


1,495,883

Non-controlling interest
 
131

 
131

Total equity
 
1,476,948


1,496,014

Total liabilities and equity
 
$
2,612,629


$
2,559,898

 
See accompanying Notes to Condensed Consolidated Financial Statements.

3



LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME
(Unaudited)

 
 
Three Months Ended
(in thousands, except per share data)
 
March 28,
2020
 
March 30,
2019
Net sales
 
$
346,096

 
$
405,500

Cost of sales
 
222,384

 
250,272

Gross profit
 
123,712


155,228

 
 
 
 
 
Selling, general, and administrative expenses
 
54,386

 
62,955

Research and development expenses
 
14,595

 
21,409

Amortization of intangibles
 
9,981

 
10,191

Total operating expenses
 
78,962


94,555

Operating income
 
44,750


60,673

 
 
 
 
 
Interest expense
 
5,418

 
5,686

Foreign exchange loss
 
2,584

 
4,243

Other expense, net
 
1,249

 
4,305

Income before income taxes
 
35,499

 
46,439

Income taxes
 
10,855

 
9,450

Net income
 
$
24,644


$
36,989

 
 
 
 
 
Income per share:
 
 
 
 
Basic
 
$
1.01

 
$
1.50

Diluted
 
$
1.00

 
$
1.48

 
 
 
 
 
Weighted-average shares and equivalent shares outstanding:
 
 
 
 
Basic
 
24,393

 
24,717

Diluted
 
24,578

 
25,009

 
See accompanying Notes to Condensed Consolidated Financial Statements.


4


LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
 
Three Months Ended
(in thousands)
 
March 28,
2020
 
March 30,
2019
Net income
 
$
24,644

 
$
36,989

Other comprehensive income (loss):
 
 
 
 
Pension and postemployment adjustment, net of tax
 
561

 
( 49
)
Foreign currency translation adjustments
 
( 15,540
)
 
8,122

Comprehensive income
 
$
9,665


$
45,062

 
See accompanying Notes to Condensed Consolidated Financial Statements.


5


LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Three Months Ended
(in thousands)
 
March 28, 2020
 
March 30, 2019
OPERATING ACTIVITIES
 
 
 
 
Net income
 
$
24,644

 
$
36,989

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation
 
13,821

 
13,088

Amortization of intangibles
 
9,981

 
10,191

Deferred revenue
 
( 145
)
 

Impairment charges
 
2,237

 

Stock-based compensation
 
2,965

 
3,966

Loss on investments and other assets
 
2,604

 
2,810

Deferred income taxes
 
616

 
( 72
)
Other
 
3,547

 
5,393

Changes in operating assets and liabilities:
 
 
 
 
Trade receivables
 
( 9,457
)
 
( 5,800
)
Inventories
 
6,667

 
( 3,250
)
Accounts payable
 
( 3,964
)
 
( 8,499
)
Accrued liabilities and income taxes
 
( 7,012
)
 
( 27,170
)
Prepaid expenses and other assets
 
( 1,225
)
 
3,273

Net cash provided by operating activities
 
45,279


30,919

 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
Acquisitions of businesses, net of cash acquired
 

 
( 775
)
Purchases of property, plant, and equipment
 
( 16,586
)
 
( 14,076
)
Net proceeds from sale of property, plant and equipment
 
50

 
607

Net cash used in investing activities
 
( 16,536
)

( 14,244
)
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
Proceeds of revolving credit facility
 
100,000

 

Payments of term loan
 
( 2,500
)
 
( 5,000
)
Net proceeds related to stock-based award activities
 
2,956

 
2,198

Purchases of common stock
 
( 22,927
)
 
( 17,906
)
Cash dividends paid
 
( 11,725
)
 
( 10,625
)
Net cash provided by (used in) financing activities
 
65,804

 
( 31,333
)
Effect of exchange rate changes on cash and cash equivalents
 
( 5,111
)
 
1,539

Increase (decrease) in cash and cash equivalents
 
89,436

 
( 13,119
)
Cash and cash equivalents at beginning of period
 
531,139

 
489,733

Cash and cash equivalents at end of period
 
$
620,575


$
476,614

Supplementary Cash Flow Information
 
 
 
 
Cash paid during the period for interest
 
$
7,354

 
$
8,011

Capital expenditures, not yet paid
 
$
5,832

 
$

 
See accompanying Notes to Condensed Consolidated Financial Statements.


6


LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
 
Littelfuse, Inc. Shareholders’ Equity
 
 
 
 
(in thousands, except share and per share data)
Common Stock
 
Addl. Paid in Capital
 
Treasury Stock
 
Accum. Other Comp. Inc. (Loss)
 
Retained Earnings
 
Non-controlling Interest
 
Total
Balance at December 28, 2019
$
256

 
$
867,996

 
$
( 216,447
)
 
$
( 106,823
)
 
$
950,901

 
$
131

 
$
1,496,014

Net income

 

 

 

 
24,644

 

 
24,644

Other comprehensive income, net of tax

 

 

 
( 14,979
)
 

 

 
( 14,979
)
Stock-based compensation

 
2,965

 

 

 

 

 
2,965

Withheld shares on restricted share units for withholding taxes

 

 
( 443
)
 

 

 

 
( 443
)
Stock options exercised

 
3,399

 

 

 

 

 
3,399

Repurchases of common stock

 

 
( 22,927
)
 

 

 

 
( 22,927
)
Cash dividends paid ($0.48 per share)

 

 

 

 
( 11,725
)
 

 
( 11,725
)
Balance at March 28, 2020
$
256

 
$
874,360

 
$
( 239,817
)
 
$
( 121,802
)
 
$
963,820

 
$
131

 
$
1,476,948



 
Littelfuse, Inc. Shareholders’ Equity
 
 
 
 
(in thousands, except share and per share data)
Common Stock
 
Addl. Paid in Capital
 
Treasury Stock
 
Accum. Other Comp. Inc. (Loss)
 
Retained Earnings
 
Non-controlling Interest
 
Total
Balance at December 29, 2018
$
254

 
$
835,828

 
$
( 116,454
)
 
$
( 97,924
)
 
$
856,507

 
$
131

 
$
1,478,342

Net income

 

 

 

 
36,989

 

 
36,989

Other comprehensive loss, net of tax

 

 

 
8,073

 

 

 
8,073

Stock-based compensation

 
3,966

 

 

 

 

 
3,966

Withheld shares on restricted share units for withholding taxes

 

 
( 94
)
 

 

 

 
( 94
)
Stock options exercised

 
2,292

 

 

 

 

 
2,292

Repurchases of common stock

 

 
( 13,555
)
 

 

 

 
( 13,555
)
Cash dividends paid ($0.43 per share)

 

 

 

 
( 10,625
)
 

 
( 10,625
)
Balance at March 30, 2019
$
254

 
$
842,086

 
$
( 130,103
)
 
$
( 89,851
)
 
$
882,871

 
$
131

 
$
1,505,388


See accompanying Notes to Condensed Consolidated Financial Statements.

7


Notes to Condensed Consolidated Financial Statements 
 
1. Summary of Significant Accounting Policies and Other Information
 
Nature of Operations  
 
Littelfuse, Inc. and subsidiaries (the “Company”) is a global manufacturer of leading technologies in circuit protection, power control and sensing. Serving over 100,000 end customers, the Company’s products are found in automotive and commercial vehicles, industrial applications, data and telecommunications, medical devices, consumer electronics and appliances. With its broad product portfolio of fuses, semiconductors, polymers, ceramics, relays and sensors, and extensive global infrastructure, the Company’s worldwide associates partner with its customers to design, manufacture and deliver innovative, high-quality solutions for a safer, greener and increasingly connected world.
 
Basis of Presentation  
 
The Company’s accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and disclosures normally included in the consolidated balance sheets, statements of net income and comprehensive income, statements of cash flows, and statement of stockholders' equity prepared in conformity with U.S. GAAP have been condensed or omitted as permitted by such rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. They have been prepared in accordance with accounting policies described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019 which should be read in conjunction with the disclosures therein. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal, recurring nature. Operating results for interim periods are not necessarily indicative of annual operating results.
 
Revenue Recognition
  
Revenue Disaggregation
 
The following tables disaggregate the Company’s revenue by primary business units for the three months ended March 28, 2020 and March 30, 2019 :
 
 
 
Three Months Ended March 28, 2020
(in thousands)
 
Electronics
Segment
 
Automotive
Segment
 
Industrial
Segment
 
 
Total
Electronics – Passive Products and Sensors
 
$
84,598

 
$

 
$

 
$
84,598

Electronics – Semiconductor
 
129,591

 

 

 
129,591

Passenger Car Products
 

 
52,645

 

 
52,645

Automotive Sensors
 

 
24,174

 

 
24,174

Commercial Vehicle Products
 

 
27,951

 

 
27,951

Industrial Products
 

 

 
27,137

 
27,137

Total
 
$
214,189


$
104,770


$
27,137


$
346,096








8


 
 
Three Months Ended March 30, 2019
(in thousands)
 
Electronics
Segment
 
Automotive
Segment
 
Industrial
Segment
 
 
Total
Electronics – Passive Products and Sensors
 
$
108,377

 
$

 
$

 
$
108,377

Electronics – Semiconductor
 
157,017

 

 

 
157,017

Passenger Car Products
 

 
56,543

 

 
56,543

Automotive Sensors
 

 
26,057

 

 
26,057

Commercial Vehicle Products
 

 
30,883

 

 
30,883

Industrial Products
 

 

 
26,623

 
26,623

Total
 
$
265,394

 
$
113,483

 
$
26,623

 
$
405,500



 
See Note 16, Segment Information for net sales by segment and countries.
 
Revenue Recognition
 
The Company recognizes revenue on product sales in the period in which the Company satisfies its performance obligation and control of the product is transferred to the customer. The Company’s sales arrangements with customers are predominately short term in nature and generally provide for transfer of control at the time of shipment as this is the point at which title and risk of loss of the product transfers to the customer. At the end of each period, for those shipments where title to the products and the risk of loss and rewards of ownership do not transfer until the product has been received by the customer, the Company adjusts revenues and cost of sales for the delay between the time that the products are shipped and when they are received by the customer. The amount of revenue recorded reflects the consideration to which the Company expects to be entitled in exchange for goods and may include adjustments for customer allowance, rebates and price adjustments. The Company’s distribution channels are primarily through direct sales and independent third-party distributors.
 
The Company elected the practical expedient under Accounting Standards Codification ("ASC") 340-40-25-4 to expense commissions when incurred as the amortization period of the commission asset the Company would have otherwise recognized is less than one year.
 
Revenue and Billing
 
The Company generally accepts orders from customers through receipt of purchase orders or electronic data interchange based on written sales agreements and purchasing contracts. Contract pricing and selling agreement terms are based on market factors, costs, and competition. Pricing is often negotiated as an adjustment (premium or discount) from the Company’s published price lists. The customer is invoiced when the Company’s products are shipped to them in accordance with the terms of the sales agreement. As the Company’s standard payment terms are less than one year, the Company elected the practical expedient under ASC 606-10-32-18 to not assess whether a contract has a significant financing component. The Company also elected the practical expedient provided in ASC 606-10-25-18B to treat all product shipping and handling activities as fulfillment activities, and therefore recognize the gross revenue associated with the contract, inclusive of any shipping and handling revenue.
 
Ship and Debit Program
 
Some of the terms of the Company’s sales agreements and normal business conditions provide customers (distributors) the ability to receive price adjustments on products previously shipped and invoiced. This practice is common in the industry and is referred to as a “ship and debit” program. This program allows the distributor to debit the Company for the difference between the distributors’ contracted price and a lower price for specific transactions. Under certain circumstances (usually in a competitive situation or large volume opportunity), a distributor will request authorization for pricing allowances to reduce its price. When the Company approves such a reduction, the distributor is authorized to “debit” its account for the difference between the contracted price and the lower approved price. The Company establishes reserves for this program based on historic activity, electronic distributor inventory levels and actual authorizations for the debit and recognizes these debits as a reduction of revenue.






9



Return to Stock  
 
The Company has a return to stock policy whereby certain customers, with prior authorization from Littelfuse management, can return previously purchased goods for full or partial credit. The Company establishes an estimated allowance for these returns based on historic activity. Sales revenue and cost of sales are reduced to anticipate estimated returns.
 
Volume Rebates
 
The Company offers volume based sales incentives to certain customers to encourage greater product sales. If customers achieve their specific quarterly or annual sales targets, they are entitled to rebates. The Company estimates the projected amount of rebates that will be achieved by the customer and recognizes this estimated cost as a reduction to revenue as products are sold.
 
Recently Adopted Accounting Standards

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments." The standard modifies the measurement approach for credit losses on financial instruments, including trade receivables, from an incurred loss method to a current expected credit loss method ("CECL"). The standard requires the measurement of expected credit losses to be based on relevant information, including historical experiences, current conditions and a forecast that is supportable. The Company adopted the new standard on December 29, 2019. The adoption of the standard did not have a material effect on our Condensed Consolidated Financial Statements.

In August 2018, the FASB issued ASU No. 2018-13 "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirement for Fair Value Measurement." ASU 2018-13 modifies the disclosure requirements in Topic 820: "Fair Value Measurement," based on the FASB Concepts Statement, "Conceptual Framework for Financial Reporting - Chapter 8: Notes to Financial Statements," including consideration of costs and benefits. The new standard removes certain disclosures, modifies certain disclosures and adds additional disclosures related to fair value measurement. The Company adopted the new standard on December 29, 2019. The adoption of ASU 2018- 13 did not have a material impact on our Condensed Consolidated Financial Statements.
 
In August 2018, the FASB issued ASU No. 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic: 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)." ASU 2018-15 aligns 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 Company adopted the new standard on December 29, 2019. The adoption of ASU 2018-15 did not have a material impact on our Condensed Consolidated Financial Statements.

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.” This ASU provides optional expedient and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The objective of this is to provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting due to the cessation of the London Interbank Offered Rate (LIBOR). The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. The Company does not expect a material effect from the adoption of this guidance on its Condensed Consolidated Financial Statements.


2. Inventories
 
The components of inventories at March 28, 2020 and December 28, 2019 are as follows:
 
(in thousands)
 
March 28, 2020
 
December 28, 2019
Raw materials
 
$
75,202

 
$
76,732

Work in process
 
84,030

 
84,561

Finished goods
 
100,415

 
110,388

Inventory Reserves
 
( 32,365
)
 
( 34,174
)
Total
 
$
227,282


$
237,507

 

10


3. Property, Plant, and Equipment
 
The components of net property, plant, and equipment at March 28, 2020 and December 28, 2019 are as follows:
 
(in thousands)
 
March 28, 2020
 
December 28, 2019
Land
 
$
22,781

 
$
24,758

Building
 
105,067

 
108,501

Equipment
 
633,899

 
631,273

Accumulated depreciation and amortization
 
( 426,918
)
 
( 419,915
)
Total
 
$
334,829

 
$
344,617



The Company recorded depreciation expense of $ 13.8 million and $ 13.1 million for the three months ended March 28, 2020 and March 30, 2019 , respectively.

4. Goodwill and Other Intangible Assets
 
The amounts for goodwill and changes in the carrying value by segment for the three months ended March 28, 2020 are as follows:
 
(in thousands)
 
Electronics
 
Automotive
 
Industrial
 
Total
As of December 28, 2019
 
$
650,796

 
$
131,321

 
$
38,472

 
$
820,589

Currency translation
 
( 5,873
)
 
( 1,693
)
 
( 260
)
 
( 7,826
)
As of March 28, 2020
 
$
644,923


$
129,628


$
38,212


$
812,763



The components of other intangible assets at March 28, 2020 and December 28, 2019 are as follows:

 
 
 
As of March 28, 2020
(in thousands)
 
Gross
Carrying
Value
 
 
Accumulated Amortization
 
 
Net Book
Value
Land use rights
 
$
9,545

 
$
1,755

 
$
7,790

Patents, licenses and software
 
129,380

 
$
80,506

 
$
48,874

Distribution network
 
43,076

 
36,560

 
6,516

Customer relationships, trademarks, and tradenames
 
357,188

 
111,975

 
245,213

Total
 
$
539,189


$
230,796


$
308,393


 
 
As of December 28, 2019
(in thousands)
Gross
Carrying
Value
 
 
Accumulated
Amortization
 
 
Net Book
Value
Land use rights
$
9,649

 
$
1,730

 
$
7,919

Patents, licenses and software
131,164

 
78,828

 
52,336

Distribution network
43,239

 
36,163

 
7,076

Customer relationships, trademarks, and tradenames
360,534

 
106,618

 
253,916

Total
$
544,586

 
$
223,339

 
$
321,247



During the three months ended March 28, 2020 and March 30, 2019 , the Company recorded amortization expense of $ 10.0 million and $ 10.2 million , respectively.

During the three months ended March 28, 2020, the Company recognized a $ 0.3 million non-cash impairment charge on a certain patent triggered by the Company’s announcement to consolidate a manufacturing facility within the Industrial segment.

11



Estimated annual amortization expense related to intangible assets with definite lives as of March 28, 2020 is as follows:

 
(in thousands)
Amount
2020
$
38,291

2021
37,487

2022
36,561

2023
32,195

2024
29,135

2025 and thereafter
144,705

Total
$
318,374


 
 
5. Lease Commitments
 
The Company leases office and production space under various non-cancelable operating leases that expire no later than 2028. Certain real estate leases include one or more options to renew. The exercise of lease renewal options is at the Company's sole discretion. Options to extend the lease are included in the lease term when it is reasonably certain the Company will exercise the option. The Company also has production equipment, office equipment and vehicles under operating leases. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option that is reasonably certain of exercise. Certain leases include rental payments adjusted periodically for inflation. The lease agreements do not contain any material residual value guarantee or material restrictive covenants.

The Company does not have a published credit rating because it has no publicly traded debt; therefore, the Company is generating its incremental borrowing rate (IBR), using a synthetic credit rating model that compares its credit quality to other rated companies based on certain financial metrics and ratios. The reference rate will be based on the yield curve of companies with similar credit quality based on the metrics and adjusted for currency in regions where we have significant operations.

All leases with an initial term of 12 months or less that do not include an option to extend or purchase the underlying asset that the Company is reasonably certain to exercise (“short-term leases”) are not recorded on the Condensed Consolidated Balance Sheet. Short-term lease expenses are recognized on a straight-line basis over the lease term.

The following table presents the classification of ROU assets and lease liabilities at March 28, 2020 and December 28, 2019 :
Leases
(in thousands)
Condensed Consolidated Balance Sheet Classification
March 28, 2020
December 28, 2019
Assets
 
 
 
Operating ROU assets
Right of use lease assets, net
$
20,611

$
21,918

Liabilities
 
 
 
Current operating lease liabilities
Accrued liabilities
$
7,073

$
7,259

Non-current operating lease liabilities
Non-current operating lease liabilities
$
15,960

$
17,166

Total lease liabilities
 
$
23,033

$
24,425














12


The following table represents the lease costs for the three months ended March 28, 2020 and March 30, 2019 :
Leases cost
(in thousands)
Condensed Consolidated Statements of Net Income Classification
Three Months Ended March 28, 2020
Three Months Ended
March 30, 2019
Short-term lease expenses
Cost of sales, SG&A expenses
$
117

$
153

Variable lease expenses
Cost of sales, SG&A expenses
318

194

Operating lease rent expenses