BUSINESS COMBINATION

12 Months Ended

Dec. 31, 2018

NOTE 8:-

BUSINESS COMBINATION

Gamatronic Electronic Industries Ltd.

On July 1, 2018, the Company completed the acquisition of substantially all of the assets and activities of Gamatronic Electronic Industries Ltd. ("Gamatronic IL"), at the aggregate amount of $12,083. The asset purchase agreement (the "Gamatronic Agreement") also includes an earn-out provision requiring the Company to pay an amount of 50% and 33% of the Company’s UPS business division’s net income for the first and second years following the Acquisition Date, respectively. The Company estimated the fair value of the contingent consideration based on Monte-Carlo model. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820.

On October 4, 2018, the Company exercised its right to purchase all of the outstanding shares of Gamatronic (UK) Limited ("Gamatronic UK"), a wholly owned subsidiary of Gamatronic IL, for approximately $1.0 million, net of cash acquired. This right was contemplated as part of the Gamatronic Agreement.

The primary reason for Gamatronic Acquisition was to acquire UPS technology and to expand and diversify the Company’s business by entering into the UPS global market.

The Company determined that the Gamatronic Acquisition will be accounted for as a business combination in accordance with ASC 805 "Business Combinations".

Kokam Co., Ltd.

On October 17, 2018, the Company completed the acquisition of 74.5% of the outstanding common shares and voting rights of Kokam Co., Ltd. (“Kokam”), a provider of Lithium-ion cells, batteries and energy storage solutions for approximately $82.5 million, net of cash acquired (the "Kokam Acquisition").

The primary reason for the acquisition was to acquire technology that will enable the Company to offer its customers battery solutions for a wide-variety of industries, including ESS (energy storage systems), residential and commercial solar systems, UPS, electric vehicles, aerospace, marine and more.

The Company determined that the Kokam Acquisition will be accounted for as a business combination in accordance with ASC 805 "Business Combinations".

The fair value of the 25.5% non-controlling interests (“NCI”) in Kokam is estimated to be $22 million. The fair value of the NCI was based on the transaction price.

During the period from the Kokam Acquisition date through December 31, 2018, the Company purchased additional common shares of Kokam in a total amount of $14.2 million. As of December 31, 2018, the Company holds 91.6% of the outstanding common shares and voting rights of Kokam.

The purchase price allocations for the business combinations completed during the year ended December 31, 2018 have been prepared on a preliminary basis and changes to those allocations may occur as additional information becomes available during the respective measurement periods (up to one year from the respective acquisition dates). Fair values still under review include values assigned to identifiable intangible assets, goodwill, deferred income taxes and contingent liabilities.

The following table summarizes the preliminary estimated allocations of the purchase prices for the business combinations completed during the year ended December 31, 2018:

	Kokam			UPS Division			Total

Components of Purchase Price:

Cash	$	87,004		$	12,322		$	99,326
Less cash acquired		(4,477	)		(112	)		(4,589	)
Earn-out provision		-			860			860
Total purchase price	$	82,527		$	13,070		$	95,597

Allocation of Purchase Price:

Net tangible assets (liabilities):
Trade receivables, net	$	4,113		$	220		$	4,333
Prepaid expenses and other current assets		1,390			23			1,413
Inventories		30,633			6,351			36,984
Property, plant and equipment, net		41,079			857			41,936
Other non-current assets		3,568			-			3,568
Trade payables		(5,956	)		(110	)		(6,066	)
Employees and payroll accruals		(2,046	)		-			(2,046	)
Accrued expenses and other current liabilities		(6,426	)		(43	)		(6,469	)
Loans		(23,670	)		-			(23,670	)
Warranty obligations		(1,059	)		(61	)		(1,120	)
Deferred tax liabilities, net		(2,271	)		-			(2,271	)
Other non-current liabilities		(1,399	)		-			(1,399	)
Total net tangible assets	$	37,956		$	7,237		$	45,193

Identifiable intangible assets (1):
Technology	$	28,389		$	2,048		$	30,437
Customer relationships		3,007			810			3,817
Backlog		-			193			193
Tradename		3,671			-			3,671
Total identifiable intangible assets acquired	$	35,067		$	3,051		$	38,118
Goodwill (2)	$	31,663		$	2,782		$	34,445

Non-controlling interests	$	(22,159	)		-		$	(22,159	)

Total purchase price allocation	$	82,527		$	13,070		$	95,597

(1)

Gamatronic's definite-lived intangible assets include current technology of $2,048 (7 years weighted-average useful life), customer relationships of $810 (7 years weighted-average useful life) and backlog of $193 (2 months weighted-average useful life.

Kokam’s definite-lived intangible assets include technology of $28,389 (8 years weighted-average useful life), customer relationships of $3,007 (13 years useful life), and tradename of $3,671 (9 years weighted-average useful life).

(2)

The goodwill resulted from the Gamatronic Acquisition is attributable primarily to acquired technology, expected synergies and the assembled workforce from the UPS Division. The goodwill is expected to be deductible for income tax purposes over a period of 10 years.

The goodwill resulted from Kokam’s Acquisition is attributable primarily to acquired technology, tradename, customer relationship, expected synergies and the assembled workforce of Kokam. The goodwill is not expected to be deductible for income tax purposes.

The Company recognized $1,260 of aggregate acquisition-related costs that were expensed in the consolidated statement of operations in general and administrative expenses.

The amounts of revenue and net loss of both acquired companies included in the Company’s consolidated statements of operations for the period from the acquisitions dates to December 31, 2018 are $22,952 and $7,466, respectively.

The following represents the pro-forma (unaudited) consolidated statements of operations as if both acquisitions had been included in the consolidated results of the Company for the years ended December 31, 2018 and 2017:

	Year ended December 31,
	2018		2017
	Unaudited

Revenue	$	976,827	$	671,570
Net income	$	115,074	$	66,011

These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of both acquisitions to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied since the acquisitions date, together with the consequential tax effects.

These pro-forma results are based on estimates and assumptions, which we believe are reasonable. They are not the results that would have been realized had the acquisitions actually occurred on January 1, 2017 and are not necessarily indicative of our consolidated results of operations in future periods. The pro-forma results include adjustments related to purchase accounting, primarily depreciation of property and equipment, and amortization of intangible assets.