e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 27, 2010
or
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o |
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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 000-20852
ULTRALIFE CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
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16-1387013 |
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(State or other jurisdiction
of incorporation or organization)
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(I.R.S. Employer Identification No.) |
2000 Technology Parkway, Newark, New York 14513
(Address of principal executive offices)
(Zip Code)
(315) 332-7100
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the
Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
Common stock, $.10 par value 17,226,391 shares of common stock outstanding, net of 1,371,900 treasury shares, as of August 1, 2010.
ULTRALIFE CORPORATION
INDEX
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ULTRALIFE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Amounts)
(unaudited)
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June 27, |
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December 31, |
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2010 |
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2009 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
2,111 |
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$ |
6,094 |
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Restricted cash |
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452 |
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Trade accounts receivable (less allowance for doubtful accounts
of $598 at June 27, 2010 and $1,024 at December 31, 2009) |
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27,895 |
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32,449 |
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Inventories |
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38,607 |
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35,503 |
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Deferred tax asset current |
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288 |
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288 |
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Prepaid expenses and other current assets |
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1,631 |
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1,624 |
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Total current assets |
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70,984 |
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75,958 |
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Property, plant and equipment, net |
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15,361 |
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16,648 |
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Other assets: |
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Goodwill |
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26,175 |
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25,436 |
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Intangible assets, net |
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12,243 |
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13,064 |
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Security deposits and other long-term assets |
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322 |
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60 |
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38,740 |
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38,560 |
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Total Assets |
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$ |
125,085 |
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$ |
131,166 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current liabilities: |
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Current portion of debt and capital lease obligations |
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$ |
12,729 |
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$ |
19,082 |
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Accounts payable |
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18,181 |
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19,177 |
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Income taxes payable |
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61 |
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28 |
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Other current liabilities |
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9,552 |
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9,847 |
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Total current liabilities |
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40,523 |
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48,134 |
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Long-term liabilities: |
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Debt and capital lease obligations |
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297 |
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267 |
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Deferred tax liability long-term |
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4,223 |
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4,100 |
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Other long-term liabilities |
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543 |
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551 |
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Total long-term liabilities |
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5,063 |
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4,918 |
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Commitments and contingencies (Note 11) |
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Shareholders equity: |
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Ultralife equity: |
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Preferred stock, par value $0.10 per share, authorized 1,000,000 shares;
none issued and outstanding |
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Common stock, par value $0.10 per share, authorized 40,000,000 shares;
issued - 18,598,291 at June 27, 2010 and 18,384,916 at December 31, 2009 |
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1,861 |
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1,831 |
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Capital in excess of par value |
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170,449 |
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169,064 |
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Accumulated other comprehensive loss |
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(1,505 |
) |
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(1,256 |
) |
Accumulated deficit |
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(83,714 |
) |
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(84,021 |
) |
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87,091 |
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85,618 |
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Less Treasury stock, at cost 1,371,900 and 1,358,507 shares outstanding, respectively |
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7,652 |
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7,558 |
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Total Ultralife equity |
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79,439 |
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78,060 |
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Noncontrolling interest |
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60 |
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54 |
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Total shareholders equity |
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79,499 |
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78,114 |
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Total Liabilities and Shareholders Equity |
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$ |
125,085 |
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$ |
131,166 |
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The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
3
ULTRALIFE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(unaudited)
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Three-Month Periods Ended |
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Six-Month Periods Ended |
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June 27, |
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June 28, |
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June 27, |
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June 28, |
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2010 |
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2009 |
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2010 |
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2009 |
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Revenues |
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$ |
37,024 |
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$ |
39,593 |
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$ |
75,531 |
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$ |
79,396 |
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Cost of products sold |
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27,604 |
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32,813 |
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56,353 |
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64,835 |
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Gross margin |
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9,420 |
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6,780 |
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19,178 |
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14,561 |
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Operating expenses: |
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Research and development (including $115, $148, $260 and $258
respectively, of amortization of intangible assets) |
|
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1,903 |
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|
2,514 |
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3,631 |
|
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|
4,494 |
|
Selling, general, and administrative (including $263, $318, $613 and $549
respectively, of amortization of intangible assets) |
|
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7,106 |
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10,591 |
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|
14,282 |
|
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|
18,649 |
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Total operating expenses |
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9,009 |
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|
13,105 |
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|
|
17,913 |
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23,143 |
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Operating income (loss) |
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|
411 |
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|
(6,325 |
) |
|
|
1,265 |
|
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|
(8,582 |
) |
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|
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Other income (expense): |
|
|
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Interest income |
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|
(1 |
) |
|
|
1 |
|
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2 |
|
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4 |
|
Interest expense |
|
|
(222 |
) |
|
|
(350 |
) |
|
|
(719 |
) |
|
|
(532 |
) |
Miscellaneous |
|
|
(120 |
) |
|
|
(209 |
) |
|
|
(79 |
) |
|
|
(198 |
) |
|
|
|
|
|
|
|
|
|
|
|
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|
Income (loss) before income taxes |
|
|
68 |
|
|
|
(6,883 |
) |
|
|
469 |
|
|
|
(9,308 |
) |
|
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|
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|
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|
|
|
|
|
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|
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Income tax provision-current |
|
|
10 |
|
|
|
|
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|
34 |
|
|
|
2 |
|
Income tax provision-deferred |
|
|
41 |
|
|
|
95 |
|
|
|
122 |
|
|
|
184 |
|
|
|
|
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|
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Total income taxes |
|
|
51 |
|
|
|
95 |
|
|
|
156 |
|
|
|
186 |
|
|
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|
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|
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|
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Net income (loss) |
|
|
17 |
|
|
|
(6,978 |
) |
|
|
313 |
|
|
|
(9,494 |
) |
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
Net (income) loss attributable to noncontrolling interest |
|
|
3 |
|
|
|
14 |
|
|
|
(6 |
) |
|
|
18 |
|
|
|
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Net income (loss) attributable to Ultralife |
|
$ |
20 |
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|
$ |
(6,964 |
) |
|
$ |
307 |
|
|
$ |
(9,476 |
) |
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|
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|
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|
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|
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Net income (loss) attributable to Ultralife common shareholders basic |
|
$ |
0.00 |
|
|
$ |
(0.41 |
) |
|
$ |
0.02 |
|
|
$ |
(0.56 |
) |
|
|
|
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|
|
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|
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Net income (loss) attributable to Ultralife common shareholders diluted |
|
$ |
0.00 |
|
|
$ |
(0.41 |
) |
|
$ |
0.02 |
|
|
$ |
(0.56 |
) |
|
|
|
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|
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|
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|
Weighted average shares outstanding basic |
|
|
17,164 |
|
|
|
16,894 |
|
|
|
17,089 |
|
|
|
17,024 |
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|
Weighted average shares outstanding diluted |
|
|
17,169 |
|
|
|
16,894 |
|
|
|
17,094 |
|
|
|
17,024 |
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|
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The accompanying Notes to Condensed Consolidated Financial Statements are an integral part
of these statements.
4
ULTRALIFE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(unaudited)
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Six-Month Periods Ended |
|
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|
June 27, |
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|
June 28, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
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|
OPERATING ACTIVITIES |
|
|
|
|
|
|
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|
Net income (loss) |
|
$ |
313 |
|
|
$ |
(9,494 |
) |
Adjustments to reconcile net income (loss)
to net cash used in operating activities: |
|
|
|
|
|
|
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|
Depreciation and amortization of financing fees |
|
|
1,940 |
|
|
|
1,939 |
|
Amortization of intangible assets |
|
|
873 |
|
|
|
807 |
|
Gain on long-lived asset disposal and write-offs |
|
|
(299 |
) |
|
|
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|
Foreign exchange loss |
|
|
104 |
|
|
|
191 |
|
Non-cash stock-based compensation |
|
|
557 |
|
|
|
1,077 |
|
Changes in deferred income taxes |
|
|
122 |
|
|
|
184 |
|
Changes in operating assets and liabilities, net of effects from acquisitions: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
4,521 |
|
|
|
420 |
|
Inventories |
|
|
(3,186 |
) |
|
|
(8,094 |
) |
Prepaid expenses and other current assets |
|
|
(347 |
) |
|
|
225 |
|
Income taxes payable |
|
|
33 |
|
|
|
(567 |
) |
Accounts payable and other liabilities |
|
|
(1,308 |
) |
|
|
339 |
|
|
|
|
|
|
|
|
Net cash provided from (used in) operating activities |
|
|
3,323 |
|
|
|
(12,973 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(554 |
) |
|
|
(1,253 |
) |
Proceeds from asset disposal |
|
|
463 |
|
|
|
|
|
Change in restricted cash |
|
|
(452 |
) |
|
|
|
|
Payments for acquired companies, net of cash acquired |
|
|
(137 |
) |
|
|
(6,763 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(680 |
) |
|
|
(8,016 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Net change in revolving credit facilities |
|
|
(6,240 |
) |
|
|
23,900 |
|
Proceeds from issuance of common stock |
|
|
|
|
|
|
310 |
|
Proceeds from issuance of debt |
|
|
|
|
|
|
751 |
|
Principal payments on debt and capital lease obligations |
|
|
(242 |
) |
|
|
(1,192 |
) |
Purchase of treasury stock |
|
|
|
|
|
|
(3,326 |
) |
|
|
|
|
|
|
|
Net cash provided from (used in) financing activities |
|
|
(6,482 |
) |
|
|
20,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
(144 |
) |
|
|
(157 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
(3,983 |
) |
|
|
(703 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
6,094 |
|
|
|
1,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
2,111 |
|
|
$ |
1,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
Cash paid for income taxes |
|
$ |
|
|
|
$ |
605 |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
437 |
|
|
$ |
449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|
Issuance of common stock for purchase of acquired companies |
|
$ |
858 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Purchase of property and equipment via notes payable |
|
$ |
159 |
|
|
$ |
102 |
|
|
|
|
|
|
|
|
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
5
ULTRALIFE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Thousands Except Share and Per Share Amounts)
(unaudited)
The accompanying unaudited Condensed Consolidated Financial Statements of Ultralife
Corporation and our subsidiaries have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the instructions to Article 10
of Regulation S-X. Accordingly, they do not include all of the information and footnotes for
complete financial statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals and adjustments) considered necessary for a fair presentation of the
Condensed Consolidated Financial Statements have been included. Results for interim periods
should not be considered indicative of results to be expected for a full year. Reference should
be made to the Consolidated Financial Statements contained in our Form 10-K for the twelve-month
period ended December 31, 2009.
The year-end condensed consolidated balance sheet data was derived from audited financial
statements, but does not include all disclosures required by accounting principles generally
accepted in the United States of America.
Certain items previously reported in specific financial statement captions have been
reclassified to conform to the current presentation.
Our monthly closing schedule is a 5/4/4 weekly-based cycle for each fiscal quarter, as
opposed to a calendar month-based cycle for each fiscal quarter. While the actual dates for the
quarter-ends will change slightly each year, we believe that there are not any material
differences when making quarterly comparisons.
2. |
|
ACQUISITIONS AND JOINT VENTURES |
We accounted for the following acquisitions in accordance with the purchase method of
accounting provisions of the revised Financial Accounting Standards Board (FASB) guidance for
business combinations, whereby the purchase price paid to effect an acquisition is allocated to
the acquired tangible and intangible assets and liabilities at fair value.
AMTITM Brand
On March 20, 2009, we acquired substantially all of the assets and assumed substantially
all of the liabilities of the tactical communications products business of Science Applications
International Corporation. The tactical communications products business (AMTI), located in
Virginia Beach, Virginia, designs, develops and manufactures tactical communications products
including amplifiers, man-portable systems, cables, power solutions and ancillary communications
equipment that are sold by Ultralife Corporation under the brand name of AMTI.
Under the terms of the asset purchase agreement for AMTI, the purchase price consisted of
$5,717 in cash.
6
The results of operations of AMTI and the estimated fair value of assets acquired and
liabilities assumed are included in our Condensed Consolidated Financial Statements beginning on
the acquisition date. For the three- and six-month periods ended June 27, 2010, AMTI
contributed net sales of $3,204 and $6,043, respectively, and net income of $567 and $1,162,
respectively. For the three-month period ended and from the date of acquisition through June
28, 2009, AMTI contributed net sales of $3,177 and $3,265, respectively, and net income of $120
and $71, respectively. Pro forma information has not been presented, as it would not be
materially different from amounts reported. The estimated excess of the purchase price over the
net tangible and intangible assets acquired of $4,684 was recorded as goodwill in the amount of
$1,033. The acquired goodwill has been assigned to the Communications Systems segment and is
expected to be fully deductible for income tax purposes.
The following table represents the final allocation of the purchase price to assets
acquired and liabilities assumed at the acquisition date:
|
|
|
|
|
ASSETS |
|
|
|
|
Current assets: |
|
|
|
|
Cash |
|
$ |
|
|
Trade accounts receivable, net |
|
|
693 |
|
Inventories |
|
|
2,534 |
|
|
|
|
|
Total current assets |
|
|
3,227 |
|
Property, plant and equipment, net |
|
|
339 |
|
Goodwill |
|
|
1,033 |
|
Intangible Assets: |
|
|
|
|
Trademarks |
|
|
450 |
|
Patents and Technology |
|
|
800 |
|
Customer Relationships |
|
|
970 |
|
|
|
|
|
Total assets acquired |
|
|
6,819 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
|
|
801 |
|
Other current liabilities |
|
|
301 |
|
|
|
|
|
Total current liabilities |
|
|
1,102 |
|
Long-term liabilities: |
|
|
|
|
Other long-term liabilities |
|
|
|
|
|
|
|
|
Total liabilities assumed |
|
|
1,102 |
|
|
|
|
|
|
|
|
|
|
Total Purchase Price |
|
$ |
5,717 |
|
|
|
|
|
Trademarks have an indefinite life and are not being amortized. The intangible assets
related to patents and technology and customer relationships are being amortized as the economic
benefits of the intangible assets are being utilized over their weighted-average estimated
useful life of thirteen years.
7
Inventories are stated at the lower of cost or market with cost determined under the
first-in, first-out (FIFO) method. The composition of inventories was:
|
|
|
|
|
|
|
|
|
|
|
June 27, 2010 |
|
|
December 31, 2009 |
|
Raw materials |
|
$ |
20,713 |
|
|
$ |
19,743 |
|
Work in process |
|
|
5,993 |
|
|
|
6,044 |
|
Finished goods |
|
|
11,901 |
|
|
|
9,716 |
|
|
|
|
|
|
|
|
|
|
$ |
38,607 |
|
|
$ |
35,503 |
|
|
|
|
|
|
|
|
4. |
|
PROPERTY, PLANT AND EQUIPMENT |
Major classes of property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 27, 2010 |
|
|
December 31, 2009 |
|
Land |
|
$ |
123 |
|
|
$ |
123 |
|
Buildings and leasehold improvements |
|
|
6,187 |
|
|
|
6,127 |
|
Machinery and equipment |
|
|
43,827 |
|
|
|
43,996 |
|
Furniture and fixtures |
|
|
1,846 |
|
|
|
1,829 |
|
Computer hardware and software |
|
|
3,377 |
|
|
|
3,397 |
|
Construction in progress |
|
|
1,218 |
|
|
|
1,324 |
|
|
|
|
|
|
|
|
|
|
|
56,578 |
|
|
|
56,796 |
|
Less: Accumulated depreciation |
|
|
41,217 |
|
|
|
40,148 |
|
|
|
|
|
|
|
|
|
|
$ |
15,361 |
|
|
$ |
16,648 |
|
|
|
|
|
|
|
|
Depreciation expense for property, plant and equipment was $898 and $1,863 for the
three- and six-month periods ended June 27, 2010, respectively, and $973 and $1,894 for the
three- and six-month periods ended June 28, 2009, respectively.
8
5. |
|
GOODWILL AND INTANGIBLE ASSETS |
a. Goodwill
The following table summarizes the goodwill activity by segment for the six-month periods
ended June 27, 2010 and June 28, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Battery & |
|
|
Communications |
|
|
Energy |
|
|
|
|
|
|
Energy Products |
|
|
Systems |
|
|
Services |
|
|
Total |
|
Balance at December 31, 2008 |
|
$ |
2,072 |
|
|
$ |
14,262 |
|
|
$ |
6,609 |
|
|
$ |
22,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to purchase price
allocation |
|
|
|
|
|
|
838 |
|
|
|
322 |
|
|
|
1,160 |
|
Acquisition of AMTI |
|
|
|
|
|
|
1,261 |
|
|
|
|
|
|
|
1,261 |
|
Effect of foreign currency
translations |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 28, 2009 |
|
|
2,069 |
|
|
|
16,361 |
|
|
|
6,931 |
|
|
|
25,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to purchase price
allocation |
|
|
|
|
|
|
(45 |
) |
|
|
117 |
|
|
|
72 |
|
Effect of foreign currency
translations |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
2,072 |
|
|
|
16,316 |
|
|
|
7,048 |
|
|
|
25,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to purchase price
allocation |
|
|
|
|
|
|
(183 |
) |
|
|
912 |
|
|
|
729 |
|
Effect of foreign currency
translations |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 27, 2010 |
|
$ |
2,082 |
|
|
$ |
16,133 |
|
|
$ |
7,960 |
|
|
$ |
26,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Through June 27, 2010, we have accrued $54 for the 2010 portion of the contingent cash
consideration in connection with the purchase price for RPS Power Systems, Inc., which is
included in the other current liabilities line on our Condensed Consolidated Balance Sheet.
This accrual resulted in an increase to goodwill of $54 in the Energy Services segment.
On April 27, 2010, we entered into an agreement (the Amendment Agreement) with Ken
Cotton, Shawn OConnell, Simon Baitler and Tim Jacobs (together, the Share Recipients). The
Amendment Agreement amends the terms of the asset purchase agreement dated October 31, 2008
whereby we acquired substantially all of the assets of U.S. Energy Systems, Inc. (the Asset
Purchase Agreement).
Under the terms of the Asset Purchase Agreement, on the achievement of certain annual
post-acquisition financial milestones during the period ending December 31, 2012, we were to
issue up to an aggregate of 200,000 unregistered shares of our common stock to Ken Cotton, Shawn
OConnell and Simon Baitler (together, the Selling Shareholders). At the time the Amendment
Agreement was entered into, we had not issued any shares of our common stock to the Selling
Shareholders because none of the financial milestones had been achieved.
Under the terms of the Amendment Agreement, we agreed to issue the Share Recipients an
aggregate of 200,000 shares of our unregistered common stock, valued at approximately $858, in
full satisfaction of our outstanding obligations to the Selling Shareholders under the Asset
Purchase Agreement. Under the terms of the Amendment Agreement, the Selling Shareholders agreed
to release us from any past or present claims relating to the purchase price provisions of the
Asset Purchase Agreement.
9
We elected to enter into the Amendment Agreement because our consolidation plan and the
reorganization of our reporting units involved reorganizing the operations of the business
purchased in the Asset Purchase Agreement. The post-acquisition financial milestones in the
Asset Purchase Agreement did not support our current consolidation and reorganization plans and
it was determined that it would be in our best interests to satisfy our obligations under the
Asset Purchase Agreement. The Amendment Agreement did not change our original assessment that
the contingent payout of shares of common stock was related to the acquisition of the assets of
U.S. Energy Systems, Inc. Accordingly, we reflected the payment as additional purchase price.
See Note 12 for additional information relating to the revised reporting of our operating
segments.
b. Intangible Assets
The composition of intangible assets was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 27, 2010 |
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Gross Assets |
|
|
Amortization |
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
$ |
4,856 |
|
|
$ |
|
|
|
$ |
4,856 |
|
Patents and technology |
|
|
5,121 |
|
|
|
3,113 |
|
|
|
2,008 |
|
Customer relationships |
|
|
9,827 |
|
|
|
4,551 |
|
|
|
5,276 |
|
Distributor relationships |
|
|
354 |
|
|
|
251 |
|
|
|
103 |
|
Non-compete agreements |
|
|
393 |
|
|
|
393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
$ |
20,551 |
|
|
$ |
8,308 |
|
|
$ |
12,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Gross Assets |
|
|
Amortization |
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
$ |
4,856 |
|
|
$ |
|
|
|
$ |
4,856 |
|
Patents and technology |
|
|
5,119 |
|
|
|
2,852 |
|
|
|
2,267 |
|
Customer relationships |
|
|
9,772 |
|
|
|
3,972 |
|
|
|
5,800 |
|
Distributor relationships |
|
|
352 |
|
|
|
215 |
|
|
|
137 |
|
Non-compete agreements |
|
|
393 |
|
|
|
389 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
$ |
20,492 |
|
|
$ |
7,428 |
|
|
$ |
13,064 |
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for intangible assets was $378 and $873 for the three- and
six-month periods ended June 27, 2010, respectively, and $466 and $807 for the three- and
six-month periods ended June 28, 2009, respectively.
The change in the gross assets value of total intangible assets from December 31, 2009 to
June 27, 2010 is a result of changes in the valuation of tangible and intangible assets in
connection with the AMTI acquisition and the effect of foreign currency translations.
On February 17, 2010, we entered into a new senior secured asset based revolving credit
facility (Credit Facility) of up to $35,000 with RBS Business Capital, a division of RBS Asset
Finance, Inc. (RBS). The proceeds from the Credit Facility can be used for general working
capital purposes, general corporate purposes, and letter of credit foreign exchange support.
The Credit Facility has a maturity date of February 17, 2013 (Maturity Date). The Credit
Facility is secured by substantially all of our assets. We paid RBS a facility fee of $263.
10
On February 18, 2010, we drew down $9,870 from the Credit Facility to repay all outstanding
amounts due under the Amended and Restated Credit Agreement with JP Morgan Chase Bank, N.A. and
Manufacturers and Traders Trust Company, with JP Morgan Chase Bank acting as administrative
agent. Our available borrowing under the Credit Facility fluctuates from time to time based
upon amounts of eligible accounts receivable and eligible inventory. Available borrowings under
the Credit Facility equals the lesser of (1) $35,000 or (2) 85% of eligible accounts receivable
plus the lesser of (a) up to 70% of the book value of our eligible inventory or (b) 85% of the
appraised net orderly liquidation value of our eligible inventory. The borrowing base under the
Credit Facility is further reduced by (1) the face amount of any letters of credit outstanding,
(2) any liabilities of ours under hedging contracts with RBS and (3) the value of any reserves
as deemed appropriate by RBS. We are required to have at least $3,000 available under the
Credit Facility at all times.
Interest currently accrues on outstanding indebtedness under the Credit Facility at LIBOR
plus 4.50%. We have the ability, in certain circumstances, to fix the interest rate for up to
90 days from the date of borrowing. Upon delivery of our audited financial statements for the
fiscal year ended
December 31, 2010 to RBS, and assuming no events of default exist at such time, the rate of
interest under the Credit Facility can fluctuate based on the available borrowings remaining
under the Credit Facility as set forth in the following table:
|
|
|
|
|
Excess Availability |
|
LIBOR Rate Plus |
|
|
|
|
|
|
Greater than $10,000 |
|
|
4.00 |
% |
|
|
|
|
|
Greater than $7,500 but less than or equal to $10,000 |
|
|
4.25 |
% |
|
|
|
|
|
Greater than $5,000 but less than or equal to $7,500 |
|
|
4.50 |
% |
|
|
|
|
|
Greater than $3,000 but less than or equal to $5,000 |
|
|
4.75 |
% |
In addition to paying interest on the outstanding principal under the Credit Facility,
we are required to pay an unused line fee of 0.50% on the unused portion of the $35,000 Credit
Facility. We must also pay customary letter of credit fees equal to the LIBOR rate and the
applicable margin and any other customary fees or expenses of the issuing bank. Interest that
accrues under the Credit Facility is to be paid monthly with all outstanding principal, interest
and applicable fees due on the Maturity Date.
We are required to maintain a fixed charge coverage ratio of 1.20 to 1.00 or greater at all
times as of and after March 28, 2010. As of June 27, 2010, our fixed coverage ratio was 2.33 to
1.00. Accordingly, we were in compliance with the financial covenants of the Credit Facility.
All borrowings under the Credit Facility are subject to the satisfaction of customary
conditions, including the absence of an event of default and accuracy of our representations and
warranties. The Credit Facility also includes customary representations and warranties,
affirmative covenants and events of default. If an event default occurs, RBS would be entitled
to take various actions, including accelerating the amount due under the Credit Facility, and
all actions permitted to be taken by a secured creditor.
As of June 27, 2010, we had $9,260 outstanding under the Credit Facility. At June 27,
2010, the interest rate on the asset based revolver component of the Credit Facility was 4.85%.
As of June 27, 2010, the revolver arrangement provided for up to $35,000 of borrowing capacity,
including outstanding letters of credit. At June 27, 2010, we had $-0- of outstanding letters
of credit related to this facility, leaving up to $25,740 of additional borrowing capacity.
11
a. Common Stock
In February 2010, we issued 19,346 shares of unrestricted common stock to our non-employee
directors, valued at $76.
In May 2010, we issued 18,528 shares of unrestricted common stock to our non-employee
directors, valued at $87.
See Note 5a for additional information relating to the issuance of 200,000 shares of our
common stock to the Share Recipients of U.S. Energy Systems, Inc.
b. Treasury Stock
At June 27, 2010 and December 31, 2009, we had 1,371,900 and 1,358,507 shares,
respectively, of treasury stock outstanding, valued at $7,652 and $7,558, respectively. The
increase in treasury
shares related to the vesting of restricted stock awards for certain key employees, a portion of
which were withheld as treasury shares to cover estimated individual income taxes, since the
vesting of such awards is a taxable event for the individuals.
c. Stock Options
We have various stock-based employee compensation plans, for which we follow the provisions
of FASBs guidance on share-based payments, which requires that compensation cost relating to
share-based payment transactions be recognized in the financial statements. The cost is
measured at the grant date, based on the fair value of the award, and is recognized as an
expense over the employees requisite service period (generally the vesting period of the equity
award).
Our shareholders have approved various equity-based plans that permit the grant of options,
restricted stock and other equity-based awards. In addition, our shareholders have approved the
grant of options outside of these plans.
In December 2000, our shareholders approved a stock option plan for grants to key
employees, directors and consultants. The shareholders approved reservation of 500,000 shares of
common stock for grants under the plan. In December 2002, the shareholders approved an
amendment to the plan increasing the number of shares of common stock reserved by 500,000, to a
total of 1,000,000 shares.
In June 2004, our shareholders adopted the 2004 Long-Term Incentive Plan (LTIP) pursuant
to which we were authorized to issue up to 750,000 shares of common stock in the form of stock
option grants, restricted stock awards, stock appreciation rights and other stock-based awards.
In June 2006, the shareholders approved an amendment to the LTIP, increasing the number of
shares of common stock by an additional 750,000, bringing the total shares authorized under the
LTIP to 1,500,000. In June 2008, the shareholders approved another amendment to the LTIP,
increasing the number of shares of common stock by an additional 500,000, bringing the total
shares authorized under the LTIP to 2,000,000 shares.
12
Stock options granted under the amended stock option plan and the LTIP are either Incentive
Stock Options (ISOs) or Non-Qualified Stock Options (NQSOs). Key employees are eligible to
receive ISOs and NQSOs; however, directors and consultants are eligible to receive only NQSOs.
Most ISOs vest over a three- or five-year period and expire on the sixth or seventh anniversary
of the grant date. All NQSOs issued to non-employee directors vest immediately and expire on
either the sixth or seventh anniversary of the grant date. Some NQSOs issued to non-employees
vest immediately and expire within three years; others have the same vesting characteristics as
options given to employees. As of June 27, 2010, there were 1,705,315 stock options outstanding
under the amended stock option plan and the LTIP.
On December 19, 2005, we granted our President and Chief Executive Officer, John D.
Kavazanjian, an option to purchase 48,000 shares of common stock at $12.96 per share outside of
any of our equity-based compensation plans, subject to shareholder approval. Shareholder
approval was obtained on June 8, 2006. The option is fully vested and expires on June 8, 2013.
On March 7, 2008, in connection with his becoming employed by us, we granted our Chief
Financial Officer and Treasurer, Philip A. Fain, an option to purchase 50,000 shares of common
stock at $12.74 per share outside of any of our equity-based compensation plans. The option
vests in annual increments of 16,667 shares over a three-year period which commenced March 7,
2009. The option expires on March 7, 2015.
In conjunction with FASBs guidance for share-based payments, we recorded compensation cost
related to stock options of $122 and $358 for the three- and six-month periods ended June 27,
2010, respectively, and $332 and $744 for the three- and six-month periods ended June 28, 2009,
respectively. As of June 27, 2010, there was $862 of total unrecognized compensation costs
related to outstanding stock options, which is expected to be recognized over a weighted average
period of 1.43 years.
We use the Black-Scholes option-pricing model to estimate the fair value of stock-based
awards. The following weighted average assumptions were used to value options granted during
the six-month periods ended June 27, 2010 and June 28, 2009:
|
|
|
|
|
|
|
|
|
|
|
Six-Month Periods Ended |
|
|
|
June 27, |
|
|
June 28, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate |
|
|
2.11 |
% |
|
|
1.44 |
% |
Volatility factor |
|
|
79.48 |
% |
|
|
68.40 |
% |
Dividends |
|
|
0.00 |
% |
|
|
0.00 |
% |
Weighted average expected life (years) |
|
|
3.51 |
|
|
|
3.57 |
|
We calculate expected volatility for stock options by taking an average of historical
volatility over the past five years and a computation of implied volatility. The computation of
expected term was determined based on historical experience of similar awards, giving
consideration to the contractual terms of the stock-based awards and vesting schedules. The
interest rate for periods within the contractual life of the award is based on the U.S. Treasury
yield in effect at the time of grant.
13
Stock option activity for the first six months of 2010 is summarized as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
Number |
|
|
Exercise Price |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
of Shares |
|
|
Per Share |
|
|
Term |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares under option at January 1, 2010 |
|
|
1,805,107 |
|
|
$ |
10.99 |
|
|
|
|
|
|
|
|
|
Options granted |
|
|
268,000 |
|
|
|
4.47 |
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options forfeited |
|
|
(88,830 |
) |
|
|
5.72 |
|
|
|
|
|
|
|
|
|
Options expired |
|
|
(180,962 |
) |
|
|
12.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares under option at June 27, 2010 |
|
|
1,803,315 |
|
|
$ |
10.12 |
|
|
3.84 years |
|
|
$ |
262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest as of June 27, 2010 |
|
|
1,683,603 |
|
|
$ |
10.41 |
|
|
3.69 years |
|
|
$ |
219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at June 27, 2010 |
|
|
1,115,246 |
|
|
$ |
12.91 |
|
|
2.39 years |
|
|
$ |
|
|
The total intrinsic value of options (which is the amount by which the stock price
exceeded the exercise price of the options on the date of exercise) exercised during the
six-month period ended June 27, 2010 was $-0-.
FASBs guidance for share-based payments requires cash flows from excess tax benefits to be
classified as a part of cash flows from financing activities. Excess tax benefits are realized
tax benefits from tax deductions for exercised options in excess of the deferred tax asset
attributable to stock compensation costs for such options. We did not record any excess tax
benefits in the first six months of 2010 and 2009. Cash received from option exercises under
our stock-based compensation plans for the six-month periods ended June 27, 2010 and June 28,
2009 was $-0- and $187, respectively.
d. Warrants
On May 19, 2006, in connection with our acquisition of ABLE New Energy Co., Ltd., we
granted warrants to acquire 100,000 shares of common stock. The exercise price of the warrants
is $12.30 per share and the warrants have a five-year term. In January 2008, 82,000 warrants
were exercised, for total proceeds received of $1,009. In January 2009, 10,000 warrants were
exercised, for total proceeds received of $123. At June 27, 2010, there were 8,000 warrants
outstanding.
e. Restricted Stock Awards
There were no restricted stock grants awarded during the six-month period ended June 27,
2010.
Restricted stock grants awarded during the six-month period ended June 28, 2009 had the
following values:
|
|
|
|
|
|
|
Six-Month |
|
|
|
Period Ended |
|
|
|
June 28, 2009 |
|
Number of shares awarded |
|
|
24,786 |
|
Weighted average fair value per share |
|
$ |
10.58 |
|
|
|
|
|
Aggregate total value |
|
$ |
246 |
|
|
|
|
|
14
The activity of restricted stock awards of common stock for the first six months of
2010 is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Number of Shares |
|
|
Grant Date Fair Value |
|
Unvested at December 31, 2009 |
|
|
46,527 |
|
|
$ |
11.42 |
|
Granted |
|
|
|
|
|
|
|
|
Vested |
|
|
(9,944 |
) |
|
|
12.69 |
|
Forfeited |
|
|
(26,500 |
) |
|
|
10.74 |
|
|
|
|
|
|
|
|
Unvested at June 27, 2010 |
|
|
10,083 |
|
|
$ |
11.96 |
|
|
|
|
|
|
|
|
We recorded compensation cost related to restricted stock grants of $27 and $36 for the
three- and six-month periods ended June 27, 2010, respectively, and $133 and $220 for the three-
and six-month periods ended June 28, 2009, respectively. As of June 27, 2010, we had $124 of
total unrecognized compensation expense related to restricted stock grants, which is expected to
be recognized over the remaining weighted average period of approximately 1.27 years. The total
fair value of these grants that vested during the six-month period ended June 27, 2010 was $44.
The asset and liability method, prescribed by FASBs guidance on the Accounting for Income
Taxes, is used in accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting and tax basis of
assets and liabilities and are measured using the enacted tax rates and laws that are expected
to be in effect when the differences are expected to reverse.
For the three- and six-month periods ended June 27, 2010, we recorded $51 and $156,
respectively, in income tax expense. For the three- and six-month periods ended June 28, 2009
we recorded $95 and $186, respectively, in income tax expense. The expense is primarily due to
the recognition of deferred tax liabilities generated from goodwill and certain intangible
assets that cannot be predicted to reverse for book purposes during our loss carryforward
periods. The remaining expense in 2010 was primarily due to the income reported for U.S.
operations during the period.
Our effective consolidated tax rate for the three- and six-month periods ended June 27,
2010 and June 28, 2009 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended |
|
|
Six-Month Periods Ended |
|
|
|
June 27, |
|
|
June 28, |
|
|
June 27, |
|
|
June 28, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Income (Loss) before Incomes Taxes (a) |
|
$ |
68 |
|
|
$ |
(6,883 |
) |
|
$ |
469 |
|
|
$ |
(9,308 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Income Tax Provision (b) |
|
$ |
51 |
|
|
$ |
95 |
|
|
$ |
156 |
|
|
$ |
186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Tax Rate (b/a) |
|
|
75.0 |
% |
|
|
1.4 |
% |
|
|
33.3 |
% |
|
|
2.0 |
% |
The overall effective rate is the result of the combination of income and losses in
each of our tax jurisdictions, which is particularly influenced by the fact that we have not
recognized a deferred tax asset pertaining to cumulative historical losses for our U.S.
operations and our U.K. and China subsidiaries, as management does not believe, at this time, it
is more likely than not that we will realize the benefit of these losses. We have substantial
net operating loss carryforwards which offset taxable income in the United States. However, we
remain subject to the alternative minimum tax in the United States. The alternative minimum tax
limits the amount of net operating loss available to offset taxable income to 90% of the current
year income. We incurred $10 and $33 in alternative minimum tax for the three- and six-month
periods ended June 27, 2010, respectively. However, the alternative minimum tax did not have an
impact on income taxes determined for 2009. The payment of the alternative minimum tax normally
results in the establishment of a deferred tax asset; however, we have established a valuation
allowance for our net U.S. deferred tax asset. Therefore, the expected payment of the
alternative minimum tax does not result in a net deferred tax asset. The tax provision for 2010
also includes a provision for state income taxes, for states in which we do not have the ability
to utilize net operating loss carryforwards.
15
As of December 31, 2009, we have foreign and domestic net operating loss carryforwards
totaling approximately $61,257 available to reduce future taxable income. Foreign loss
carryforwards of
approximately $10,624 can be carried forward indefinitely. The domestic net operating loss
carryforwards of $50,633 expire from 2019 through 2029. The domestic net operating loss
carryforwards include approximately $2,867 of the net operating loss carryforwards for which a
benefit will be recorded in capital in excess of par value when realized.
We have adopted the provisions of FASBs guidance for the Accounting for Uncertainty in
Income Taxes. We have recorded no liability for income taxes associated with unrecognized tax
benefits during 2009 and 2010, and as such, have not recorded any interest or penalty in regard
to any unrecognized benefit. Our policy regarding interest and/or penalties related to income
tax matters is to recognize such items as a component of income tax expense (benefit).
We file a consolidated income tax return in the U.S. federal jurisdiction and consolidated
and separate income tax returns in various state and foreign jurisdictions. Our U.S. tax
matters for the years 2005 through 2009 remain subject to examination by the Internal Revenue
Service (IRS). Our tax matters for the years 2004 through 2009 remain subject to examination
by various state and local U.S. tax jurisdictions and by the respective foreign tax jurisdiction
authorities.
We have determined that a change in ownership, as defined under Internal Revenue Code
Section 382, occurred during 2005 and 2006. As such, the domestic NOL carryforward will be
subject to an annual limitation estimated to be in the range of approximately $12,000 to
$14,500. The unused portion of the annual limitation can be carried forward to subsequent
periods. We believe such limitation will not impact our ability to realize the deferred tax
asset. The use of our U.K. NOL carryforwards may be limited due to the change in our U.K.
operation during 2008 from a manufacturing and assembly center to primarily a distribution and
service center.
On January 1, 2009, we adopted the provisions of FASBs guidance for determining whether
instruments granted in share-based payment transactions are participating securities. The
guidance requires that all outstanding unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents (such as restricted stock awards
granted by us) be considered participating securities. Because the restricted stock awards are
participating securities, we are required to apply the two-class method of computing basic and
diluted earnings per share (the Two-Class Method).
Basic EPS is determined using the Two-Class Method and is computed by dividing earnings
attributable to Ultralife common shareholders by the weighted-average shares outstanding during
the period. The Two-Class Method is an earnings allocation formula that determines earnings per
share for each class of common stock and participating security according to dividends declared
and participation rights in undistributed earnings. Diluted EPS includes the dilutive effect of
securities, if any, and reflects the more dilutive EPS amount calculated using the treasury
stock method or the Two-Class Method. For the three- and six-month periods ended June 27, 2010
and June 28, 2009, both the Two-Class Method and the treasury stock method calculations for
diluted EPS yielded the same result.
16
The computation of basic and diluted earnings per share is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended |
|
|
Six-Month Periods Ended |
|
|
|
June 27, |
|
|
June 28, |
|
|
June 27, |
|
|
June 28, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Net Income (Loss) attributable to Ultralife |
|
$ |
20 |
|
|
$ |
(6,964 |
) |
|
$ |
307 |
|
|
$ |
(9,476 |
) |
Net Income (Loss) attributable to
participating securities (unvested
restricted stock awards) (10,000, -0-,
25,000 and -0- shares, respectively) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) attributable to Ultralife
common shareholders (a) |
|
|
20 |
|
|
|
(6,964 |
) |
|
|
307 |
|
|
|
(9,476 |
) |
Effect of Dilutive Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Notes Payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) attributable to Ultralife
common shareholders Adjusted (b) |
|
$ |
20 |
|
|
$ |
(6,964 |
) |
|
$ |
307 |
|
|
$ |
(9,476 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Common Shares Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (c) |
|
|
17,164,000 |
|
|
|
16,894,000 |
|
|
|
17,089,000 |
|
|
|
17,024,000 |
|
Effect of Dilutive Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options / Warrants |
|
|
5,000 |
|
|
|
|
|
|
|
5,000 |
|
|
|
|
|
Convertible Notes Payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Common Shares Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (d) |
|
|
17,169,000 |
|
|
|
16,894,000 |
|
|
|
17,094,000 |
|
|
|
17,024,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS Basic (a/c) |
|
$ |
0.00 |
|
|
$ |
(0.41 |
) |
|
$ |
0.02 |
|
|
$ |
(0.56 |
) |
EPS Diluted (b/d) |
|
$ |
0.00 |
|
|
$ |
(0.41 |
) |
|
$ |
0.02 |
|
|
$ |
(0.56 |
) |
There were 1,773,898 and 1,839,190 outstanding stock options, warrants and restricted
stock awards for the three-month periods ended June 27, 2010 and June 28, 2009, respectively,
that were not included in EPS as the effect would be anti-dilutive. We also had 219,398 and
227,995 shares of common stock for the three-month periods ended June 27, 2010 and June 28,
2009, respectively, reserved under convertible notes payable, which were not included in EPS as
the effect would be anti-dilutive. The dilutive effect of 47,500 and -0- outstanding stock
options, warrants and restricted stock awards were included in the dilution computation for the
three-month periods ended June 27, 2010 and June 28, 2009, respectively.
There were 1,773,898 and 1,839,190 outstanding stock options, warrants and restricted stock
awards for the six-month periods ended June 27, 2010 and June 28, 2009, respectively, that were
not included in EPS as the effect would be anti-dilutive. We also had 221,854 and 244,569
shares of common stock for the six-month periods ended June 27, 2010 and June 28, 2009,
respectively, reserved under convertible notes payable, which were not included in EPS as the
effect would be anti-dilutive. The dilutive effect of 47,500 and -0- outstanding stock options,
warrants and restricted stock awards were included in the dilution computation for the six-month
periods ended June 27, 2010 and June 28, 2009, respectively.
17
The components of our total comprehensive income (loss) were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended |
|
|
Six-Month Periods Ended |
|
|
|
June 27, |
|
|
June 28, |
|
|
June 27, |
|
|
June 28, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Net income (loss) attributable to Ultralife |
|
$ |
20 |
|
|
$ |
(6,964 |
) |
|
$ |
307 |
|
|
$ |
(9,476 |
) |
Foreign currency translation adjustments |
|
|
85 |
|
|
|
916 |
|
|
|
(249 |
) |
|
|
862 |
|
Change in fair value of derivatives |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) |
|
$ |
105 |
|
|
$ |
(6,044 |
) |
|
$ |
58 |
|
|
$ |
(8,603 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
11. |
|
COMMITMENTS AND CONTINGENCIES |
a. Purchase Commitments
As of June 27, 2010, we have made commitments to purchase approximately $268 of production
machinery and equipment.
b. Product Warranties
We estimate future costs associated with expected product failure rates, material usage and
service costs in the development of our warranty obligations. Warranty reserves are based on
historical experience of warranty claims and generally will be estimated as a percentage of
sales over the warranty period. In the event the actual results of these items differ from the
estimates, an adjustment to the warranty obligation would be recorded. Changes in our product
warranty liability during the first six months of 2010 were as follows:
|
|
|
|
|
Balance at December 31, 2009 |
|
$ |
1,182 |
|
Accruals for warranties issued |
|
|
(224 |
) |
Settlements made |
|
|
(28 |
) |
|
|
|
|
Balance at June 27, 2010 |
|
$ |
930 |
|
|
|
|
|
c. Contingencies and Legal Matters
We are subject to legal proceedings and claims that arise in the normal course of business.
We believe that the final disposition of such matters will not have a material adverse effect
on our financial position, results of operations or cash flows.
In May 2010, we were served with a summons and complaint by a customer of one of our
subsidiaries that performs energy services. The complaint seeks damages in an amount of at
least $1,500 and includes claims of breach of contract, negligent installation, and breach of
warranty against us and breach of warranty against the manufacturer of the installed batteries.
We dispute the customers allegations against us and intend to vigorously defend the lawsuit.
At this time, we have no basis for assessing whether we may incur any liability as a result of
the lawsuit and no accrual has been made or reflected in the condensed consolidated financial
statements as of June 27, 2010.
In July 2010, we were served with a summons and complaint filed in Japan by one of our
9-volt battery customers. The complaint alleges damages associated with claims of breach of
warranty in an amount of approximately $1,400. We dispute the customers allegations against us
and intend to vigorously defend the lawsuit. At this time, we have no basis for assessing
whether we may incur any liability as a result of the lawsuit and no accrual has been made or
reflected in the condensed consolidated financial statements as of June 27, 2010.
18
In conjunction with our purchase/lease of our Newark, New York facility in 1998, we entered
into a payment-in-lieu of tax agreement, which provided us with real estate tax concessions upon
meeting certain conditions. In connection with this agreement, a consulting firm performed a
Phase I and II Environmental Site Assessment, which revealed the existence of contaminated soil
and ground water around one of the buildings. We retained an engineering firm, which estimated
that the cost of remediation should be in the range of $230. In February 1998, we entered into
an agreement with a third party which provides that we and this third party will retain an
environmental consulting firm to conduct a supplemental Phase II investigation to verify the
existence of the contaminants and further delineate the nature of the environmental concern.
The third party agreed to reimburse us for fifty percent (50%) of the cost of correcting the
environmental concern on the Newark property. We have fully reserved for our portion of the
estimated liability. Test sampling was completed in the spring of 2001, and the engineering
report was submitted to the New York State Department of Environmental Conservation (NYSDEC)
for review. The NYSDEC reviewed the report and, in January 2002, recommended additional
testing. We responded by submitting a work plan to the NYSDEC, which was approved in April
2002. We sought proposals from engineering firms to complete the remedial work contained in the
work plan. A firm was selected to undertake the remediation and in December 2003 the
remediation was completed, and was overseen by the NYSDEC. The report detailing the remediation
project, which included the test results, was forwarded to the NYSDEC and to the New York State
Department of Health (NYSDOH). The NYSDEC, with input from the NYSDOH, requested that we
perform additional sampling. A work plan for this portion of the project was written and
delivered to the NYSDEC and approved. In November 2005, additional soil, sediment and surface
water samples were taken from the area outlined in the work plan, as well as groundwater samples
from the monitoring wells. We received the laboratory analysis and met with the NYSDEC in March
2006 to discuss the results. On June 30, 2006, the Final Investigation Report was delivered to
the NYSDEC by our outside environmental consulting firm. In November 2006, the NYSDEC completed
its review of the Final Investigation Report and requested additional groundwater, soil and
sediment sampling. A work plan to address the additional investigation was submitted to the
NYSDEC in January 2007 and was approved in April 2007. Additional investigation work was
performed in May 2007. A preliminary report of results was prepared by our outside
environmental consulting firm in August 2007 and a meeting with the NYSDEC and NYSDOH took place
in September 2007. As a result of this meeting, the NYSDEC and NYSDOH requested additional
investigation work. A work plan to address this additional investigation was submitted to and
approved by the NYSDEC in November 2007. Additional investigation work was performed in
December 2007. Our environmental consulting firm prepared and submitted a Final Investigation
Report in January 2009 to the NYSDEC for review. The NYSDEC reviewed and approved the Final
Investigation Report in June 2009 and requested the development of a Remedial Action Plan. Our
environmental consulting firm developed and submitted the requested plan for review and approval
by the NYSDEC. In October 2009, we received comments back from the NYSDEC regarding the content
of the remediation work plan. Our environmental consulting firm incorporated the requested
changes and submitted a revised work plan to the NYSDEC in January 2010 for review and approval.
The NYSDEC has approved the revised work plan and the remediation activities outlined in the
work plan were initiated in July 2010. Through June 27, 2010, total costs incurred have
amounted to approximately $313, none of which has been capitalized. At June 27, 2010 and
December 31, 2009, we had $34 and $49, respectively, reserved for this matter.
19
From August 2002 through August 2006, we participated in a self-insured trust to manage our
workers compensation activity for our employees in New York State. All members of this trust
had, by design, joint and several liability during the time they participated in the trust. In
August 2006, we left the self-insured trust and have obtained alternative coverage for our
workers compensation program through a third-party insurer. In the third quarter of 2006, we
confirmed that the trust was in an underfunded position (i.e. the assets of the trust were
insufficient to cover the actuarially projected liabilities associated with the members in the
trust). In the third quarter of 2006, we recorded a liability and an associated expense of $350
as an estimate of our potential future cost related to the trusts underfunded status based on
our estimated level of participation. On April 28, 2008, we, along with all other members of
the trust, were served by the State of New York Workers Compensation Board (Compensation
Board) with a Summons with Notice that was filed in Albany County Supreme Court, wherein the
Compensation Board put all members of the trust on notice that it would be seeking approximately
$1,000 in previously billed and unpaid assessments and further assessments estimated to be not
less than $25,000 arising from the accumulated estimated under-funding of the trust. The
Summons with Notice did not contain a complaint or a specified demand. We timely filed a Notice
of Appearance in response to the Summons with Notice. On June 16, 2008, we were served with a
Verified Complaint. Subject to the results of a deficit reconstruction that was pending, the
Verified Complaint estimated that the trust was underfunded by $9,700 during the period of
December 1, 1997 November 30, 2003 and an additional $19,400 for the period December 1, 2003
August 31, 2006. The Verified Complaint estimated our pro-rata share of the liability for
the period of December 1, 1997 November 30, 2003 to be $195. The Verified Complaint did not
contain a pro-rata share liability estimate for the period of December 1, 2003-August 31, 2006.
Further, the Verified Complaint stated that all estimates of the underfunded status of the trust
and the pro-rata share liability for the period of December 1, 1997-November 30, 2003 were
subject to adjustment based on a forensic audit of the trust that was conducted on behalf of the
Compensation Board by a third-party audit firm. We timely filed our Verified Answer with
Affirmative Defenses on July 24, 2008. In November 2009, the New York Attorney Generals office
presented the results of the deficit reconstruction of the trust. As a result of the deficit
reconstruction, the State of New York has determined that the trust was underfunded by $19,100
instead of $29,100 during the period December 1, 1997 to August 31, 2006. Our pro-rata share of
the liability was determined to be $452. The Attorney Generals office proposed a settlement by
which we may avoid joint and several liability in exchange for a settlement payment of $520.
Under the terms of the settlement agreement, we can satisfy our obligations by either paying (i)
a lump sum of $468, representing a 10% discount, (ii) paying the entire amount in twelve monthly
installments of $43 commencing the month following execution of the settlement agreement, or
(iii) paying the entire amount in monthly installments over a period of up to five years, with
interest of 6.0, 6.5, 7.0, and 7.5% for the two, three, four and five
year periods, respectively. We elected the twelve monthly installments option and on May
3, 2010, we received written notice from the Attorney Generals office that the Compensation
Board had decided to proceed with the settlement, as proposed, and that payments would commence
in June 2010. As of June 27, 2010, our reserve is $476 to account for the remaining eleven
monthly installments of the $520 settlement amount.
d. Post-Audits of Government Contracts
We had certain exigent, non-bid contracts with the U.S. government, which were subject to
audit and final price adjustment, which have resulted in decreased margins compared with the
original terms of the contracts. As of June 27, 2010, there were no outstanding exigent
contracts with the government. As part of its due diligence, the government has conducted
post-audits of the completed exigent contracts to ensure that information used in supporting the
pricing of exigent contracts did not differ materially from actual results. In September 2005,
the Defense Contracting Audit Agency (DCAA) presented its findings related to the audits of
three of the exigent contracts, suggesting a potential pricing adjustment of approximately
$1,400 related to reductions in the cost of materials that occurred prior to the final
negotiation of these contracts. We have reviewed these audit reports, have submitted our
response to these audits and believe, taken as a whole, the proposed audit adjustments can be
offset with the consideration of other compensating cost increases that occurred prior to the
final negotiation of the contracts. While we believe that potential exposure exists relating to
any final negotiation of these proposed adjustments, we cannot reasonably estimate what, if any,
adjustment may result when finalized. In addition, in June 2007, we received a request from the
Office of Inspector General of the Department of Defense (DoD IG) seeking certain information
and documents relating to our business with the Department of Defense. We continue to cooperate
with the DCAA audit and DoD IG inquiry by making available to government auditors and
investigators our personnel and furnishing the requested information and documents. At this
time we have no basis for assessing whether we might face any penalties or liabilities on
account of the DoD IG inquiry. The aforementioned DCAA-related adjustments could reduce margins
and, along with the aforementioned DoD IG inquiry, could have an adverse effect on our business,
financial condition and results of operations.
20
e. Government Grants/Loans
In conjunction with the City of West Point, Mississippi, we applied for a Community
Development Block Grant (CDBG) from the State of Mississippi for infrastructure improvements
to our leased facility that is owned by the City of West Point, Mississippi. The CDBG was
awarded and as of June 27, 2010, approximately $480 has been distributed under the grant. Under
an agreement with the City of West Point, we have agreed to employ at least 30 full-time
employees at the facility, of which 51% of the jobs must be filled or made available to low or
moderate income families, within three years of completion of the CDBG improvement activities.
In addition, we have agreed to invest at least $1,000 in equipment and working capital into the
facility within the first three years of operation of the facility. We are currently in the
process of satisfying both of these commitments, and anticipate meeting both of them before the
three-year period ends in October 2011. In the event we fail to honor these commitments, we are
obligated to reimburse all amounts received under the CDBG to the City of West Point,
Mississippi.
In conjunction with Clay County, Mississippi, we applied for a Mississippi Rural Impact
Fund Grant (RIFG) from the State of Mississippi for infrastructure improvements to our leased
facility that is owned by the City of West Point, Mississippi. The RIFG was awarded and as of
June 27, 2010, approximately $150 has been distributed under the grant. Under an agreement with
Clay County, we have agreed to employ at least 30 full-time employees at the facility, of which
51% of the jobs must be filled or made available to low or moderate income families, within two
years of completion of the RIFG improvement activities. In addition, we have agreed to invest
at least $1,000 in equipment and working capital into the facility within the first three years
of operation of the
facility. We are currently in the process of satisfying both of these commitments, and
anticipate meeting both of them before the two- and three-year periods end in October 2010 and
October 2011, respectively. In the event we fail to honor these commitments, we are obligated
to reimburse all amounts received under the RIFG to Clay County, Mississippi.
12. |
|
BUSINESS SEGMENT INFORMATION |
Beginning January 1, 2010, we now report our results in three operating segments instead of
four: Battery & Energy Products; Communications Systems; and Energy Services. This change in
segment reporting is more consistent with how we now manage our business operations. The
Non-rechargeable Products and Rechargeable Products segments have been combined into a single
segment called Battery & Energy Products. The Communications Systems segment now includes our
RedBlack Communications business, which was previously included in the Design & Installation
Services segment. The Design & Installation Services segment has been renamed Energy Services
and will continue to encompass our standby power business. Research, design and development
contract revenues and expenses, which were previously included in the Design & Installation
Services segment, have been captured under the respective operating segment in which the work is
performed.
21
The Battery & Energy Products segment includes: lithium 9-volt, cylindrical and various
other non-rechargeable batteries, in addition to rechargeable batteries, uninterruptable power
supplies and accessories, such as cables. The Communications Systems segment includes: power
supplies, cable and connector assemblies, RF amplifiers, amplified speakers, equipment mounts,
case equipment, integrated communication system kits, charging systems and communications and
electronics systems design. The Energy Services segment includes: standby power and systems
design, installation and maintenance activities. We look at our segment performance at the
gross margin level, and we do not allocate research and development, except for research, design
and development contracts as noted above, or selling, general and administrative costs against
the segments. All other items that do not specifically relate to these three segments and are
not considered in the performance of the segments are considered to be Corporate charges.
Three-Month Period Ended June 27, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Battery & |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy |
|
|
Communications |
|
|
Energy |
|
|
|
|
|
|
|
|
|
Products |
|
|
Systems |
|
|
Services |
|
|
Corporate |
|
|
Total |
|
Revenues |
|
$ |
22,405 |
|
|
$ |
11,242 |
|
|
$ |
3,377 |
|
|
$ |
|
|
|
$ |
37,024 |
|
Segment contribution |
|
|
5,065 |
|
|
|
3,941 |
|
|
|
414 |
|
|
|
(9,009 |
) |
|
|
411 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(223 |
) |
|
|
(223 |
) |
Miscellaneous |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(120 |
) |
|
|
(120 |
) |
Income taxes-current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10 |
) |
|
|
(10 |
) |
Income taxes-deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41 |
) |
|
|
(41 |
) |
Noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
3 |
|
Net income attributable to Ultralife |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
20 |
|
Total assets |
|
$ |
55,468 |
|
|
$ |
44,337 |
|
|
$ |
18,963 |
|
|
$ |
6,317 |
|
|
$ |
125,085 |
|
Three-Month Period Ended June 28, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Battery & |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy |
|
|
Communications |
|
|
Energy |
|
|
|
|
|
|
|
|
|
Products |
|
|
Systems |
|
|
Services |
|
|
Corporate |
|
|
Total |
|
Revenues |
|
$ |
25,634 |
|
|
$ |
10,357 |
|
|
$ |
3,602 |
|
|
$ |
|
|
|
$ |
39,593 |
|
Segment contribution |
|
|
4,296 |
|
|
|
2,321 |
|
|
|
163 |
|
|
|
(13,105 |
) |
|
|
(6,325 |
) |
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(349 |
) |
|
|
(349 |
) |
Miscellaneous |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(209 |
) |
|
|
(209 |
) |
Income taxes-current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes-deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(95 |
) |
|
|
(95 |
) |
Noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
14 |
|
Net income attributable to Ultralife |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(6,964 |
) |
Total assets |
|
$ |
62,817 |
|
|
$ |
54,642 |
|
|
$ |
20,380 |
|
|
$ |
4,824 |
|
|
$ |
142,663 |
|
Six-Month Period Ended June 27, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Battery & |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy |
|
|
Communications |
|
|
Energy |
|
|
|
|
|
|
|
|
|
Products |
|
|
Systems |
|
|
Services |
|
|
Corporate |
|
|
Total |
|
Revenues |
|
$ |
45,808 |
|
|
$ |
24,308 |
|
|
$ |
5,415 |
|
|
$ |
|
|
|
$ |
75,531 |
|
Segment contribution |
|
|
10,001 |
|
|
|
8,844 |
|
|
|
333 |
|
|
|
(17,913 |
) |
|
|
1,265 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(717 |
) |
|
|
(717 |
) |
Miscellaneous |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(79 |
) |
|
|
(79 |
) |
Income taxes-current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34 |
) |
|
|
(34 |
) |
Income taxes-deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(122 |
) |
|
|
(122 |
) |
Noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6 |
) |
|
|
(6 |
) |
Net income attributable to Ultralife |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
307 |
|
Total assets |
|
$ |
55,468 |
|
|
$ |
44,337 |
|
|
$ |
18,963 |
|
|
$ |
6,317 |
|
|
$ |
125,085 |
|
22
Six-Month
Period Ended June 28, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Battery & |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy |
|
|
Communications |
|
|
Energy |
|
|
|
|
|
|
|
|
|
Products |
|
|
Systems |
|
|
Services |
|
|
Corporate |
|
|
Total |
|
Revenues |
|
$ |
48,626 |
|
|
$ |
21,622 |
|
|
$ |
9,148 |
|
|
$ |
|
|
|
$ |
79,396 |
|
Segment contribution |
|
|
8,096 |
|
|
|
5,937 |
|
|
|
528 |
|
|
|
(23,143 |
) |
|
|
(8,582 |
) |
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(528 |
) |
|
|
(528 |
) |
Miscellaneous |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(198 |
) |
|
|
(198 |
) |
Income taxes-current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
(2 |
) |
Income taxes-deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(184 |
) |
|
|
(184 |
) |
Noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
18 |
|
Net income
attributable to
Ultralife |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(9,476 |
) |
Total assets |
|
$ |
62,817 |
|
|
$ |
54,642 |
|
|
$ |
20,380 |
|
|
$ |
4,824 |
|
|
$ |
142,663 |
|
13. |
|
FAIR VALUE OF FINANCIAL INSTRUMENTS |
The fair value of cash, accounts receivable, trade accounts payable, accrued liabilities,
our revolving credit facility, and our convertible note payable approximates carrying value due
to the short-term nature of these instruments. The estimated fair value of other long-term debt
and capital lease obligations approximates carrying value due to the variable nature of the
interest rates or the stated interest rates approximating current interest rates that are
available for debt with similar terms.
14. |
|
RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS |
In April 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-17, Revenue
Recognition Milestone Method (Topic 605): Milestone Method of Revenue Recognition a
consensus of the FASB Emerging Issues Task Force (EITF). ASU No. 2010-17 is limited to
research or development arrangements and requires that this ASU be met for an entity to apply
the milestone method (record the milestone payment in its entirety in the period received) of
recognizing revenue. However, the FASB clarified that, even if the requirements in this ASU are
met, entities would not be precluded from making an accounting policy election to apply another
appropriate policy that results in the deferral of some portion of the arrangement
consideration. The guidance in this ASU will apply to milestones in both single-deliverable and
multiple-deliverable arrangements involving research or development transactions. ASU No.
2010-17 will be effective prospectively for milestones achieved in fiscal years, and interim
periods within those years, beginning on or after June 15, 2010. Early adoption is permitted.
We are currently evaluating the impact that ASU No. 2010-17 will have on our financial
statements.
In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures
(Topic 820): Improving Disclosures about Fair Value Measurements, which provides additional
guidance to improve disclosures regarding fair value measurements. ASU No. 2010-06 amends
Accounting Standards Codification (ASC) 820-10 to add two new disclosures: (1) transfers in
and out of Level 1 and 2 measurements and the reasons for the transfers, and (2) a gross
presentation of activity within the Level 3 roll forward. ASU 2010-06 also includes
clarifications to existing disclosure requirements on the level of disaggregation and
disclosures regarding inputs and valuation techniques. ASU 2010-06 applies to all entities
required to make disclosures about recurring and nonrecurring fair value measurements. ASU No.
2010-06 will be effective for interim and annual reporting periods beginning after December 15,
2009, except for the disclosures about purchases, sales, issuances and settlements in the roll
forward of activity in Level 3 fair value measurements, which is effective for fiscal years
beginning after December 15, 2010. The partial adoption of ASU 2010-06 did not have a material
impact on our financial statements. We are currently evaluating the impact of the deferred
portions of ASU No. 2010-06 will have on our financial statements; however,
we do not expect the adoption of the deferred portions of ASU 2010-06 to have a material
impact on our financial statements, except for the additional disclosures that will be required.
23
In January 2010, the FASB issued ASU No. 2010-02, Consolidation (Topic 810): Accounting
and Reporting for Decreases in Ownership of a Subsidiary a Scope Clarification, to address
implementation issues related to the changes in ownership provisions in ASC 810-10. ASU No.
2010-02 amends ASC 810-10 and related guidance to clarify that the scope of the decrease in
ownership provisions applies to the following: a subsidiary or group of assets that is a
business or nonprofit activity; a subsidiary that is a business or nonprofit activity that is
transferred to an equity method investee or joint venture; or an exchange of a group of assets
that constitutes a business or nonprofit activity for a noncontrolling interest in an entity,
including an equity method investee or joint venture. The amendments also clarify that the
decrease in ownership provisions do not apply to the following transactions even if they involve
businesses: sales of in substance real estate; and conveyances of oil and gas mineral rights.
If a decrease in ownership occurs in a subsidiary that is not a business or nonprofit activity,
entities first need to consider whether the substance of the transaction is addressed in other
U.S. GAAP, such as transfers of financial assets, revenue recognition, etc., and apply that
guidance. If no other guidance exists, an entity should apply ASC 810-10. Lastly, ASU No.
2010-02 expands existing disclosure requirements for transactions within the scope of ASC
810-10, and adds several new ones that address fair value measurements and related techniques,
the nature of any continuing involvement after the transaction, and whether related parties are
involved. ASU No. 2010-02 is effective beginning in the period that an entity adopts ASC
810-10. If an entity had previously adopted ASC 810-10, the amendments are effective beginning
in the first interim or annual reporting period ending on or after December 15, 2009. The
amendments must be applied retrospectively to the date ASC 810-10 was adopted. The adoption of
ASU No. 2010-02, with retrospective application to January 1, 2009, did not have a significant
impact on our financial statements.
In October 2009, the FASB issued ASU No. 2009-13, Revenue Recognition (Topic 605):
Multiple-Deliverable Revenue Arrangements a consensus of the FASB EITF. ASU No. 2009-13
eliminates the residual method of accounting for revenue on undelivered products and instead
requires companies to allocate revenue to each of the deliverable products based on their
relative selling price. In addition, this ASU expands the disclosure requirements surrounding
multiple-deliverable arrangements. ASU No. 2009-13 will be effective for revenue arrangements
entered into for fiscal years beginning on or after June 15, 2010. We are currently evaluating
the impact that ASU No. 2009-13 will have on our financial statements.
In June 2009, the FASB issued amended guidance for the accounting for transfers of
financial assets. The amended guidance removes the concept of a qualifying special-purpose
entity. The amended guidance is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2009. Earlier application is prohibited. The
adoption of this pronouncement did not have a significant impact on our financial statements.
In June 2009, the FASB issued amended guidance for the accounting for variable interest
entities. The amendments include: (1) the elimination of the exemption for qualifying special
purpose entities, (2) a new approach for determining who should consolidate a variable-interest
entity, and (3) changes to when it is necessary to reassess who should consolidate a
variable-interest entity. The amended guidance is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2009. Earlier adoption is
prohibited. The adoption of this pronouncement did not have a significant impact on our
financial statements.
24
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. This report contains certain forward-looking statements and
information that are based on the beliefs of management as well as assumptions made by and
information currently available to management. The statements contained in this report relating to
matters that are not historical facts are forward-looking statements that involve risks and
uncertainties, including, but not limited to, future demand for our products and services,
addressing the process of U.S. military procurement, the successful commercialization of our
products, the successful integration of our acquired businesses, the impairment of our intangible
assets, general domestic and global economic conditions, government and environmental regulation,
finalization of non-bid government contracts, competition and customer strategies, technological
innovations in the non-rechargeable and rechargeable battery industries, changes in our business
strategy or development plans, capital deployment, business disruptions, including those caused by
fires, raw material supplies, and other risks and uncertainties, certain of which are beyond our
control including, but not limited to, the risks described in Item 1A, Risk Factors in our Annual
Report on Form 10-K for the year ended December 31, 2009. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect, actual results may
differ materially from those forward-looking statements described herein. When used is this report,
the words anticipate, believe, estimate or expect or words of similar import are intended
to identify forward-looking statements.
Undue reliance should not be placed on our forward-looking statements. Except as required by
law, we disclaim any obligation to update any factors or to publicly announce the results of any
revisions to any of the forward-looking statements contained in this Quarterly Report on Form 10-Q
to reflect new information, future events or other developments.
The following discussion and analysis should be read in conjunction with the accompanying
Condensed Consolidated Financial Statements and Notes thereto appearing elsewhere in this Form 10-Q
and our Consolidated Financial Statements and Notes thereto contained in our Form 10-K for the year
ended December 31, 2009.
The financial information in this Managements Discussion and Analysis of Financial Condition
and Results of Operations is presented in thousands of dollars, except for share and per share
amounts.
General
We offer products and services ranging from portable and standby power solutions to
communications and electronics systems. Through our engineering and collaborative approach to
problem solving, we serve government, defense and commercial customers across the globe. We
design, manufacture, install and maintain power and communications systems including: rechargeable
and non-rechargeable batteries, standby power systems, communications and electronics systems and
accessories, and custom engineered systems, solutions and services. We sell our products worldwide
through a variety of trade channels, including original equipment manufacturers (OEMs),
industrial and retail distributors, national retailers and directly to U.S. and international
defense departments.
Beginning January 1, 2010, we now report our results in three operating segments instead of
four: Battery & Energy Products; Communications Systems; and Energy Services. This change in
segment reporting is more consistent with how we now manage our business operations. The
Non-Rechargeable Products and Rechargeable Products segments have been combined into a single
segment called Battery & Energy Products. The Communications Systems segment now includes our
RedBlack Communications business, which was previously included in the Design & Installation
Services segment. The Design & Installation Services segment has been renamed Energy Services and
will continue to encompass our standby power business. Research, design and development contract
revenues and
expenses, which were previously included in the Design & Installation Services segment, have
been captured under the respective operating segment in which the work is performed.
25
The Battery & Energy Products segment includes: lithium 9-volt, cylindrical and various other
non-rechargeable batteries, in addition to rechargeable batteries, uninterruptable power supplies
and accessories, such as cables. The Communications Systems segment includes: power supplies,
cable and connector assemblies, RF amplifiers, amplified speakers, equipment mounts, case
equipment, integrated communication system kits, charging systems and communications and
electronics systems design. The Energy Services segment includes: standby power and systems
design, installation and maintenance activities. We look at our segment performance at the gross
margin level, and we do not allocate research and development, except for research, design and
development contracts as noted above, or selling, general and administrative costs against the
segments. All other items that do not specifically relate to these three segments and are not
considered in the performance of the segments are considered to be Corporate charges.
We continually evaluate ways to grow, including opportunities to expand through mergers,
acquisitions and joint ventures, which can broaden the scope of our products and services, expand
operating and market opportunities and provide the ability to enter new lines of business
synergistic with our portfolio of offerings.
On March 20, 2009, we acquired substantially all of the assets and assumed substantially all
of the liabilities of the tactical communications products business of Science Applications
International Corporation. The tactical communications products business (AMTI), located in
Virginia Beach, Virginia, designs, develops and manufactures tactical communications products
including amplifiers, man-portable systems, cables, power solutions and ancillary communications
equipment. Under the terms of the asset purchase agreement for AMTI, the purchase price consisted
of $5,717 in cash. (See Note 2 in the Notes to Condensed Consolidated Financial Statements for
additional information.)
Overview
Consolidated revenues for the three-month period ended June 27, 2010 decreased by $2,569, or
6.5%, from the three-month period ended June 28, 2009. This decrease was primarily caused by
decreased revenues in our Battery & Energy Products and Energy Services segments. Despite the
decrease in consolidated revenue, gross margin increased to 25.4% as a percentage of total revenues
for the three-month period ended June 27, 2010, as opposed to 17.1% for the three-month period
ended June 28, 2009. Gross margin increased in each of our operating segments. Gross margin as a
percentage of total revenues for our Battery & Energy Products, Communications Systems and Energy
Services segments during the three-months ended June 27, 2010 compared to the three month period
ended June 28, 2009 increased 5.8%, 12.7% and 7.8%, respectively. The primary reason for the gross
margin improvement was improvements in manufacturing efficiencies, favorable product mix and higher
selling prices realized for some of our products.
Operating expenses decreased to $9,009 during the three-month period ended June 27, 2010
compared to $13,105 during the three-month period ended June 28, 2009. The across the board
cost reduction and consolidation actions we commenced in the latter half of 2009 were primarily
responsible for this improvement. These actions more than offset the increased expenses we have
incurred from our acquisitions of US Energy in November 2008 and AMTI in March 2009. In addition,
operating expenses for the second quarter of 2009 included approximately $1,200 of non-recurring
items associated with staff reductions and legal expenses relating to a litigation matter that was
successfully resolved.
Adjusted EBITDA, defined as net income (loss) attributable to Ultralife before net interest
expense, provision (benefit) for income taxes, depreciation and amortization, plus/minus
expenses/income that we do not consider reflective of our ongoing operations, amounted to $1,844 in
the second quarter of 2010 compared to negative $4,516 for the second quarter of 2009. See the
section Adjusted EBITDA
beginning on page 31 for a reconciliation of Adjusted EBITDA to net income (loss) attributable
to Ultralife.
26
With continued cash flow generated from our operations and favorable improvements made to our
balance sheet, the outstanding balance on our new credit facility was $9,260 at June 27, 2010. By
comparison, at June 28, 2009 and at December 31, 2009, the outstanding revolver balance under our
previous credit facility was $23,900 and $15,500, respectively.
Results of Operations
Three-month periods ended June 27, 2010 and June 28, 2009
Revenues. Consolidated revenues for the three-month period ended June 27, 2010 amounted to
$37,024, a decrease of $2,569, or 6.5%, from the $39,593 reported in the same quarter in the prior
year.
Battery & Energy Products sales decreased $3,229, or 12.6%, from $25,634 during the second
quarter last year to $22,405 during the second quarter this year. The decrease in Battery & Energy
Products revenues was primarily attributable to lower battery sales to the U.S Department of
Defense, which was partially offset by higher demand for our automotive telematics batteries
resulting from more favorable economic conditions.
Communications Systems revenues increased $885, or 8.5%, from $10,357 during the second
quarter last year to $11,242 during the second quarter this year, mainly due to higher shipments of
McDowell branded charger and communication accessory products.
Energy Services revenues decreased $225, or 6.2%, from $3,602 during the second quarter last
year to $3,377 during the second quarter this year, reflecting continued customer delays in capital
expenditures for backup stationary power. These delays were a result of the recent recessionary
economic conditions, and primarily attributable to larger capital projects.
Cost of Products Sold. Cost of products sold totaled $27,604 for the quarter ended June 27,
2010, a decrease of $5,209, or 15.9%, from the $32,813 reported for the same three-month period a
year ago. Consolidated cost of products sold as a percentage of total revenue decreased from 82.9%
for the three-month period ended June 28, 2009 to 74.6% for the three-month period ended June 27,
2010. Correspondingly, consolidated gross margin was 25.4% for the three-month period ended June
27, 2010, compared with 17.1% for the three-month period ended June 28, 2009, attributable to the
margin improvements across all three business segments.
In our Battery & Energy Products segment, the cost of products sold decreased $3,998, from
$21,338 during the three-month period ended June 28, 2009 to $17,340 during the three-month period
ended June 27, 2010. Battery & Energy Products gross margin for the second quarter of 2010 was
$5,065, or 22.6% of revenues, an increase of $769 from gross margin of $4,296, or 16.8% of
revenues, for the second quarter of 2009. Battery & Energy Products gross margin and gross margin
as a percentage of revenues both increased for the three-month period ended June 27, 2010,
primarily as a result of manufacturing efficiencies and higher selling prices realized for some of
our products, in comparison to the three-month period ended June 28, 2009.
In our Communications Systems segment, the cost of products sold decreased $735, from $8,036
during the three-month period ended June 28, 2009 to $7,301 during the second quarter of 2010.
Communications Systems gross margin for the second quarter of 2010 was $3,941, or 35.1% of
revenues, an increase of $1,620 from gross margin of $2,321, or 22.4% of revenues, for the second
quarter of 2009. The increase in the gross margin percentage for Communications Systems resulted
from favorable product mix, improved efficiencies for our McDowell branded products and AMTI
amplifiers and the
impact of inventory reserves recorded in 2009 relating to the consolidation of our amplifier
manufacturing under the AMTI business.
27
In our Energy Services segment, the cost of sales decreased $476, from $3,439 during the
three-month period ended June 28, 2009 to $2,963 during the three-month period ended June 27, 2010.
Energy Services gross margin for the second quarter of 2010 was $414, or 12.3% of revenues, an
increase of $251 from gross margin of $163, or 4.5% of revenues, for the second quarter of 2009.
Gross margin in this segment increased mainly due to higher sales recognized from lead acid battery
sales.
Operating Expenses. Total operating expenses for the three-month period ended June 27, 2010
totaled $9,009, a decrease of $4,096 from $13,105 for the three-month period ended June 28, 2009.
Overall, operating expenses as a percentage of sales decreased to 24.3% during the second quarter
of 2010 from 33.1% reported in the second quarter of 2009, due to the across the board cost
reduction and consolidation actions we commenced in the latter half of 2009 which have now been
realized. These actions more than offset the increased expenses we have incurred from our
acquisitions of US Energy in November 2008 and AMTI in March 2009. In addition, operating expenses
for the second quarter of 2009 included approximately $1,200 of non-recurring items associated with
staff reductions and legal expenses relating to a litigation matter that was successfully resolved.
Amortization expense associated with intangible assets related to our acquisitions was $378 for
the second quarter of 2010 ($263 in selling, general and administrative expenses and $115 in
research and development costs), compared with $466 for the second quarter of 2009 ($318 in
selling, general, and administrative expenses and $148 in research and development costs).
Research and development costs were $1,903 in the second quarter of 2010, a decrease of $611, or
24.3%, from the $2,514 reported in the second quarter of 2009, due to the timing of development
projects relating primarily to advanced battery systems. Selling, general, and administrative
expenses decreased $3,485, or 32.9%, to $7,106 during the second quarter of 2010 as compared to the
second quarter of 2009. This decrease represents the results of our broad actions to reduce our
overall spending base in non-revenue producing functions, along with the impact of the 2009
non-recurring items mentioned above.
Other Income (Expense). Other income (expense) totaled ($343) for the second quarter of 2010,
compared to ($558) for the second quarter of 2009. Interest expense, net of interest income,
decreased $126, to $223 for the second quarter of 2010 from $349 for the comparable period in 2009,
mainly as a result of lower average borrowings under our revolving credit facilities.
Miscellaneous income/expense amounted to expense of $120 for the second quarter of 2010 compared
with expense of $209 for the second quarter of 2009. The expense in the second quarter of 2010 and
2009 was primarily due to transactions impacted by changes in foreign currencies relative to the
U.S. dollar.
Income Taxes. We reflected a tax provision of $51 for the second quarter of 2010 compared
with $95 during the second quarter of 2009. The effective tax rate for the total consolidated
company for the three-month periods ended June 27, 2010 and June 28, 2009 was:
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended |
|
|
|
June 27, |
|
|
June 28, |
|
|
|
2010 |
|
|
2009 |
|
Income (Loss) before Incomes Taxes (a) |
|
$ |
68 |
|
|
$ |
(6,883 |
) |
|
|
|
|
|
|
|
|
|
Total Income Tax Provision (b) |
|
$ |
51 |
|
|
$ |
95 |
|
|
|
|
|
|
|
|
|
|
Effective Tax Rate (b/a) |
|
|
75.0 |
% |
|
|
1.4 |
% |
See Note 8 in the Notes to Condensed Consolidated Financial Statements for additional
information.
28
We have determined that a change in ownership, as defined under Internal Revenue Code
Section 382, occurred in 2005 and 2006. As such, the domestic NOL carryforward will be subject to
an annual limitation estimated to be in the range of approximately $12,000 to $14,500. The unused
portion of the annual limitation can be carried forward to subsequent periods. Our ability to
utilize NOL carryforwards due to successive ownership changes is currently limited to a minimum of
approximately $12,000 annually, plus the carryover from unused portions of the annual limitations.
We believe such limitation will not impact our ability to realize the deferred tax asset.
In addition, certain of our NOL carryforwards are subject to U.S. alternative minimum tax such
that carryforwards can offset only 90% of alternative minimum taxable income. We incurred $10 in
alternative minimum tax for the three-month period ended June 27, 2010. However, the alternative
minimum tax did not have an impact on income taxes determined for the second quarter of 2009.
The use of our U.K. NOL carryforwards may be limited due to the change in the U.K. operation during
2008 from a manufacturing and assembly center to primarily a distribution and service center. For
further discussion, see Item 1A, Risk Factors in our Annual Report on Form 10-K for the year
ended December 31, 2009.
Net Income (Loss) Attributable to Ultralife. Net income attributable to Ultralife and income
attributable to Ultralife common shareholders per diluted share was $20 and $0.00, respectively,
for the three months ended June 27, 2010, compared to a net loss attributable to Ultralife and loss
attributable to Ultralife common shareholders per diluted share of $6,964 and $0.41, respectively,
for the second quarter of 2009, primarily as a result of the reasons described above. Average
common shares outstanding used to compute diluted earnings per share increased from 16,894,000 in
the second quarter of 2009 to 17,169,000 in the second quarter of 2010, mainly due to the issuance
of 200,000 shares of our common stock to the former principals of U.S. Energy under the Amended
Purchase Agreement in April 2010.
Six-month periods ended June 27, 2010 and June 28, 2009
Revenues. Consolidated revenues for the six-month period ended June 27, 2010 amounted to
$75,531, a decrease of $3,865, or 4.9%, from the $79,396 reported in the same period in the prior
year.
Battery & Energy Products sales decreased $2,818, or 5.8%, from $48,626 during the first six
months last year to $45,808 during the first six months this year. The decrease in Battery &
Energy Products revenues was primarily attributable to lower battery sales to the U.S. Department
of Defense, which was partially offset by higher demand for our automotive telematics batteries
resulting from more favorable economic conditions.
Communications Systems revenues increased $2,686, or 12.4%, from $21,622 during the first six
months last year to $24,308 during the first six months this year, mainly due to the inclusion of
amplifier sales resulting from our acquisition of AMTI on March 20, 2009 and continued favorable
demand for these products.
Energy Services revenues decreased $3,733, or 40.8%, from $9,148 during the first six months
last year to $5,415 during the first six months this year, reflecting continued customer delays in
capital expenditures for backup stationary power. These delays were a result of the recent
recessionary economic conditions, and primarily attributable to larger capital projects.
Cost of Products Sold. Cost of products sold totaled $56,353 for the six-month period ended
June 27, 2010, a decrease of $8,482, or 13.1%, from the $64,835 reported for the same six-month
period a year ago. Consolidated cost of products sold as a percentage of total revenue decreased
from 81.7% for the six-month period ended June 28, 2009 to 74.6% for the six-month period ended
June 27, 2010. Correspondingly, consolidated gross margin was 25.4% for the six-month period ended
June 27, 2010, compared with 18.3% for the six-month period ended June 28, 2009, generally
attributable to the margin improvements across all three business segments.
29
In our Battery & Energy Products segment, the cost of products sold decreased $4,723, from
$40,530 during the six-month period ended June 28, 2009 to $35,807 during the six-month period
ended June 27, 2010. Battery & Energy Products gross margin for the six-month period ended June
27, 2010 was $10,001, or 21.8% of revenues, an increase of $1,905 from gross margin of $8,096, or
16.6% of revenues, for the first six months of 2009. Battery & Energy Products gross margin and
gross margin as a percentage of revenues both increased for the six-month period ended June 27,
2010, primarily as a result of manufacturing efficiencies and higher selling prices realized for
some of our products, in comparison to the six-month period ended June 28, 2009.
In our Communications Systems segment, the cost of products sold decreased $221, from $15,685
during the six-month period ended June 28, 2009 to $15,464 during the first six months of 2010.
Communications Systems gross margin for the first six months of 2010 was $8,844, or 36.4% of
revenues, an increase of $2,907 from gross margin of $5,937, or 27.5% of revenues, for the first
six months of 2009. The increase in the gross margin percentage for Communications Systems
resulted primarily from our acquisition of the AMTI amplifier business and its higher margin
products.
In our Energy Services segment, the cost of sales decreased $3,538, from $8,620 during the
six-month period ended June 28, 2009 to $5,082 during the six-month period ended June 27, 2010.
Energy Services gross margin for the first six months of 2010 was $333, or 6.1% of revenues, a
decrease of $195 from gross margin of $528, or 5.8% of revenues, for the first six months of 2009.
Gross margin in this particular segment decreased mainly due to lower sales caused by project
delays and ongoing pricing pressures in this industry.
Operating Expenses. Total operating expenses for the six-month period ended June 27, 2010
totaled $17,913, a decrease of $5,230 from the prior years $23,143. Overall, operating expenses
as a percentage of sales decreased to 23.7% during the first six months of 2010 from 29.1% reported
in the first six months of 2009, due to the across the board cost reduction and consolidation
actions we commenced in the latter half of 2009 which have now been realized. These actions more
than offset the increased expenses we have incurred from our acquisitions of US Energy in November
2008 and AMTI in March 2009. Amortization expense associated with intangible assets related to our
acquisitions was $873 for the first six months of 2010 ($613 in selling, general and administrative
expenses and $260 in research and development costs), compared with $807 for the first six months
of 2009 ($549 in selling, general, and administrative expenses and $258 in research and development
costs). Research and development costs were $3,631 in the first six months of 2010, a decrease of
$863, or 19.2%, from the $4,494 reported in the first six months of 2009, due to the timing of
development projects relating primarily to advanced battery systems. Selling, general, and
administrative expenses decreased $4,367, or 23.4%, to $14,282 during the first six months of 2010
as compared to the first six months of 2009. This decrease represents the results of our broad
actions to reduce our overall spending base in non-revenue producing functions, as well as
approximately $1,200 of non-recurring expenses that were recorded in the second quarter of 2009
associated with staff reductions and legal expenses relating to a litigation matter that was
successfully resolved.
Other Income (Expense). Other income (expense) totaled ($796) for the first six months of
2010, compared to ($726) for the first six months of 2009. Interest expense, net of interest
income, increased $189, to $717 for the first six months of 2010 from $528 for the comparable
period in 2009, mainly as a result of expenses related to the termination of our previous credit
facility with JP Morgan Chase Bank, N.A. and Manufacturers and Traders Trust Company earlier this
year, partially offset by lower average borrowings under our revolving credit facilities.
Miscellaneous income/expense amounted to expense of $79 for the first six months of 2010 compared
with expense of $198 for the first six months of 2009. The expense in the first six months of 2010
and 2009 was primarily due to transactions impacted by changes in foreign currencies relative to
the U.S. dollar.
30
Income Taxes. We reflected a tax provision of $156 for the first six months of 2010 compared
with $186 during the first six months of 2009. The effective tax rate for the total consolidated
company for the six-month periods ended June 27, 2010 and June 28, 2009 was:
|
|
|
|
|
|
|
|
|
|
|
Six-Month Periods Ended |
|
|
|
June 27, |
|
|
June 28, |
|
|
|
2010 |
|
|
2009 |
|
Income (Loss) before Incomes Taxes (a) |
|
$ |
469 |
|
|
$ |
(9,308 |
) |
|
|
|
|
|
|
|
|
|
Total Income Tax Provision (b) |
|
$ |
156 |
|
|
$ |
186 |
|
|
|
|
|
|
|
|
|
|
Effective Tax Rate (b/a) |
|
|
33.3 |
% |
|
|
2.0 |
% |
See Note 8 in the Notes to Condensed Consolidated Financial Statements for additional
information.
We have determined that a change in ownership, as defined under Internal Revenue Code
Section 382, occurred in 2005 and 2006. As such, the domestic NOL carryforward will be subject to
an annual limitation estimated to be in the range of approximately $12,000 to $14,500. The unused
portion of the annual limitation can be carried forward to subsequent periods. Our ability to
utilize NOL carryforwards due to successive ownership changes is currently limited to a minimum of
approximately $12,000 annually, plus the carryover from unused portions of the annual limitations.
We believe such limitation will not impact our ability to realize the deferred tax asset.
In addition, certain of our NOL carryforwards are subject to U.S. alternative minimum tax such
that carryforwards can offset only 90% of alternative minimum taxable income. This limitation did
have an impact of $34 on income taxes determined for the first six months of 2010. However, this
limitation did not have an impact on income taxes determined for the first six months of 2009. The
use of our U.K. NOL carryforwards may be limited due to the change in the U.K. operation during
2008 from a manufacturing and assembly center to primarily a distribution and service center. For
further discussion, see Item 1A, Risk Factors in our Annual Report on Form 10-K for the year
ended December 31, 2009.
Net Income (Loss) Attributable to Ultralife. Net income attributable to Ultralife and income
attributable to Ultralife common shareholders per diluted share was $307 and $0.02, respectively,
for the six months ended June 27, 2010, compared to a net loss attributable to Ultralife and loss
attributable to Ultralife common shareholders per diluted share of $9,476 and $0.56, respectively,
for the first six months of 2009, primarily as a result of the reasons described above. Average
common shares outstanding used to compute diluted earnings per share increased from 17,024,000 in
the first six months of 2009 to 17,094,000 in the first six months of 2010, mainly due to the
issuance of 200,000 shares of our common stock to the former principals of U.S. Energy under the
Amended Purchase Agreement in April 2010.
Adjusted EBITDA
In evaluating our business, we consider and use Adjusted EBITDA, a non-GAAP financial measure,
as a supplemental measure of our operating performance. We define Adjusted EBITDA as net income
(loss) attributable to Ultralife before net interest expense, provision (benefit) for income taxes,
depreciation and amortization, plus/minus expenses/income that we do not consider reflective of our
ongoing operations. We use Adjusted EBITDA as a supplemental measure to review and assess our
operating performance and to enhance comparability between periods. We also believe the use of
Adjusted EBITDA facilitates investors use of operating performance comparisons from period to
period and company to company by backing out potential differences caused by variations in such
items as capital structures (affecting relative interest expense and stock-based compensation
expense), the book amortization of intangible assets (affecting relative amortization expense), the
age and book value of
facilities and equipment (affecting relative depreciation expense) and other significant
non-cash, non-operating expenses or income. We also present Adjusted EBITDA because we believe it
is frequently used by securities analysts, investors and other interested parties as a measure of
financial performance. We reconcile Adjusted EBITDA to net income (loss) attributable to
Ultralife, the most comparable financial measure under U.S. generally accepted accounting
principles (U.S. GAAP).
31
We use Adjusted EBITDA in our decision-making processes relating to the operation of our
business together with U.S. GAAP financial measures such as income (loss) from operations. We
believe that Adjusted EBITDA permits a comparative assessment of our operating performance,
relative to our performance based on our U.S. GAAP results, while isolating the effects of
depreciation and amortization, which may vary from period to period without any correlation to
underlying operating performance, and of non-cash stock-based compensation, which is a non-cash
expense that varies widely among companies. We provide information relating to our Adjusted EBITDA
so that securities analysts, investors and other interested parties have the same data that we
employ in assessing our overall operations. We believe that trends in our Adjusted EBITDA are a
valuable indicator of our operating performance on a consolidated basis and of our ability to
produce operating cash flows to fund working capital needs, to service debt obligations and to fund
capital expenditures.
The term Adjusted EBITDA is not defined under U.S. GAAP, and is not a measure of operating
income, operating performance or liquidity presented in accordance with U.S. GAAP. Our Adjusted
EBITDA has limitations as an analytical tool, and when assessing our operating performance,
Adjusted EBITDA should not be considered in isolation, or as a substitute for net income (loss)
attributable to Ultralife or other consolidated statement of operations data prepared in accordance
with U.S. GAAP. Some of these limitations include, but are not limited to, the following:
|
|
|
Adjusted EBITDA (1) does not reflect our cash expenditures or future requirements
for capital expenditures or contractual commitments; (2) does not reflect changes in,
or cash requirements for, our working capital needs; (3) does not reflect the
interest expense, or the cash requirements necessary to service interest or principal
payments, on our debt; (4) does not reflect income taxes or the cash requirements for
any tax payments; and (5) does not reflect all of the costs associated with operating
our business; |
|
|
|
|
although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized often will have to be replaced in the future, and Adjusted
EBITDA does not reflect any cash requirements for such replacements; |
|
|
|
|
while stock-based compensation is a component of cost of products sold and
operating expenses, the impact on our consolidated financial statements compared to
other companies can vary significantly due to such factors as assumed life of the
stock-based awards and assumed volatility of our common stock; and |
|
|
|
|
other companies may calculate Adjusted EBITDA differently than we do, limiting its
usefulness as a comparative measure. |
32
We compensate for these limitations by relying primarily on our U.S. GAAP results and using
Adjusted EBITDA only supplementally. Adjusted EBITDA is calculated as follows for the periods
presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended |
|
|
Six-Month Periods Ended |
|
|
|
June 27, |
|
|
June 28, |
|
|
June 27, |
|
|
June 28, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable
to Ultralife |
|
$ |
20 |
|
|
$ |
(6,964 |
) |
|
$ |
307 |
|
|
$ |
(9,476 |
) |
Add: interest expense, net |
|
|
223 |
|
|
|
349 |
|
|
|
717 |
|
|
|
528 |
|
Add: income tax provision |
|
|
51 |
|
|
|
95 |
|
|
|
156 |
|
|
|
186 |
|
Add: depreciation expense |
|
|
936 |
|
|
|
997 |
|
|
|
1,940 |
|
|
|
1,939 |
|
Add: amortization expense |
|
|
378 |
|
|
|
466 |
|
|
|
873 |
|
|
|
807 |
|
Add: stock-based compensation
expense |
|
|
236 |
|
|
|
541 |
|
|
|
557 |
|
|
|
1,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
1,844 |
|
|
$ |
(4,516 |
) |
|
$ |
4,550 |
|
|
$ |
(4,939 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity and Capital Resources
As of June 27, 2010, cash and cash equivalents totaled $2,111, a decrease of $3,983 from
December 31, 2009. The primary reason for the decrease in cash is our repayment on the revolver
portion of our previous and current credit facilities. During the six-month period ended June 27,
2010, we generated $3,323 of cash from operating activities as compared to the use of $12,973 for
the six-month period ended June 28, 2009. The generation of cash from operating activities in 2010
resulted mainly from decreased working capital requirements, including lower balances of accounts
receivables and accounts payable, partially offset by a higher balance in inventories, as well as
our favorable operating results.
We used $680 in cash for investing activities during the first six months of 2010 compared
with $8,016 in cash used for investing activities in the same period in 2009. In the first six
months of 2010, we spent $554 to purchase plant, property and equipment, $452 was used to establish
a restricted cash fund in connection with our U.K. operations, and $137 was used in connection with
the contingent purchase price payout related to RPS Power Systems, Inc. (RPS). In addition, we
received $463 in cash proceeds from dispositions of property, plant and equipment. In the first
six months of 2009, we spent $1,253 to purchase plant, property and equipment, and $6,763 was used
in connection with the acquisition of AMTI, as well as contingent purchase price payouts related to
RedBlack and RPS.
During the six-month period ended June 27, 2010, we used $6,482 in funds from financing
activities compared to the generation of $20,443 in funds in the same period of 2009. The
financing activities in the first six months of 2010 included a $6,240 outflow from repayments on
the revolver portion of our primary credit facilities, and an outflow of $242 for principal
payments on debt and capital lease obligations. The financing activities in the first six months
of 2009 included a $23,900 inflow from drawdowns on the revolver portion of our primary credit
facility, an inflow of $751 for proceeds from the issuance of debt, and an inflow of cash from
stock option and warrant exercises of $310, offset by an outflow of $1,192 for principal payments
on term debt under our primary credit facility and capital lease obligations, and an outflow of
$3,326 for the purchase of treasury shares related to our share repurchase program.
Inventory turnover for the first six months of 2010 was an annualized rate of approximately
2.8 turns per year, relatively unchanged from the 2.7 turns for the full year of 2009. Our Days
Sales Outstanding (DSOs) as of June 27, 2010, was 67 days, relatively unchanged from the 69 days at
year-end December 31, 2009.
As of June 27, 2010, we had made commitments to purchase approximately $268 of production
machinery and equipment, which we expect to fund through operating cash flows or the use of debt.
33
Debt Commitments
On February 17, 2010, we entered into a new senior secured asset based revolving credit
facility (Credit Facility) of up to $35,000 with RBS Business Capital, a division of RBS Asset
Finance, Inc. (RBS). The proceeds from the Credit Facility can be used for general working
capital purposes, general corporate purposes, and letter of credit foreign exchange support. The
Credit Facility has a maturity date of February 17, 2013 (Maturity Date). The Credit Facility is
secured by substantially all of our assets. We paid RBS a facility fee of $263.
On February 18, 2010, we drew down $9,870 from the Credit Facility to repay all outstanding
amounts due under the Amended and Restated Credit Agreement with JP Morgan Chase Bank, N.A. and
Manufacturers and Traders Trust Company, with JP Morgan Chase Bank acting as administrative
agent. Our available borrowing under the Credit Facility fluctuates from time to time based upon
amounts of eligible accounts receivable and eligible inventory. Available borrowings under the
Credit Facility equals the lesser of (1) $35,000 or (2) 85% of eligible accounts receivable plus
the lesser of (a) up to 70% of the book value of our eligible inventory or (b) 85% of the appraised
net orderly liquidation value of our eligible inventory. The borrowing base under the Credit
Facility is further reduced by (1) the face amount of any letters of credit outstanding, (2) any
liabilities of ours under hedging contracts with RBS and (3) the value of any reserves as deemed
appropriate by RBS. We are required to have at least $3,000 available under the Credit Facility at
all times.
Interest currently accrues on outstanding indebtedness under the Credit Facility at LIBOR plus
4.50%. We have the ability, in certain circumstances, to fix the interest rate for up to 90 days
from the date of borrowing. Upon delivery of our audited financial statements for the fiscal year
ended December 31, 2010 to RBS, and assuming no events of default exist at such time, the rate of
interest under the Credit Facility can fluctuate based on the available borrowings remaining under
the Credit Facility as set forth in the following table:
|
|
|
|
|
Excess Availability |
|
LIBOR Rate Plus |
|
|
|
|
|
|
Greater than $10,000 |
|
|
4.00 |
% |
|
|
|
|
|
Greater than $7,500 but less than or equal to $10,000 |
|
|
4.25 |
% |
|
|
|
|
|
Greater than $5,000 but less than or equal to $7,500 |
|
|
4.50 |
% |
|
|
|
|
|
Greater than $3,000 but less than or equal to $5,000 |
|
|
4.75 |
% |
In addition to paying interest on the outstanding principal under the Credit Facility, we are
required to pay an unused line fee of 0.50% on the unused portion of the $35,000 Credit
Facility. We must also pay customary letter of credit fees equal to the LIBOR rate and the
applicable margin and any other customary fees or expenses of the issuing bank. Interest that
accrues under the Credit Facility is to be paid monthly with all outstanding principal, interest
and applicable fees due on the Maturity Date.
We are required to maintain a fixed charge coverage ratio of 1.20 to 1.00 or greater at all
times as of and after March 28, 2010. As of June 27, 2010, our fixed coverage ratio was 2.33 to
1.00. Accordingly, we were in compliance with the financial covenants of the Credit Facility. All
borrowings under the Credit Facility are subject to the satisfaction of customary conditions,
including the absence of an event of default and accuracy of our representations and
warranties. The Credit Facility also includes customary representations and warranties,
affirmative covenants and events of default. If an event default occurs, RBS would be entitled to
take various actions, including accelerating the amount due under the Credit Facility, and all
actions permitted to be taken by a secured creditor.
34
As of June 27, 2010, we had $9,260 outstanding under the Credit Facility. At June 27, 2010,
the interest rate on the asset based revolver component of the Credit Facility was 4.85%. As of
June 27, 2010, the revolver arrangement provided for up to $35,000 of borrowing capacity, including
outstanding letters of credit. At June 27, 2010, we had $-0- of outstanding letters of credit
related to this facility, leaving up to $25,740 of additional borrowing capacity.
Equity Transactions
On April 27, 2010, we entered into an agreement (the Amendment Agreement) with Ken Cotton,
Shawn OConnell, Simon Baitler and Tim Jacobs (together, the Share Recipients). The Amendment
Agreement amends the terms of the asset purchase agreement dated October 31, 2008 whereby we
acquired substantially all of the assets of U.S. Energy Systems, Inc. (the Asset Purchase
Agreement).
Under the terms of the Asset Purchase Agreement, on the achievement of certain annual
post-acquisition financial milestones during the period ending December 31, 2012, we were to issue
up to an aggregate of 200,000 unregistered shares of our common stock to Ken Cotton, Shawn
OConnell and Simon Baitler (together, the Selling Shareholders). At the time the Amendment
Agreement was entered into, we had not issued any shares of our common stock to the Selling
Shareholders because none of the financial milestones had been achieved.
Under the terms of the Amendment Agreement, we agreed to issue the Share Recipients an
aggregate of 200,000 shares of our unregistered common stock, valued at approximately $858, in full
satisfaction of our outstanding obligations to the Selling Shareholders under the Asset Purchase
Agreement. Under the terms of the Amendment Agreement, the Selling Shareholders agreed to release
us from any past or present claims relating to the purchase price provisions of the Asset Purchase
Agreement.
We elected to enter into the Amendment Agreement because our consolidation plan and the
reorganization of our reporting units involved reorganizing the operations of the business
purchased in the Asset Purchase Agreement. The post-acquisition financial milestones in the Asset
Purchase Agreement did not support our current consolidation and reorganization plans and it was
determined that it would be in our best interests to satisfy our obligations under the Asset
Purchase Agreement. The Amendment Agreement did not change our original assessment that the
contingent payout of shares of common stock was related to the acquisition of the assets of U.S.
Energy Systems, Inc. Accordingly, we reflected the payment as additional purchase price.
In October 2008, the Board of Directors authorized a share repurchase program of up to $10,000
to be implemented over the course of a six-month period. Repurchases were made from time to time
at managements discretion, either in the open market or through privately negotiated transactions.
The repurchases were made in compliance with Securities and Exchange Commission guidelines and
were subject to market conditions, applicable legal requirements, and other factors. We had no
obligation under the program to repurchase shares and the program could have been suspended or
discontinued at any time without prior notice. We funded the purchase price for shares acquired
primarily with current cash on hand and cash generated from operations, in addition to borrowing
from our credit facility, as necessary. We spent $5,141 to repurchase 628,413 shares of common
stock, at an average price of approximately $8.15 per share, under this share repurchase program.
During the first quarter of 2009, we repurchased 416,305 shares of common stock at an average price
of approximately $7.99 per share under this share repurchase program. All other share repurchases
were made in the fourth quarter of 2008. In April 2009, this share repurchase program expired.
See Note 7 in the Notes to Condensed Consolidated Financial Statements for additional
information.
35
Other Matters
We continually explore various sources of liquidity to ensure financing flexibility, including
leasing alternatives, issuing new or refinancing existing debt, and raising equity through private
or public offerings. Although we stay abreast of such financing alternatives, we believe we have
the ability during the next 12 months to finance our operations primarily through internally
generated funds or through the use of additional financing that currently is available to us. In
the event that we are unable to finance our operations with the internally generated funds or
through the use of additional financing that currently is available to us, we may need to seek
additional credit or access capital markets for additional funds. We can provide no assurance that
we would be successful in this regard, especially in light of our recent operating performance.
If we are unable to achieve our plans or unforeseen events occur, we may need to implement
alternative plans, in addition to plans that we have already initiated. While we believe we can
complete our original plans or alternative plans, if necessary, there can be no assurance that such
alternatives would be available on acceptable terms and conditions or that we would be successful
in our implementation of such plans.
As described in Part II, Item 1, Legal Proceedings of this report, we are involved in
certain environmental matters with respect to our facility in Newark, New York. Although we have
reserved for expenses related to this potential exposure, there can be no assurance that such
reserve will be adequate. The ultimate resolution of this matter may have a significant adverse
impact on the results of operations in the period in which it is resolved.
With respect to our battery products, we typically offer warranties against any defects due to
product malfunction or workmanship for a period up to one year from the date of purchase. With
respect to our communications accessory products, we typically offer a four-year warranty. We also
offer a 10-year warranty on our 9-volt batteries that are used in ionization-type smoke detector
applications. We provide for a reserve for these potential warranty expenses, which is based on an
analysis of historical warranty issues. There is no assurance that future warranty claims will be
consistent with past history, and in the event we experience a significant increase in warranty
claims, there is no assurance that our reserves will be sufficient. This could have a material
adverse effect on our business, financial condition and results of operations.
Outlook
Our current 2010 forecast calls for us to generate revenue in the range of $177,000 to
$182,000 and operating income of approximately $7,000. Excluded from this forecast is any revenue
associated with orders for batteries from the U.S. Department of Defense. Management cautions that
the timing of orders and shipments may cause some variability in quarterly results.
See Overview section for additional information.
Recent Accounting Pronouncements and Developments
In April 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-17, Revenue
Recognition Milestone Method (Topic 605): Milestone Method of Revenue Recognition a consensus
of the FASB Emerging Issues Task Force (EITF). ASU No. 2010-17 is limited to research or
development arrangements and requires that this ASU be met for an entity to apply the milestone
method (record the milestone payment in its entirety in the period received) of recognizing
revenue. However, the FASB clarified that, even if the requirements in this ASU are met, entities
would not be precluded from making an accounting policy election to apply another appropriate
policy that results in the deferral of some portion of the arrangement consideration. The guidance
in this ASU will apply to milestones in
both single-deliverable and multiple-deliverable arrangements involving research or
development transactions. ASU No. 2010-17 will be effective prospectively for milestones achieved
in fiscal years, and interim periods within those years, beginning on or after June 15, 2010.
Early adoption is permitted. We are currently evaluating the impact that ASU No. 2010-17 will have
on our financial statements.
36
In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures
(Topic 820): Improving Disclosures about Fair Value Measurements, which provides additional
guidance to improve disclosures regarding fair value measurements. ASU No. 2010-06 amends
Accounting Standards Codification (ASC) 820-10 to add two new disclosures: (1) transfers in and
out of Level 1 and 2 measurements and the reasons for the transfers, and (2) a gross presentation
of activity within the Level 3 roll forward. ASU 2010-06 also includes clarifications to existing
disclosure requirements on the level of disaggregation and disclosures regarding inputs and
valuation techniques. ASU 2010-06 applies to all entities required to make disclosures about
recurring and nonrecurring fair value measurements. ASU No. 2010-06 will be effective for interim
and annual reporting periods beginning after December 15, 2009, except for the disclosures about
purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value
measurements, which is effective for fiscal years beginning after December 15, 2010. The partial
adoption of ASU 2010-06 did not have a material impact on our financial statements. We are
currently evaluating the impact of the deferred portions of ASU No. 2010-06 will have on our
financial statements; however, we do not expect the adoption of the deferred portions of ASU
2010-06 to have a material impact on our financial statements, except for the additional
disclosures that will be required.
In January 2010, the FASB issued ASU No. 2010-02, Consolidation (Topic 810): Accounting and
Reporting for Decreases in Ownership of a Subsidiary a Scope Clarification, to address
implementation issues related to the changes in ownership provisions in ASC 810-10. ASU No.
2010-02 amends ASC 810-10 and related guidance to clarify that the scope of the decrease in
ownership provisions applies to the following: a subsidiary or group of assets that is a business
or nonprofit activity; a subsidiary that is a business or nonprofit activity that is transferred to
an equity method investee or joint venture; or an exchange of a group of assets that constitutes a
business or nonprofit activity for a noncontrolling interest in an entity, including an equity
method investee or joint venture. The amendments also clarify that the decrease in ownership
provisions do not apply to the following transactions even if they involve businesses: sales of in
substance real estate; and conveyances of oil and gas mineral rights. If a decrease in ownership
occurs in a subsidiary that is not a business or nonprofit activity, entities first need to
consider whether the substance of the transaction is addressed in other U.S. GAAP, such as
transfers of financial assets, revenue recognition, etc., and apply that guidance. If no other
guidance exists, an entity should apply ASC 810-10. Lastly, ASU No. 2010-02 expands existing
disclosure requirements for transactions within the scope of ASC 810-10, and adds several new ones
that address fair value measurements and related techniques, the nature of any continuing
involvement after the transaction, and whether related parties are involved. ASU No. 2010-02 is
effective beginning in the period that an entity adopts ASC 810-10. If an entity had previously
adopted ASC 810-10, the amendments are effective beginning in the first interim or annual reporting
period ending on or after December 15, 2009. The amendments must be applied retrospectively to the
date ASC 810-10 was adopted. The adoption of ASU No. 2010-02, with retrospective application to
January 1, 2009, did not have a significant impact on our financial statements.
In October 2009, the FASB issued ASU No. 2009-13, Revenue Recognition (Topic 605):
Multiple-Deliverable Revenue Arrangements a consensus of the FASB EITF. ASU No. 2009-13
eliminates the residual method of accounting for revenue on undelivered products and instead
requires companies to allocate revenue to each of the deliverable products based on their relative
selling price. In addition, this ASU expands the disclosure requirements surrounding
multiple-deliverable arrangements. ASU No. 2009-13 will be effective for revenue arrangements
entered into for fiscal years beginning on or after June 15, 2010. We are currently evaluating the
impact that ASU No. 2009-13 will have on our financial statements.
37
In June 2009, the FASB issued amended guidance for the accounting for transfers of financial
assets. The amended guidance removes the concept of a qualifying special-purpose entity. The
amended guidance is effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2009. Earlier application is prohibited. The adoption of this
pronouncement did not have a significant impact on our financial statements.
In June 2009, the FASB issued amended guidance for the accounting for variable interest
entities. The amendments include: (1) the elimination of the exemption for qualifying special
purpose entities, (2) a new approach for determining who should consolidate a variable-interest
entity, and (3) changes to when it is necessary to reassess who should consolidate a
variable-interest entity. The amended guidance is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2009. Earlier adoption is
prohibited. The adoption of this pronouncement did not have a significant impact on our financial
statements.
Critical Accounting Policies
Management exercises judgment in making important decisions pertaining to choosing and
applying accounting policies and methodologies in many areas. Not only are these decisions
necessary to comply with U.S. generally accepted accounting principles, but they also reflect
managements view of the most appropriate manner in which to record and report our overall
financial performance. All accounting policies are important, and all policies described in Note 1
(Summary of Operations and Significant Accounting Policies) in our Annual Report on Form 10-K
should be reviewed for a greater understanding of how our financial performance is recorded and
reported.
During the first six months of 2010, there were no significant changes in the manner in which
our significant accounting policies were applied or in which related assumptions and estimates were
developed.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the three months ended June 27, 2010, there were no material changes to our
quantitative and qualitative disclosures about market risk as presented in Item 7A of Part II of
our Annual Report on Form 10-K for the year ended December 31, 2009.
Item 4. CONTROLS AND PROCEDURES
Evaluation Of Disclosure Controls And Procedures Our president and chief executive officer
(principal executive officer) and our chief financial officer and treasurer (principal financial
officer) have evaluated our disclosure controls and procedures (as defined in Securities Exchange
Act Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this quarterly report.
Based on this evaluation, our president and chief executive officer and chief financial officer and
treasurer concluded that our disclosure controls and procedures were effective as of such date.
Changes In Internal Control Over Financial Reporting There has been no change in our
internal control over financial reporting (as defined in Securities Exchange Act Rule 13a-15(f))
that occurred during the fiscal quarter covered by this quarterly report that has materially
affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
38
PART II OTHER INFORMATION
Item 1. Legal Proceedings
We are subject to legal proceedings and claims that arise in the normal course of business.
We believe that the final disposition of such matters will not have a material adverse effect on
our financial position, results of operations or cash flows.
In conjunction with our purchase/lease of our Newark, New York facility in 1998, we entered
into a payment-in-lieu of tax agreement, which provided us with real estate tax concessions upon
meeting certain conditions. In connection with this agreement, a consulting firm performed a Phase
I and II Environmental Site Assessment, which revealed the existence of contaminated soil and
ground water around one of the buildings. We retained an engineering firm, which estimated that
the cost of remediation should be in the range of $230. In February 1998, we entered into an
agreement with a third party which provides that we and this third party will retain an
environmental consulting firm to conduct a supplemental Phase II investigation to verify the
existence of the contaminants and further delineate the nature of the environmental concern. The
third party agreed to reimburse us for fifty percent (50%) of the cost of correcting the
environmental concern on the Newark property. We have fully reserved for our portion of the
estimated liability. Test sampling was completed in the spring of 2001, and the engineering report
was submitted to the New York State Department of Environmental Conservation (NYSDEC) for review.
The NYSDEC reviewed the report and, in January 2002, recommended additional testing. We responded
by submitting a work plan to the NYSDEC, which was approved in April 2002. We sought proposals
from engineering firms to complete the remedial work contained in the work plan. A firm was
selected to undertake the remediation and in December 2003 the remediation was completed, and was
overseen by the NYSDEC. The report detailing the remediation project, which included the test
results, was forwarded to the NYSDEC and to the New York State Department of Health (NYSDOH).
The NYSDEC, with input from the NYSDOH, requested that we perform additional sampling. A work plan
for this portion of the project was written and delivered to the NYSDEC and approved. In November
2005, additional soil, sediment and surface water samples were taken from the area outlined in the
work plan, as well as groundwater samples from the monitoring wells. We received the laboratory
analysis and met with the NYSDEC in March 2006 to discuss the results. On June 30, 2006, the Final
Investigation Report was delivered to the NYSDEC by our outside environmental consulting firm. In
November 2006, the NYSDEC completed its review of the Final Investigation Report and requested
additional groundwater, soil and sediment sampling. A work plan to address the additional
investigation was submitted to the NYSDEC in January 2007 and was approved in April 2007.
Additional investigation work was performed in May 2007. A preliminary report of results was
prepared by our outside environmental consulting firm in August 2007 and a meeting with the NYSDEC
and NYSDOH took place in September 2007. As a result of this meeting, the NYSDEC and NYSDOH
requested additional investigation work. A work plan to address this additional investigation was
submitted to and approved by the NYSDEC in November 2007. Additional investigation work was
performed in December 2007. Our environmental consulting firm prepared and submitted a Final
Investigation Report in January 2009 to the NYSDEC for review. The NYSDEC reviewed and approved
the Final Investigation Report in June 2009 and requested the development of a Remedial Action
Plan. Our environmental consulting firm developed and submitted the requested plan for review and
approval by the NYSDEC. In October 2009, we received comments back from the NYSDEC regarding the
content of the remediation work plan. Our environmental consulting firm incorporated the requested
changes and submitted a revised work plan to the NYSDEC in January 2010 for review and approval.
The NYSDEC has approved the revised work plan and the remediation activities outlined in the work
plan were initiated in July 2010. Through June 27, 2010, total costs incurred have amounted to
approximately $313, none of which has been capitalized. At June 27, 2010 and December 31, 2009, we
had $34 and $49, respectively, reserved for this matter.
39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On April 30, 2010, we issued an aggregate of 200,000 shares of our common stock to Ken Cotton,
Shawn OConnell, Simon Baitler and Tim Jacobs (the Share Recipients) in reliance on the exemption
from registration found in Section 4(2) of the Securities Act of 1933, as amended. As partial
consideration of the assets we purchased from U.S. Energy Systems, Inc. (USE) in October 2008, we
agreed to issue up to an aggregate of 200,000 shares of our common stock to certain of USEs
shareholders if certain future sales targets were satisfied. On April 27, 2010, we agreed to issue
the Share Recipients 200,000 shares of our common stock in full satisfaction of our obligations
under the asset purchase agreement with USE. See Note 5a to the condensed consolidated financial
statements in Item 1 of Part I of this Quarterly Report on Form 10-Q for more information regarding
this transaction.
Item 6. Exhibits
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Index |
|
Description of Document |
|
Incorporated By Reference from: |
|
|
|
|
|
|
|
|
10.1 |
|
|
Amendment No. 2 to the Asset Purchase
Agreement dated October 31, 2008 by and
among U.S. Energy Systems, Inc., Ken Cotton,
Shawn OConnell, Simon Baitler, and the
Registrant and Stationary Power Services,
Inc. dated April 27, 2010
|
|
Exhibit 10.9 of the Form 10-Q
for the quarter ended March
28, 2010, filed May 7, 2010 |
|
10.2 |
|
|
Addendum to Employment Agreement between the
Registrant and John D. Kavazanjian
|
|
Exhibit 99.1 of Form 8-K filed
on May 27, 2010 |
|
31.1 |
|
|
Rule 13a-14(a) / 15d-14(a) CEO Certifications
|
|
Filed herewith |
|
31.2 |
|
|
Rule 13a-14(a) / 15d-14(a) CFO Certifications
|
|
Filed herewith |
|
32 |
|
|
Section 1350 Certifications
|
|
Filed herewith |
|
|
|
|
|
Management contract or compensatory plan or arrangement. |
40
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
ULTRALIFE CORPORATION
(Registrant)
|
|
Date: August 4, 2010 |
By: |
/s/ John D. Kavazanjian
|
|
|
|
John D. Kavazanjian |
|
|
|
President and Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
Date: August 4, 2010 |
By: |
/s/ Philip A. Fain
|
|
|
|
Philip A. Fain |
|
|
|
Chief Financial Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer) |
|
41
Index to Exhibits
|
|
|
|
|
|
31.1 |
|
|
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 |
|
31.2 |
|
|
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 |
|
32 |
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
42
exv31w1
Exhibit 31.1
I, John D. Kavazanjian, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ultralife Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this
report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants internal control
over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting.
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Date: August 4, 2010 |
/s/ John D. Kavazanjian
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John D. Kavazanjian |
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President and Chief Executive Officer |
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exv31w2
Exhibit 31.2
I, Philip A. Fain, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ultralife Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this
report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants internal control
over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting.
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Date: August 4, 2010 |
/s/ Philip A. Fain
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Philip A. Fain |
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Chief Financial Officer and Treasurer |
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exv32
Exhibit 32
Section 1350 Certification
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (Section 906), John D. Kavazanjian and Philip A. Fain, the President and Chief Executive
Officer and Chief Financial Officer and Treasurer, respectively, of Ultralife Corporation, certify
that (i) the Quarterly Report on Form 10-Q for the quarter ended June 27, 2010 fully complies with
the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the
information contained in such report fairly presents, in all material respects, the financial
condition and results of operations of Ultralife Corporation.
A signed original of this written statement required by Section 906 has been provided to Ultralife
Corporation and will be retained by Ultralife Corporation and furnished to the Securities and
Exchange Commission or its staff upon request.
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Date: August 4, 2010 |
/s/ John D. Kavazanjian
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John D. Kavazanjian |
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President and Chief Executive Officer |
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Date: August 4, 2010 |
/s/ Philip A. Fain
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Philip A. Fain |
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Chief Financial Officer and Treasurer |
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