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lfus-20200926

Table of Contents

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 September 26, 2020


☐			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 October 23, 2020, the registrant had outstanding 24,375,049 shares of Common Stock, net of Treasury Shares.

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TABLE OF CONTENTS


		Page

PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of September 26, 2020 (unaudited) and December 28, 2019	3
	Condensed Consolidated Statements of Net Income for the three and nine months ended September 26, 2020 (unaudited) and September 28, 2019 (unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 26, 2020 (unaudited) and September 28, 2019 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 26, 2020 (unaudited) and September 28, 2019 (unaudited)	6
	Condensed Consolidated Statements of Stockholders' Equity for the nine months ended September 26, 2020 (unaudited) and September 28, 2019 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	38
Signatures		39

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LITTELFUSE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	(Unaudited)
(in thousands)	September 26, 2020		December 28, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	641,890	$	531,139
Short-term investments	52		44
Trade receivables, less allowances of $42,737 and $42,043 at September 26, 2020 and December 28, 2019, respectively	231,930		202,309
Inventories	243,832		237,507
Prepaid income taxes and income taxes receivable	1,218		4,831
Prepaid expenses and other current assets	30,012		28,564
Total current assets	1,148,934		1,004,394





Net property, plant, and equipment	339,870		344,617
Intangible assets, net of amortization	296,159		321,247
Goodwill	799,791		820,589
Investments	26,066		24,099
Deferred income taxes	7,173		8,069
Right of use lease assets, net	18,811		21,918
Other assets	17,566		14,965
Total assets	$	2,654,370	$	2,559,898
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	120,938	$	117,320



Accrued liabilities	98,437		84,120
Accrued income taxes	15,231		14,122
Current portion of long-term debt	—		10,000
Total current liabilities	234,606		225,562
Long-term debt, less current portion	725,507		669,158
Deferred income taxes	46,584		49,763
Accrued post-retirement benefits	40,279		38,198
Non-current operating lease liabilities	14,193		17,166
Other long-term liabilities	63,639		64,037
Shareholders’ equity:
Common stock, par value $0.01 per share: 34,000,000 shares authorized; shares issued, September 26, 2020–26,015,067; December 28, 2019–25,855,203	258		256
Treasury stock, at cost: 1,644,103 and 1,473,901 shares, respectively	(242,323)		(216,447)
Additional paid-in capital	891,924		867,996
Accumulated other comprehensive loss	(107,238)		(106,823)
Retained earnings	986,810		950,901
Littelfuse, Inc. shareholders’ equity	1,529,431		1,495,883
Non-controlling interest	131		131
Total equity	1,529,562		1,496,014
Total liabilities and equity	$	2,654,370	$	2,559,898

See accompanying Notes to Condensed Consolidated Financial Statements.

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LITTELFUSE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME

(Unaudited)


	Three Months Ended				Nine Months Ended
(in thousands, except per share data)	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Net sales	$	391,566	$	361,971	$	1,044,999	$	1,165,350
Cost of sales	253,390		231,025		684,012		737,368
Gross profit	138,176		130,946		360,987		427,982

Selling, general, and administrative expenses	50,465		54,224		158,832		174,845
Goodwill impairment charge	—		—		33,841		—
Research and development expenses	13,049		19,728		41,044		62,595
Amortization of intangibles	10,104		9,827		29,912		30,068
Total operating expenses	73,618		83,779		263,629		267,508
Operating income	64,558		47,167		97,358		160,474

Interest expense	4,988		5,559		16,261		16,834
Foreign exchange (gain) loss	(6,174)		4,968		(9,600)		5,636
Other income, net	(1,682)		(4,764)		(1,643)		(3,406)
Income before income taxes	67,426		41,404		92,340		141,410
Income taxes	12,070		5,757		21,331		24,982
Net income	$	55,356	$	35,647	$	71,009	$	116,428

Income per share:
Basic	$	2.27	$	1.46	$	2.92	$	4.72
Diluted	$	2.25	$	1.44	$	2.89	$	4.68

Weighted-average shares and equivalent shares outstanding:
Basic	24,357		24,482		24,354		24,646
Diluted	24,573		24,684		24,535		24,894

See accompanying Notes to Condensed Consolidated Financial Statements.

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LITTELFUSE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended				Nine Months Ended
(in thousands)	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Net income	$	55,356	$	35,647	$	71,009	$	116,428
Other comprehensive income (loss):
Pension and postemployment adjustment, net of tax	563		137		(9,715)		249



Foreign currency translation adjustments	16,418		(17,163)		9,300		(14,933)
Comprehensive income	$	72,337	$	18,621	$	70,594	$	101,744

See accompanying Notes to Condensed Consolidated Financial Statements.

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LITTELFUSE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended
(in thousands)	September 26, 2020		September 28, 2019
OPERATING ACTIVITIES
Net income	$	71,009	$	116,428
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	41,953		38,988
Amortization of intangibles	29,912		30,068

Deferred revenue	(438)		(228)

Impairment charges	36,078		322

Stock-based compensation	14,544		15,738
(Gain) loss on investments and other assets	(1,200)		559
Deferred income taxes	1,567		(203)
Other	(8,549)		8,267
Changes in operating assets and liabilities:
Trade receivables	(29,362)		2,781
Inventories	(1,611)		18,102
Accounts payable	6,661		(29,453)



Accrued liabilities and income taxes	(2,095)		(44,241)
Prepaid expenses and other assets	5,787		3,735
Net cash provided by operating activities	164,256		160,863

INVESTING ACTIVITIES
Acquisitions of businesses, net of cash acquired	—		(775)


Purchases of property, plant, and equipment	(41,536)		(38,397)
Net proceeds from sale of property, plant and equipment	148		6,212
Net cash used in investing activities	(41,388)		(32,960)

FINANCING ACTIVITIES
Proceeds of revolving credit facility	240,000		—
Payments of revolving credit facility	(60,000)		—


Payments of term loan	(145,000)		(7,500)
Net proceeds related to stock-based award activities	6,437		4,412
Purchases of common stock	(22,927)		(99,387)
Debt issuance costs	(1,786)		—
Cash dividends paid	(35,100)		(32,990)
Net cash used in financing activities	(18,376)		(135,465)
Effect of exchange rate changes on cash and cash equivalents	6,259		(6,114)
Increase (decrease) in cash and cash equivalents	110,751		(13,676)
Cash and cash equivalents at beginning of period	531,139		489,733
Cash and cash equivalents at end of period	$	641,890	$	476,057
Supplementary Cash Flow Information
Cash paid during the period for interest	$	17,228	$	17,872

Capital expenditures, not yet paid	$	6,267	$	8,978

See accompanying Notes to Condensed Consolidated Financial Statements.

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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. (Loss) Income		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 loss, 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
Net loss	—		—		—		—		(8,991)		—		(8,991)



Other comprehensive loss, net of tax	—		—		—		(2,417)		—		—		(2,417)
Stock-based compensation	—		7,887		—		—		—		—		7,887

Withheld shares on restricted share units for withholding taxes	—		—		(2,375)		—		—		—		(2,375)
Stock options exercised	1		3,059		—		—		—		—		3,060

Cash dividends paid ($0.48 per share)	—		—		—		—		(11,678)		—		(11,678)
Balance at June 27, 2020	$	257	$	885,306	$	(242,192)	$	(124,219)	$	943,151	$	131	$	1,462,434
Net income	—		—		—		—		55,356		—		55,356



Other comprehensive income, net of tax	—		—		—		16,981		—		—		16,981
Stock-based compensation	—		3,692		—		—		—		—		3,692

Withheld shares on restricted share units for withholding taxes	—		—		(131)		—		—		—		(131)
Stock options exercised	1		2,926		—		—		—		—		2,927

Cash dividends paid ($0.48 per share)	—		—		—		—		(11,697)		—		(11,697)
Balance at September 26, 2020	$	258	$	891,924	$	(242,323)	$	(107,238)	$	986,810	$	131	$	1,529,562

See accompanying Notes to Condensed Consolidated Financial Statements.

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	Littelfuse, Inc. Shareholders’ Equity
(in thousands, except share and per share data)	Common Stock		Addl. Paid in Capital		Treasury Stock		Accum. Other Comp. (Loss) Income		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
Net income	—		—		—		—		43,792		—		43,792



Other comprehensive loss, net of tax	—		—		—		(5,731)		—		—		(5,731)
Stock-based compensation	—		8,284		—		—		—		—		8,284

Withheld shares on restricted share units for withholding taxes	—		—		(4,010)		—		—		—		(4,010)
Stock options exercised	1		4,822		—		—		—		—		4,823
Repurchases of common stock	—		—		(31,955)		—		—		—		(31,955)

Cash dividends paid ($0.43 per share)	—		—		—		—		(10,649)		—		(10,649)
Balance at June 29, 2019	$	255	$	855,192	$	(166,068)	$	(95,582)	$	916,014	$	131	$	1,509,942
Net income	—		—		—		—		35,647		—		35,647



Other comprehensive loss, net of tax	—		—		—		(17,026)		—		—		(17,026)
Stock-based compensation	—		3,488		—		—		—		—		3,488

Withheld shares on restricted share units for withholding taxes	—		—		(790)		—		—		—		(790)
Stock options exercised	1		2,191		—		—		—		—		2,192
Repurchases of common stock	—		—		(49,526)		—		—		—		(49,526)

Cash dividends paid ($0.48 per share)	—		—		—		—		(11,715)		—		(11,715)
Balance at September 28, 2019	$	256	$	860,871	$	(216,384)	$	(112,608)	$	939,946	$	131	$	1,472,212

See accompanying Notes to Condensed Consolidated Financial Statements.

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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 and nine months ended September 26, 2020 and September 28, 2019:


	Three Months Ended September 26, 2020								Nine Months Ended September 26, 2020
(in thousands)	Electronics Segment		Automotive Segment		Industrial Segment		Total		Electronics Segment		Automotive Segment		Industrial Segment		Total
Electronics – Passive Products and Sensors	$	108,253	$	—	$	—	$	108,253	$	285,697	$	—	$	—	$	285,697
Electronics – Semiconductor	147,096		—		—		147,096		407,112		—		—		407,112
Passenger Car Products	—		52,691		—		52,691		—		135,645		—		135,645
Automotive Sensors	—		26,093		—		26,093		—		64,166		—		64,166
Commercial Vehicle Products	—		25,940		—		25,940		—		71,682		—		71,682
Industrial Products	—		—		31,493		31,493		—		—		80,697		80,697
Total	$	255,349	$	104,724	$	31,493	$	391,566	$	692,809	$	271,493	$	80,697	$	1,044,999

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	Three Months Ended September 28, 2019								Nine Months Ended September 28, 2019
(in thousands)	Electronics Segment		Automotive Segment		Industrial Segment		Total		Electronics Segment		Automotive Segment		Industrial Segment		Total
Electronics – Passive Products and Sensors	$	94,766	$	—	$	—	$	94,766	$	311,624	$	—	$	—	$	311,624
Electronics – Semiconductor	132,486		—		—		132,486		440,575		—		—		440,575
Passenger Car Products	—		53,889		—		53,889		—		164,348		—		164,348
Automotive Sensors	—		23,877		—		23,877		—		74,616		—		74,616
Commercial Vehicle Products	—		26,915		—		26,915		—		87,850		—		87,850
Industrial Products	—		—		30,038		30,038		—		—		86,337		86,337
Total	$	227,252	$	104,681	$	30,038	$	361,971	$	752,199	$	326,814	$	86,337	$	1,165,350

See Note 14, 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.

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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 other 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