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Note 2 - Acquisition
 9 Months Ended
Sep. 30, 2025
Notes to Financial Statements  
Business Combination [Text Block]

2.

ACQUISITION

 

On October 31, 2024, the Company completed the acquisition of all issued and outstanding shares of Electrochem Solutions, Inc., a Massachusetts corporation (“Electrochem”), pursuant to a stock purchase agreement (the “Agreement”) with Greatbatch Ltd., a New York corporation (the “Seller”), dated September 27, 2024 (the “Acquisition”). The Agreement established a purchase price of $50,000 for the Acquisition subject to customary working capital adjustments. The Company completed the Acquisition for $48,022 in cash, inclusive of working capital adjustment reductions of $1,978.

 

Based in Raynham, MA and with over forty years of battery technology experience in critical applications, Electrochem designs and manufactures primary lithium metal and ultracapacitor cells and battery packs serving energy, military and various environmental, industrial and utility end markets on a global basis. Acquiring Electrochem advances our strategy of more fully realizing the operating leverage of our business model through scale and manufacturing cost efficiencies. Electrochem brings a blue-chip customer base with little or no overlap with Ultralife’s customers, long-tenured technical resources which we plan to utilize in progressing our global new product initiatives, and a complimentary portfolio of highly engineered thionyl, sulfuryl and bromine chloride cells and packs which can be commercially cost prohibitive to substitute or switch out. We view this acquisition as an avenue to create highly attractive opportunities to drive revenue growth through heightened cross-selling platforms and extend our reach into underserved adjacent markets that demand uncompromised safety, service, reliability and quality. In addition, the combination of Electrochem and Ultralife creates achievable opportunities for gross margin expansion through the realization of vertical integration, supply chain synergies and lean initiatives. With Electrochem we are increasing our value to our customers and significantly strengthening our competitive position in our end markets.

 

The Company funded the purchase price for the Acquisition through the New Credit Agreement (refer to Note 3).

 

The Acquisition was accounted for in accordance with the accounting treatment of a business combination pursuant to FASB ASC Topic 805, “Business Combinations” (“ASC 805”).  Accordingly, the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values on the acquisition date. The excess of the purchase price over the estimated fair value of the separately identifiable assets acquired and liabilities assumed was allocated to goodwill.  Management is responsible for determining the acquisition date fair value of the assets acquired and liabilities assumed, which requires the use of various assumptions and judgments that are inherently subjective. The purchase price allocation presented below reflects all known information about the fair value of the assets acquired and liabilities assumed as of the acquisition date. 

 

Accounts receivable

   $ 5,270  

Inventories

     9,172  

Prepaid expenses and other current assets

     251  

Property, plant and equipment

     20,735  

Goodwill

     7,558  

Other intangible assets

     10,500  

Other noncurrent assets

     237  

Accounts payable

     (2,231 )

Accrued compensation and related benefits

     (1,561 )

Accrued expenses and other current liabilities

     (904 )

Deferred tax liability, net

     (748 )

Other noncurrent liabilities

     (257 )

Net assets acquired

   $ 48,022  

 

The goodwill included in the Company’s purchase price allocation presented above represents the value of Electrochem’s assembled and trained workforce, the incremental value that Electrochem engineering and technology will bring to the Company and the revenue growth which is expected to occur over time which is attributable to increased market penetration from future new products and customers. The goodwill acquired in connection with the acquisition is not deductible for income tax purposes.

 

Other intangible assets were valued using the income approach which requires a forecast of all expected future cash flows and the use of certain assumptions and estimates. The following table summarizes the estimated fair value and annual amortization for each of the identifiable intangible assets acquired.

 

                   

Annual Amortization

  
   

Estimated Fair Value

    

Amortization Period (Years)

    

Year 1

    

Year 2

    

Year 3

    

Year 4

    

Year 5

  

Trade name

   $ 5,300       15     $ 353     $ 353     $ 353     $ 353     $ 353  

Customer relationships

     5,100       15       340       340       340       340       340  

Patents and technology

     100       5       20       20       20       20       20  

Total

   $ 10,500             $ 713     $ 713     $ 713     $ 713     $ 713  

 

We acquired right-of-use assets and assumed operating lease liabilities of $230. Right-of-use assets are classified as other noncurrent assets, and current and long-term lease liabilities are classified as accrued expenses and other current liabilities and other noncurrent liabilities, respectively, on the Company’s consolidated balance sheets.

 

The operating results and cash flows of Electrochem are reflected in the Company’s consolidated financial statements from the date of acquisition. Electrochem is included in the Battery & Energy Products segment.

 

For the three-month period ended September 30, 2025, Electrochem contributed revenue of $6,797 and net loss before income taxes of $251, inclusive, among other expenses, of amortization expense of $178 on acquired identifiable intangible assets and a $40 increase in cost of products sold for the fair value step-up of acquired finished goods inventory sold during the period.

 

For the nine-month period ended September 30, 2025, Electrochem contributed revenue of $23,718 and net income before income taxes of $2,118, inclusive, among other expenses, of amortization expense of $535 on acquired identifiable intangible assets, an $120 increase in cost of products sold for the fair value step-up of acquired finished goods inventory sold during the period, and a $54 increase in cost of products sold for one-time lean consulting costs.

 

During the three and nine-month periods ended September 30, 2025, the Company incurred transaction costs and other non-recurring expenses of $345 and $607, respectively, directly attributable to the acquisition, including accounting and consulting services. These costs are included in selling, general and administrative expense on the consolidated statement of income (loss) and comprehensive income (loss) for the three and nine-month periods ended September 30, 2025.