ULTRALIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)

(Unaudited)

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

ULTRALIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(In Thousands except per share amounts)

(unaudited)

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

ULTRALIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands)

(Unaudited)

 

 

The accompanying notes are an integral part of these consolidated financial statements.

  

 

ULTRALIFE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands – except share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

Item 2. MANAGEMENT’S 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, our reliance on certain key customers; potential costs because of the warranties we supply with our products and services; possible future declines in demand for the products that use our batteries or communications systems; the unique risks associated with our China operations; our efforts to develop new commercial applications for our products; possible breaches in security and other disruptions; reduced U.S. and foreign military spending including the uncertainty associated with government budget approvals; potential disruptions in our supply of raw materials and components; variability in our quarterly and annual results and the price of our common stock; our inability to comply with changes to the regulations for the shipment of our products; safety risks, including the risk of fire; possible impairments of our goodwill and other intangible assets; negative publicity of Lithium-ion batteries; our resources being overwhelmed by our growth prospects; our ability to retain top management and key personnel; our exposure to foreign currency fluctuations; our customers’ demand falling short of volume expectations in our supply agreements; the risk that we are unable to protect our proprietary and intellectual property; rules and procedures regarding contracting with the U.S. and foreign governments; exposure to possible violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act or other anti-corruption laws; our ability to utilize our net operating loss carryforwards; our ability to comply with government regulations regarding the use of “conflict minerals”; possible audits of our contracts by the U.S. and foreign governments and their respective defense agencies; known and unknown environmental matters; technological innovations in the non-rechargeable and rechargeable battery industries; and other risks and uncertainties, certain of which are beyond our control. 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 in this report, the words “anticipate”, “believe”, “estimate” or “expect” or words of similar import are intended to identify forward-looking statements. For further discussion of certain of the matters described above and other risks and uncertainties, see Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017.

 

Undue reliance should not be placed on our forward-looking statements. Except as required by law, we disclaim any obligation to update any risk 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 or our Annual Report on Form 10-K for the year ended December 31, 2017 to reflect new information or risks, future events or other developments.

 

The following discussion and analysis should be read in conjunction with the accompanying Consolidated Financial Statements and Notes thereto appearing elsewhere in this Form 10-Q and the Risk Factors and our Consolidated Financial Statements and Notes thereto contained in our Form 10-K for the year ended December 31, 2017.

 

The financial information in this Management’s 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 power solutions to communications and electronics systems to customers across the globe in the government, defense and commercial sectors. With an emphasis on strong engineering and a collaborative approach to problem solving, we design and manufacture power and communications systems including: rechargeable and non-rechargeable batteries, charging systems, communications and electronics systems and accessories, and custom engineered systems. We continually evaluate ways to grow, including the design, development and sale of new products, expansion of our sales force to penetrate new markets and geographies, as well as seeking opportunities to expand through acquisitions.

 

 

We sell our products worldwide through a variety of trade channels, including original equipment manufacturers (“OEMs”), industrial and defense supply distributors, and directly to U.S. and international defense departments. We enjoy strong name recognition in our markets under our Ultralife® Batteries, Lithium Power®, McDowell Research®, AMTI™, ABLE™, ACCUTRONICS™, ACCUPRO™, ENTELLION™ brands. We have sales, operations and product development facilities in North America, Europe and Asia.

 

We report our results in two operating segments: Battery & Energy Products and Communications Systems. The Battery & Energy Products segment includes: Lithium 9-volt, cylindrical, thin cell and other non-rechargeable batteries, in addition to rechargeable batteries, uninterruptable power supplies, charging systems and accessories. The Communications Systems segment includes: RF amplifiers, power supplies, cable and connector assemblies, amplified speakers, equipment mounts, case equipment, man-portable systems, integrated communication systems for fixed or vehicle applications and communications and electronics systems design. We believe that reporting performance at the gross profit level is the best indicator of segment performance.  As such, we report segment performance at the gross profit level and operating expenses as Corporate charges.

 

 

Overview

 

Consolidated revenues of $22,864 for the three-month period ended July 1, 2018, increased by $2,925 or 14.7%, from $19,939 during the three-month period ended July 2, 2017, due to higher government/defense and medical shipments.

 

Gross profit for the three-month period ended July 1, 2018 was $6,550 or 28.6% of revenues, compared to $6,221 or 31.2% of revenues, for the same quarter a year ago. The decline in gross margin resulted from product mix.

 

Operating expenses slightly increased to $4,918 during the three-month period ended July 1, 2018, compared to $4,899 during the three-month period ended July 2, 2017. Both periods reflect continued tight control over discretionary spending.

 

Operating income for the three-month period ended July 1, 2018 was $1,632 or 7.1% of revenues, compared to $1,322 or 6.6% for the year-earlier period. The increase in operating income resulted from revenue growth and operating expense leverage.

 

Net income attributable to Ultralife was $1,627, or $0.10 per share – basic and diluted, for the three-month period ended July 1, 2018, compared to $1,094, or $0.07 per share – basic and diluted, for the three-month period ended July 2, 2017. 

 

Adjusted EBITDA, defined as net income (loss) attributable to Ultralife before net interest expense, provision (benefit) for income taxes, depreciation and amortization, and stock-based compensation expense, plus/minus expenses/income that we do not consider reflective of our ongoing operations, amounted to $2,537 in the second quarter of 2018 compared to $2,296 for the second quarter of 2017. See the section “Adjusted EBITDA” beginning on page 26 for a reconciliation of Adjusted EBITDA to net income attributable to Ultralife.

 

A strong first half, expanding revenue opportunities, and adherence to our business model parameters position us well to deliver another year of profitable growth in 2018.

 

 

Results of Operations

 

Three-Month Periods Ended July 1, 2018 and July 2, 2017

 

Revenues. Consolidated revenues for the three-month period ended July 1, 2018 amounted to $22,864, an increase of $2,925, or 14.7%, from the $19,939 reported for the three-month period ended July 2, 2017.

 

Battery & Energy Products revenues increased $951, or 5.6%, from $16,880 for the three-month period ended July 2, 2017 to $17,831 for the three-month period ended July 1, 2018. Government and defense sales increased 25.0% due primarily to sales of our primary 5390 batteries to the U.S. Department of Defense and higher shipments to a large U.S. global defense prime contractor. Commercial revenues for the second quarter of 2018 comprised 57.5% of total revenues for the segment and declined 5.2% as increases in medical shipments of 7.8% and 9-Volt batteries of 4.0% were offset by lower industrial commercial sales.

 

Communications Systems revenues increased $1,974, or 64.5%, from $3,059 during the three-month period ended July 2, 2017 to $5,033 for the three-month period ended July 1, 2018. This increase is attributable to shipments of our Vehicle Installed Power Enhanced Riflemen Appliqué (“VIPER”) and Vehicle Amplifier Adapters for the U.S. Army’s Security Force Assistance Brigades to a large global defense prime contractor. 

 

 

Cost of Products Sold / Gross Profit. Cost of products sold totaled $16,314 for the quarter ended July 1, 2018, an increase of $2,596, or 18.9%, from the $13,718 reported for the same three-month period a year ago. Consolidated cost of products sold as a percentage of total revenue increased from 68.8% for the three-month period ended July 2, 2017 to 71.4% for the three-month period ended July 1, 2018. Correspondingly, consolidated gross margin was 28.6% for the three-month period ended July 1, 2018, compared with 31.2% for the three-month period ended July 2, 2017, primarily reflecting sales mix.

 

For our Battery & Energy Products segment, gross profit for the second quarter of 2018 was $4,926 or 27.6% of revenues, an increase of $185 or 3.9% from gross profit of $4,741, or 28.1% of revenues, for the second quarter of 2017. Battery & Energy Products’ gross margin decreased for the three-month period ended July 1, 2018 by 50 basis points, reflecting product mix.

 

For our Communications Systems segment, gross profit for the second quarter of 2018 was $1,624 or 32.3% of revenues, an increase of $144 or 9.7%, from gross profit of $1,480, or 48.4% of revenues, for the second quarter of 2017. The decrease in gross margin between the periods is due to product mix.

 

 

Operating Expenses. Total operating expenses for the three-month period ended July 1, 2018 totaled $4,918, an increase of $19 or 0.4% from the $4,899 reported during the three-month period ended July 2, 2017. Both periods reflected continued tight control over discretionary spending.

 

Overall, operating expenses as a percentage of revenues were 21.5% for the quarter ended July 1, 2018 compared to 24.6% for the quarter ended July 2, 2017. Amortization expense associated with intangible assets related to our acquisitions was $101 for the second quarter of 2018 ($64 in selling, general and administrative expenses and $37 in research and development costs), compared with $104 for the second quarter of 2017 ($63 in selling, general, and administrative expenses and $41 in research and development costs). Research and development costs were $1,218 for the three-month period ended July 1, 2018, an increase of $33 or 2.8%, from $1,185 for the three-months ended July 2, 2017. The increase primarily reflects the timing of development and testing costs associated with new products. Selling, general, and administrative expenses decreased $14 or 0.4%, to $3,700 for the second quarter of 2018 from $3,714 for the second quarter of 2017. The slight decrease is attributable to continued tight control over discretionary administrative spending.

 

 

Other Expense (Income). Other income totaled $86 for the three-month period ended July 1, 2018 compared to other expense of $49 for the three-month period ended July 2, 2017. Interest and financing expense decreased $20, from $41 for the second quarter of 2017 to $21 for the comparable period in 2018. The decrease is due to the more favorable terms of our Revolving Credit Agreement which was executed on May 31, 2017, as well as higher interest income due to our increased cash balance. Miscellaneous income amounted to $107 for the second quarter of 2018 compared with miscellaneous expense of $8 for the second quarter of 2017, primarily due to transactions impacted by foreign currency fluctuations in the U.S. dollar relative to the Pound Sterling, and the strengthening of the U.S dollar to the Pound Sterling by 6% from the end of first quarter to the end of the second quarter in 2018.

 

Income Taxes. The tax provision for the 2018 second quarter was $78 compared to $179 for the second quarter of 2017. See Note 9 in the Notes to Consolidated Financial Statements for additional information regarding our income taxes.

 

Net Income Attributable to Ultralife. Net income attributable to Ultralife was $1,627, or $0.10 per share – basic and diluted, for the three-month period ended July 1, 2018, compared to $1,094, or $0.07 per share – basic and diluted, for the three-month period ended July 2, 2017. Average weighted common shares outstanding used to compute diluted earnings per share increased from 15,849,578 in the second quarter of 2017 to 16,519,593 in the second quarter of 2018. The increase in 2018 is attributable to stock option exercises since the second quarter of 2017 and an increase in the weighted average stock price to compute dilute shares from $6.28 for the second quarter of 2017 to $9.64 for the second quarter of 2018.

 

 

Six-month periods ended July 1, 2018 and July 2, 2017

 

Revenues. Consolidated revenues for the six-month period ended July 1, 2018 amounted to $45,933, an increase of $3,959 or 9.4%, from the $41,974 reported for the six-month period ended July 2, 2017.

 

Battery & Energy Products revenues increased $696, or 2.0%, from $34,359 for the six-month period ended Ju1y 2, 2017 to $35,055 for the six-month period ended July 1, 2018. Government and defense sales of this business increased 6.9% from the 2017 six-month period and now comprise 43.3% of total segment sales versus 41.3% last year. The increase primarily reflects sales of our primary 5390 batteries to the U.S. Department of Defense and higher battery and charger shipments to a large U.S. global defense prime contractor. Commercial revenues of this business decreased 1.4% from the 2017 six-month period and now comprise 56.7% of total segment sales versus 58.7% last year. The year-over-year decrease resulted from 13.0% year-over-year growth in the shipment of medical batteries and chargers, which was offset by lower shipments of 9-Volt batteries and industrial commercial products.

 

Communications Systems revenues increased $3,263, or 42.8%, from $7,615 during the six-month period ended July 2, 2017 to $10,878 for the six-month period ended July 1, 2018.  This increase is attributable to the fulfillment of a Vehicle Amplifier Adapters award received in December 2017 for the U.S. Army’s Security Force Assistance Brigades award from a large global defense prime contractor, and shipments of our Vehicle Installed Power Enhanced Riflemen Appliqué (“VIPER”). 

 

Cost of Products Sold / Gross Profit. Cost of products sold totaled $32,101 for the six-month period ended July 1, 2018, an increase of $3,238 or 11.2%, from the $28,863 reported for the same six-month period a year ago. Consolidated cost of products sold as a percentage of total revenue increased from 68.8% for the six-month period ended July 2, 2017 to 69.9% for the six-month period ended July 1, 2018. Correspondingly, consolidated gross margin was 30.1% for the six-month period ended July 1, 2018, compared with 31.2% for the six-month period ended July 2, 2017, due product mix.

 

 

For our Battery & Energy Products segment, the cost of products sold increased $405 or 1.6%, from $24,688 during the six-month period ended July 2, 2017 to $25,093 during the six-month period ended July 1, 2018. Battery & Energy Products’ gross profit for the 2018 six-month period was $9,962 or 28.4% of revenues, an increase of $291 or 3.0% from gross profit of $9,671, or 28.1% of revenues, for the 2017 six-month period. Battery & Energy Products’ gross margin increased for the six-month period ended July 1, 2018 by 30 basis points, reflecting the mix of products sold.

 

For our Communications Systems segment, the cost of products sold increased by $2,833 or 67.9% from $4,175 during the six-month period ended July 2, 2017 to $7,008 during the six-month period ended July 1, 2018. Communications Systems’ gross profit for the first six months of 2018 was $3,870 or 35.6% of revenues, an increase of $430 or 12.5% from gross profit of $3,440 or 45.2% of revenues, for the second quarter of 2017. The decrease in gross margin during 2018 is due to product mix reflecting the higher sales for competitively big U.S. Department of Defense contracts in the current six-month period.

 

Operating Expenses. Total operating expenses for the six-month period ended July 1, 2018 totaled $9,844, a decrease of $104 or 1.0% from the $9,948 recorded during the six-month period ended June 2, 2017. Both periods reflected continued tight control over discretionary spending.

 

Overall, operating expenses as a percentage of revenues were 21.4% for the six-month period ended July 1, 2018 compared to 23.7% for the comparable 2017 period. Amortization expense associated with intangible assets related to our acquisitions was $203 for the first six months of 2018 ($128 in selling, general and administrative expenses and $75 in research and development costs), compared with $209 for the first six months of 2017 ($128 in selling, general, and administrative expenses and $81 in research and development costs). Research and development costs were $2,318 for the six-month period ended July 1, 2018, essentially flat with the $2,323 for the six-months ended July 2, 2017. Selling, general, and administrative expenses decreased $99 or 1.3%, from $7,625 during the first six months of 2017 to $7,526 during the first six months of 2018 in line with our tight control over discretionary spending.

 

Other Expense. Other expense totaled $48 for the six-month period ended July 1, 2018 compared to $142 for the six-month period ended July 2, 2017. Interest and financing expense decreased $55 to $54 for the 2018 period from $109 for the comparable period in 2017, as a result of the more favorable terms of our Revolving Credit Agreement which was executed on May 31, 2017, as well as higher interest income due to our increased cash balance. Miscellaneous income amounted to $6 for the first six months of 2018 compared with expense of $33 for the first six months of 2017, primarily due to fluctuations in the U.S. dollar relative to the Pound Sterling.

 

Income Taxes. We recognized a tax provision of $133 for the first two quarters of 2018 compared with a tax provision of $266 for the first two quarters of 2017. The decrease of $133 or 50.0% was due to the geographic mix of earnings for the periods and the favorable impact resulting from the lower U.S. Federal tax rates and elimination of the alternative minimum taxes in conjunction with the Tax Cuts & Jobs Act. The effective consolidated tax rates for the six-month periods ended July 1, 2018 and July 2, 2017 were 3.4% and 8.8%, respectively. See Note 9 in the Notes to Consolidated Financial Statements for additional information regarding our income taxes.

 

Net Income Attributable to Ultralife. Net income attributable to Ultralife and Net income attributable to Ultralife common shareholders per diluted share was $3,777 and $0.23, respectively, for the six months ended July 1, 2018, compared to $2,749 and $0.17, respectively, for the six months ended July 2, 2017. Average common shares outstanding used to compute diluted earnings per share increased from 15,751,578 in the 2017 period to 16,353,705 in the 2018 period, mainly due to the exercise of stock options under our Long-Term Incentive Plans and the increased stock price.

 

 

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, and stock-based compensation expense, plus/minus expenses/income that we do not consider reflective of our ongoing continuing operations. We also 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 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-operating expenses or income. We also present Adjusted EBITDA from operations 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”).

 

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 stock-based compensation, which is a non-cash expense that varies widely among companies. We believe that by limiting Adjusted EBITDA, we assist investors in gaining a better understanding of our business on a going forward basis. 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 does not reflect (1) our cash expenditures or future requirements for capital expenditures or contractual commitments; (2) changes in, or cash requirements for, our working capital needs; (3) the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; (4) income taxes or the cash requirements for any tax payments; and (5) 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 from continuing operations 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.

 

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
		July 1,				July 2,				July 1,				July 2,
		2018				2017				2018				2017
Net Income Attributable to Ultralife		$	1,627			$	1,094			$	3,777			$	2,749
Add:
Interest and Financing Expense, Net			21				41				54				109
Income Tax Provision			78				179				133				266
Depreciation expense			496				507				980				1,010
Amortization of Intangible Assets and Financing Fees			110				119				221				242
Stock-Based Compensation Expense			205				356				344				396
Adjusted EBITDA		$	2,537			$	2,296			$	5,509			$	4,772

 

 

 

Liquidity and Capital Resources

 

As of July 1, 2018, cash totaled $20,749, an increase of $2,419 from the beginning of the year. During the six-month period ended July 1, 2018, we generated $1,818 of cash from our operating activities. Cash generated from operations in 2018 consisted of net income of $3,807, non-cash expenses (depreciation, amortization and stock-based compensation) totaling $1,545, an increase of $872 in accounts receivable largely due to the timing of shipments, a decrease of $1,338 in inventory primarily due to the fulfillment of orders, and a decrease in accounts payable and other working capital items of $4,000 primarily due to the payment of procured inventory, deposits for capital projects, and the timing of compensation and benefit-related expenditures.

 

Cash of $4,028 generated from operations for the six-month period ended July 2, 2017 consisted of net income of $2,755, non-cash expenses (depreciation, amortization and stock-based compensation) totaling $1,648, an increase of $274 in accounts receivable largely due to the timing of shipments, a $904 increase in inventory to service 2017 backlog and an increase in accounts payable and other working capital items of $803 primarily attributable to procured inventory.

 

Cash used in investing activities for the six-month periods ended July 1, 2018 and July 2, 2017 amounted to $999 and $836, respectively, representing capital expenditures in the respective periods.

 

Cash provided by financing activities for the six-month period ended July 1, 2018 totaled $1,690, consisting of cash proceeds of $1,293 from stock option exercises and $397 for a government grant awarded in the People’s Republic of China to fund specified future technological research and development expenditures.  Cash provided by financing activities for the six-month period ended July 2, 2017 consisted of $989 in stock option exercise proceeds.

 

In July 2017, the Company made a strategic decision to invest up to $4,300 in our Newark, New York facility to modernize our manufacturing capability for production of premium 3-volt primary batteries for various applications in the rapidly growing, wireless Internet of Things (“IoT”) market.  This investment, in line with our strategy to diversify revenues outside of the core U.S. government/defense markets and focus on transformational commercial opportunities, will enable us to produce a premium product with performance differentiation and incorporate the manufacturing technology expertise required to deliver a clear competitive advantage in terms of product performance, volume, safety, value proposition and strategic supply chain access to the end market and OEM’s.  In addition to the IoT market, the product will also expand customer options in the legacy smoke detector market by providing our customers the choice between our industry leading next generation 9-volt battery, or a new premium 3-volt product. Low volume equipment production to support product qualification builds in partnership with customers is expected to start during the second half of 2018, with higher volume US production expected beginning in early 2019.

 

 

Debt Commitments

 

We have financing through our Credit Facility with KeyBank, which provides a $30,000 secured, cash flow-based, revolving credit facility that includes a $1,500 letter of credit subfacility. There have been no borrowings under the Credit Facility. See Note 7 in the Notes to the Consolidated Financial Statements for additional information regarding our Credit Facility.

 

The Company currently believes that the cash flow generated from operations and, when necessary, available borrowing from our Credit Facility, will be sufficient to meet its current and long-term funding requirements for the foreseeable future.

 

 

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. GAAP, but they also reflect management’s 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”) to our Consolidated Financial Statements in our 2017 Annual Report on Form 10-K should be reviewed for a greater understanding of how our financial performance is recorded and reported.

 

During the six months of 2018, 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. Refer to Note 2 for updated accounting policies to reflect the Company’s adoption of Topic 606 “Revenue from Contracts with Customers” as of January 1, 2018.

 

 

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)) 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.

 

 

PART II.       OTHER INFORMATION

 

Item 1. LEGAL PROCEEDINGS

 

Dreamliner Litigation 

 

In July 2013, an unoccupied Boeing 787 Dreamliner aircraft operated by Ethiopian Airlines was damaged by fire while parked at London Heathrow Airport. Following an investigation of this incident conducted by U.K. and U.S. regulatory authorities as well as by the manufacturer of the aircraft, a final report was issued by the Air Accidents Investigative Branch – UK Civil Aviation regulatory authority, with findings indicating that the fire was primarily caused by circumstances related to the plane’s emergency locator transmitter (“ELT”) manufactured and installed by another company.   A component of the ELT is a battery pack which incorporates Ultralife’s industry-standard lithium manganese dioxide non-rechargeable D-cell, which Ultralife has produced since 2001, with wide-use in global defense and commercial applications.

 

On May 4, 2015, we were notified of a lawsuit in which we were named, along with other suppliers to the aircraft manufacturer, concerning that 2013 fire, which was filed by Ethiopian Airlines Enterprise in the Commercial Court, Queen’s Bench Division of the High Court of Justice, London. We immediately referred this matter to our insurers.

 

This lawsuit has now been resolved (February 2018), the claimant has terminated the action against the Company, and the Court has acknowledged and consented to this termination. The matter was terminated without financial consequences to the Company.

 

 

Item 6. EXHIBITS

 

Exhibit Index	Description of Document		Incorporated By Reference from:
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
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Calculation Linkbase Document
101.LAB	XBRL Taxonomy Label Linkbase Document
101.PRE	XBRL Taxonomy Presentation Linkbase Document
101.DEF	XBRL Taxonomy Definition Document

 

 

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 2, 2018	By:    /s/ Michael D. Popielec
		Michael D. Popielec
		President and Chief Executive Officer
		(Principal Executive Officer)
	Date: August 2, 2018	By:    /s/ Philip A. Fain
		Philip A. Fain
		Chief Financial Officer and Treasurer
		(Principal Financial Officer and
		Principal Accounting Officer)

 

 

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

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Calculation Linkbase Document

101.LAB

XBRL Taxonomy Label Linkbase Document

101.PRE

XBRL Taxonomy Presentation Linkbase Document

101.DEF

XBRL Taxonomy Definition Document

 

32

Exhibit 31.1

 

I, Michael D. Popielec, 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 registrant's 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 registrant's 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 registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's 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 registrant's 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 registrant's internal control over financial reporting.

 

 

	Date: August 2, 2018	By:   /s/ Michael D. Popielec
		Michael D. Popielec
		President and Chief Executive Officer

 

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 registrant's 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 registrant's 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 registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's 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 registrant's 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 registrant's internal control over financial reporting.

 

 

	Date: August 2, 2018	By:   /s/ Philip A. Fain
		Philip A. Fain
		Chief Financial Officer and Treasurer

 

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”), Michael D. Popielec 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 July 1, 2018 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.

 

	Date: August 2, 2018	By:   /s/ Michael D. Popielec
		Michael D. Popielec
		President and Chief Executive Officer
	Date: August 2, 2018	By:   /s/ Philip A. Fain
		Philip A. Fain
		Chief Financial Officer and Treasurer