Acquisitions

6 Months Ended

Jun. 29, 2019

The Company accounts for acquisitions using the acquisition method in accordance with ASC 805, “Business Combinations,” in which assets acquired and liabilities assumed are recorded at fair value as of the date of acquisition. The operating results of the acquired business are included in the Company’s Consolidated Financial Statements from the date of the acquisition.

IXYS Corporation

On January 17, 2018, the Company acquired IXYS Corporation (“IXYS”), a global pioneer in the power semiconductor and integrated circuit markets with a focus on medium to high voltage power control semiconductors across the industrial, communications, consumer and medical markets. IXYS has a broad customer base, serving more than 3,500 customers through its direct sales force and global distribution partners. The acquisition of IXYS is expected to accelerate the Company’s growth

across the power control market driven by IXYS’s extensive power semiconductor portfolio and technology expertise. With IXYS, the Company will be able to diversify and expand its presence within industrial electronics markets, leveraging the strong IXYS industrial OEM customer base. The Company also expects to increase long-term penetration of its power semiconductor portfolio in automotive markets, expanding its global content per vehicle.

Upon completion of the acquisition, at IXYS stockholders’ election and subject to proration, each share of IXYS common stock, par value $0.01 per share, owned immediately prior to the effective time was canceled and extinguished and automatically converted into the right to receive: (i) $23.00 in cash (subject to applicable withholding tax), without interest (referred to as the cash consideration), or (ii) 0.1265 of a share of common stock, par value $0.01 per share, of Littelfuse (referred to as the stock consideration). IXYS stockholders received cash in lieu of any fractional shares of Littelfuse common stock that the IXYS stockholders would otherwise have been entitled to receive. Additionally, each outstanding option to purchase shares of IXYS common stock granted under an IXYS equity plan were assumed by Littelfuse and converted into an option to acquire (i) a number of shares of Littelfuse common stock equal to the number of shares of IXYS common stock subject to such option immediately prior to the effective time multiplied by 0.1265, rounded down to the nearest whole share, with (ii) an exercise price per share of Littelfuse common stock equal to the exercise price of such IXYS stock option immediately prior to the effective time divided by 0.1265, rounded up to the nearest whole cent.

Based on the $207.5 per share opening price of Littelfuse common stock on January 17, 2018, the consideration IXYS stockholders received in exchange of their IXYS common stock in the acquisition had a value of $814.8 million comprised of $380.6 million of cash and $434.2 million of Littelfuse stock. In addition to the consideration transferred related to IXYS common stock, the value of consideration transferred, and included in the purchase price, related to IXYS stock options that were converted to Littelfuse stock options, or cash settled, had a value of $41.7 million. As a result, total consideration was valued at $856.5 million.

The total purchase price of $856.5 million has been allocated to assets acquired and liabilities assumed, as of the completion of the acquisition, based on estimated fair values. The following table summarizes the purchase price allocation of the fair value of assets acquired and liabilities assumed in the IXYS acquisition:



(in thousands)	Purchase Price Allocation
Total purchase consideration:
Cash, net of cash acquired	$	302,865
Cash settled stock options	3,622
Littelfuse stock	434,192
Converted stock options	38,109
Total purchase consideration	$	778,788
Allocation of consideration to assets acquired and liabilities assumed:
Current assets, net	$	155,930
Property, plant, and equipment	77,442
Intangible assets	212,720
Goodwill	382,360
Other non-current assets	28,706
Other non-current liabilities	(78,370		)
	$	778,788

Approximately $49.1 million of net receivables was included in IXYS’s current assets. All IXYS goodwill, other assets and liabilities were recorded in the Electronics segment and primarily reflected in the Americas and European geographic areas. The goodwill resulting from this acquisition consists largely of the Company’s expected future product sales and synergies from combining IXYS’s products and technology with the Company’s existing electronics product portfolio. Goodwill resulting from the IXYS acquisition is not expected to be deductible for tax purposes.

Included in the Company’s Condensed Consolidated Statements of Net Income for the three and six months ended June 30, 2018 are net sales of approximately $100.2 million and $186.5 million, respectively, and a loss before income taxes of $13.9 million and $31.7 million, respectively, since the January 17, 2018 acquisition of IXYS. During the three and six months ended June 30,

2018, the Company recognized a charge of $19.0 million and $36.9 million, respectively, for the amortization of the fair value inventory step-up. The step-up was a non-cash charge to cost of goods and reflected as other non-segment costs. The Company recognized approximately $1.6 million and $7.5 million of stock compensation expense related to IXYS stock options converted to Littelfuse stock options during the three and six months ended June 30, 2018, of which $4.5 million was recognized immediately as it related to prior services periods.

During the three and six months ended June 30, 2018, the Company incurred approximately $0.8 million and $11.0 million, respectively, of legal and professional fees related to this acquisition which were primarily recognized as selling, general, and administrative expenses. These costs were reflected as other non-segment costs.

Pro Forma Results

The following table summarizes, on a pro forma basis, the combined results of operations of the Company and IXYS as though the acquisition had occurred as of January 1, 2017. The pro forma amounts presented are not necessarily indicative of either the actual consolidated results had the IXYS acquisition occurred as of January 1, 2017 or of future consolidated operating results.



	Three Months Ended		Six Months Ended
(in thousands, except per share amounts)	June 30, 2018		June 30, 2018
Net sales	$	459,183	$	893,709
Income before income taxes	74,857		134,227
Net income	59,283		106,247
Net income per share — basic	2.37		4.26
Net income per share — diluted	2.33		4.22

Pro forma results presented above primarily reflect the following adjustments:



	Three Months Ended			Six Months Ended
(in thousands)	June 30, 2018			June 30, 2018
Amortization(a)	$	3,298		$	5,185
Transaction costs(b)	—			9,976
Amortization of inventory step-up(c)	19,031			36,927
Stock compensation(d)	210			4,689
Income tax impact of above items	(5,582		)	(13,329		)


(a)	The amortization adjustment for the three and six months ended June 30, 2018 primarily reflects the reduction of amortization expense in the period related to the Order backlog intangible asset. The Order backlog has a useful life of twelve months and was fully amortized in the fiscal 2017 pro forma results.


(b)	The transaction cost adjustments reflect the reversal of certain bank and attorney fees from the six months ended June 30, 2018 and recognition of those fees during the six months ended July 1, 2017.


(c)	The amortization of inventory step-up adjustment reflects the reversal of the amount recognized during the three and six months ended June 30, 2018 and recognition of those costs during the three and six months ended July 1, 2017. The inventory step-up was amortized over five months as the inventory was sold.

(d)

The stock compensation adjustment reflects the reversal of the portion of stock compensation for IXYS stock options that were converted to Littelfuse stock options and expensed immediately during the six months ended June 30, 2018.