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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

                                    

         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2021

 

OR

 

         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: 0-20852

 

ULTRALIFE CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

(State or other jurisdiction of incorporation of organization)

 

2000 Technology Parkway Newark, New York 14513

(Address of principal executive offices) (Zip Code)

16-1387013

(I.R.S. Employer Identification No.)

 

(315) 332-7100 

(Registrant's telephone number, including area code:)

 

None

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Common Stock, $0.10 par value per share

ULBI

NASDAQ

(Title of each class)

(Trading Symbol)

(Name of each exchange on which registered)

 

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 ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐

Accelerated filer

  

Non-accelerated filer ☐

Smaller reporting company

  
 

Emerging Growth Company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No☒

 

As of July 26, 2021, the registrant had 16,053,207 shares of common stock outstanding.

 



 

 

 

 

ULTRALIFE CORPORATION AND SUBSIDIARIES

 

INDEX

 

         

   

Page

PART I.

FINANCIAL INFORMATION

 
     

Item 1.

Consolidated Financial Statements (unaudited):

 
     
 

Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020

1

     
 

Consolidated Statements of Income and Comprehensive Income for the Three and Six-Month Periods Ended June 30, 2021 and June 30, 2020

2

     
 

Consolidated Statements of Cash Flows for the Six-Month Periods Ended June 30, 2021 and June 30, 2020

3

     
  Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six-Month Periods Ended June 30, 2021 and June 30, 2020

4

     
 

Notes to Consolidated Financial Statements

5

     

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

16

     

Item 4.

Controls and Procedures

25

     

PART II.

OTHER INFORMATION

 
     

Item 6.

Exhibits

26

     
 

Signatures

27

 

 

 

 

PART I.   FINANCIAL INFORMATION

 

Item 1.   CONSOLIDATED FINANCIAL STATEMENTS

 

ULTRALIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands except share amounts)

(Unaudited)

 

  

June 30,

  

December 31,

 
  

2021

  

2020

 
ASSETS        

Current assets:

        

Cash

 $15,828  $10,653 

Trade accounts receivable, net of allowance for doubtful accounts of $332 and $317, respectively

  18,712   21,054 

Inventories, net

  27,414   28,193 

Prepaid expenses and other current assets

  2,351   4,596 

Total current assets

  64,305   64,496 

Property, plant and equipment, net

  22,720   22,850 

Goodwill

  27,115   27,018 

Other intangible assets, net

  8,936   9,209 

Deferred income taxes, net

  11,459   11,836 

Other noncurrent assets

  1,985   2,292 

Total Assets

 $136,520  $137,701 
         

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current Liabilities:

        

Accounts payable

 $9,545  $10,839 

Current portion of long-term debt

  624   1,361 

Accrued compensation and related benefits

  1,396   1,748 

Accrued expenses and other current liabilities

  3,966   4,758 

Total current liabilities

  15,531   18,706 

Deferred income taxes

  492   515 

Other noncurrent liabilities

  1,260   1,557 

Total liabilities

  17,283   20,778 
         

Commitments and contingencies (Note 8)

          
         

Stockholders’ equity:

        

Preferred stock – par value $.10 per share; authorized 1,000,000 shares; none issued

  -   - 

Common stock – par value $.10 per share; authorized 40,000,000 shares; issued – 20,474,676 shares at June 30, 2021 and 20,373,519 shares at December 31, 2020; outstanding – 16,051,707 shares at June 30, 2021 and 15,959,984 shares at December 31, 2020

  2,047   2,037 

Capital in excess of par value

  186,138   185,464 

Accumulated deficit

  (46,116)  (47,598)

Accumulated other comprehensive loss

  (1,586)  (1,782)

Treasury stock - at cost; 4,422,969 shares at June 30, 2021 and 4,413,535 shares at December 31, 2020

  (21,388)  (21,321)

Total Ultralife Corporation equity

  119,095   116,800 

Non-controlling interest

  142   123 

Total stockholders’ equity

  119,237   116,923 
         

Total liabilities and stockholders’ equity

 $136,520  $137,701 

 

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

 

 

1

 

 

ULTRALIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(In thousands except per share amounts)

(Unaudited)

 

 

   

Three-month period ended

   

Six-month period ended

 
   

June 30,

2021

   

June 30,

2020

   

June 30,

2021

   

June 30,

2020

 
                                 

Revenues

  $ 26,770     $ 28,560     $ 52,743     $ 54,374  

Cost of products sold

    19,503       20,597       38,498       39,077  

Gross profit

    7,267       7,963       14,245       15,297  
                                 

Operating expenses:

                               

Research and development

    1,853       1,275       3,500       2,823  

Selling, general and administrative

    4,323       4,394       8,702       8,695  

Total operating expenses

    6,176       5,669       12,202       11,518  
                                 

Operating income

    1,091       2,294       2,043       3,779  
                                 

Other expense (income):

                               

Interest and financing expense

    55       106       111       280  

Miscellaneous

    (34 )     11       (34 )     (71 )

Total other expense

    21       117       77       209  
                                 

Income before income tax provision

    1,070       2,177       1,966       3,570  

Income tax provision

    248       499       465       818  
                                 

Net income

    822       1,678       1,501       2,752  
                                 

Net income attributable to non-controlling interest

    11       20       19       35  
                                 

Net income attributable to Ultralife Corporation

    811       1,658       1,482       2,717  
                                 

Other comprehensive income (loss):

                               

Foreign currency translation adjustments

    93       42       196       (765 )
                                 

Comprehensive income attributable to Ultralife Corporation

  $ 904     $ 1,700     $ 1,678     $ 1,952  
                                 

Net income per share attributable to Ultralife common stockholders basic

  $ .05     $ .10     $ .09     $ .17  
                                 

Net income per share attributable to Ultralife common stockholders diluted

  $ .05     $ .10     $ .09     $ .17  
                                 

Weighted average shares outstanding basic

    16,019       15,882       15,997       15,880  

Potential common shares

    241       251       197       234  

Weighted average shares outstanding - diluted

    16,260       16,133       16,194       16,114  

 

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

 

2

 

 

 

ULTRALIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

   

Six-month period ended

 
   

June 30,

2021

   

June 30,

2020

 

OPERATING ACTIVITIES:

               

Net income

  $ 1,501     $ 2,752  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation

    1,460       1,161  

Amortization of intangible assets

    310       295  

Amortization of financing fees

    52       24  

Stock-based compensation

    370       534  

Deferred income taxes

    345       633  

Changes in operating assets and liabilities:

               

Accounts receivable

    2,390       3,578  

Inventories

    864       1,507  

Prepaid expenses and other assets

    2,536       1,307  

Accounts payable and other liabilities

    (2,873 )     (2,909 )

Net cash provided by operating activities

    6,955       8,882  
                 

INVESTING ACTIVITIES:

               

Purchases of property, plant and equipment

    (1,225 )     (1,533 )

Proceeds from sale of equipment

    -       120  

Net cash used in investing activities

    (1,225 )     (1,413 )
                 

FINANCING ACTIVITIES:

               

Payment of credit facilities

    (789 )     (6,410 )

Proceeds from exercise of stock options

    314       76  

Tax withholdings on stock-based awards

    (67 )     (15 )

Net cash used in financing activities

    (542 )     (6,349 )
                 

Effect of exchange rate changes on cash

    (13 )     (136 )
                 

INCREASE IN CASH

    5,175       984  
                 

Cash, Beginning of period

    10,653       7,405  

Cash, End of period

  $ 15,828     $ 8,389  

 

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

 

3

 

 

ULTRALIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands except share amounts)

(Unaudited)

 

                   

Capital

   

Accumulated

                                 
   

Common Stock

   

in Excess

   

Other

                   

Non-

         
   

Number of

           

of Par

   

Comprehensive

   

Accumulated

   

Treasury

   

Controlling

         
   

Shares

   

Amount

   

Value

   

Income (Loss)

   

Deficit

   

Stock

   

Interest

   

Total

 
                                                                 

Balance December 31, 2019

    20,268,050     $ 2,026     $ 184,292     $ (2,531 )   $ (52,830 )   $ (21,231 )   $ 24     $ 109,750  

Net income

                                    2,717               35       2,752  

Stock option exercises

    16,631       2       74                                       76  

Stock-based compensation – stock options

                    470                                       470  

Stock-based compensation -restricted stock

                    64                                       64  

Vesting of restricted stock

    12,501       2                               (15 )             (13 )

Foreign currency translation adjustments

                            (765 )                             (765 )

Balance June 30, 2020

    20,297,182     $ 2,030     $ 184,900     $ (3,296 )   $ (50,113 )   $ (21,246 )   $ 59     $ 112,334  
                                                                 

Balance December 31, 2020

    20,373,519     $ 2,037     $ 185,464     $ (1,782 )   $ (47,598 )   $ (21,321 )   $ 123     $ 116,923  

Net income

                                    1,482               19       1,501  

Stock option exercises

    88,656       9       305                       (52 )             262  

Stock-based compensation – stock options

                    337                                       337  

Stock-based compensation -restricted stock

                    33                                       33  

Vesting of restricted stock

    12,501       1       (1 )                     (15 )             (15 )

Foreign currency translation adjustments

                            196                               196  

Balance June 30, 2021

    20,474,676     $ 2,047     $ 186,138     $ (1,586 )   $ (46,116 )   $ (21,388 )   $ 142     $ 119,237  
                                                                 

Balance March 31, 2020

    20,281,516     $ 2,028     $ 184,550     $ (3,338 )   $ (51,771 )   $ (21,239 )   $ 39     $ 110,269  

Net income

                                    1,658               20       1,678  

Stock option exercises

    8,998       1       46                                       47  

Stock-based compensation – stock options

                    278                                       278  

Stock-based compensation -restricted stock

                    26                                       26  

Vesting of restricted stock

    6,668       1                               (7 )             (6 )

Foreign currency translation adjustments

                            42                               42  

Balance June 30, 2020

    20,297,182     $ 2,030     $ 184,900     $ (3,296 )   $ (50,113 )   $ (21,246 )   $ 59     $ 112,334  
                                                                 

Balance March 31, 2021

    20,416,511     $ 2,042     $ 185,674     $ (1,679 )   $ (46,927 )   $ (21,380 )   $ 131     $ 117,861  

Net income

                                    811               11       822  

Stock option exercises

    51,497       5       278                                       283  

Stock-based compensation – stock options

                    174                                       174  

Stock-based compensation -restricted stock

                    12                                       12  

Vesting of restricted stock

    6,668                                       (8 )             (8 )

Foreign currency translation adjustments

                            93                               93  

Balance June 30, 2021

    20,474,676     $ 2,047     $ 186,138     $ (1,586 )   $ (46,116 )   $ (21,388 )   $ 142     $ 119,237  

 

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

 

4

 

 

ULTRALIFE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands except share and per share amounts)

(Unaudited)

 

 

1.

BASIS OF PRESENTATION

 

The accompanying unaudited Consolidated Financial Statements of Ultralife Corporation and its subsidiaries (the “Company”, “Ultralife”, “we” or “our”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Rule 8-03 of Regulation S-X.  Accordingly, they do not include all 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 Consolidated Financial Statements have been included.  Results for interim periods should not be considered indicative of results to be expected for any subsequent interim period or the full year.  Reference should be made to the Consolidated Financial Statements and related notes thereto contained in our Form 10-K for the year ended December 31, 2020.

 

The December 31, 2020 consolidated balance sheet information referenced herein was derived from audited Consolidated Financial Statements but does not include all disclosures required by GAAP.

 

Certain items previously reported in specific financial statement captions have been reclassified to conform to the current presentation.

 

Recently Adopted Accounting Guidance

 

Effective January 1, 2021, the Company adopted Accounting Standards Update (“ASU”) 2019-12, “Simplifying the Accounting for Income Taxes (Topic 740)”. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. Adoption of the new standard did not materially impact the Company’s Consolidated Financial Statements.

 

Recent Accounting Guidance Not Yet Adopted

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments”, which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company is currently assessing the impact that adopting this new accounting standard will have on our Consolidated Financial Statements.

 

 

 

2.

DEBT

 

On May 1, 2019, Ultralife, Southwest Electronic Energy Corporation, a Texas corporation (“SWE”), and CLB, INC., a Texas corporation and wholly owned subsidiary of SWE (“CLB”), as borrowers, entered into the First Amendment Agreement (the “First Amendment Agreement”) with KeyBank National Association (“KeyBank” or the “Bank”), as lender and administrative agent, to amend the Credit and Security Agreement by and among Ultralife and KeyBank dated May 31, 2017 (the “Credit Agreement”, and together with the First Amendment Agreement, the “Amended Credit Agreement”).

 

The Amended Credit Agreement, among other things, provides for a five-year, $8,000 senior secured term loan (the “Term Loan Facility”) and extends the term of the $30,000 senior secured revolving credit facility (the “Revolving Credit Facility”, and together with the Term Loan Facility, the “Credit Facilities”) through May 31, 2022. Up to six months prior to May 31, 2022, the Revolving Credit Facility may be increased to $50,000 with the Bank’s concurrence.

 

As of June 30, 2021, the Company had $685 outstanding principal on the Term Loan Facility, all of which is included in current portion of long-term debt on the Consolidated Balance Sheet, and no amounts outstanding on the Revolving Credit Facility.  As of June 30, 2021, total unamortized debt issuance costs of $61 associated with the Amended Credit Agreement, including placement, renewal and legal fees, are classified as a reduction of the current portion of long-term debt on the Consolidated Balance Sheet.  Debt issuance costs are amortized to interest expense over the remaining term of the Credit Facilities.

 

5

 

The Company is required to repay the borrowings under the Term Loan Facility in sixty (60) equal consecutive monthly payments which commenced on May 31, 2019, in arrears, together with applicable interest. All unpaid principal and accrued and unpaid interest with respect to the Term Loan Facility is due and payable in full on April 30, 2024. All unpaid principal and accrued and unpaid interest with respect to the Revolving Credit Facility is due and payable in full on May 31, 2022. The Company may voluntarily prepay principal amounts outstanding at any time subject to certain restrictions. The Company made voluntary prepayments of $4,200 during the year ended December 31, 2020. No other voluntary prepayments have been made as of June 30, 2021.

 

In addition to the customary affirmative and negative covenants, the Company must maintain a consolidated fixed charge coverage ratio equal to or greater than 1.15 to 1.0, and a consolidated senior leverage ratio equal to or less than 2.5 to 1.0, each as defined in the Amended Credit Agreement. The Company was in full compliance with its covenants under the Amended Credit Agreement as of June 30, 2021.

 

Borrowings under the Credit Facilities are secured by substantially all the assets of the Company. Availability under the Revolving Credit Facility is subject to certain borrowing base limits based on receivables and inventories.

 

Interest will accrue on outstanding indebtedness under the Credit Facilities at the Base Rate or the Overnight LIBOR Rate, as selected by the Company, plus the applicable margin. The Base Rate is the higher of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus 50 basis points, and (c) the Overnight LIBOR Rate plus 100 basis points. The applicable margin ranges from zero (0) to negative 50 basis points for the Base Rate and from 185 to 215 basis points for the Overnight LIBOR Rate and are determined based on the Company’s senior leverage ratio.

 

The Company must pay a quarterly fee of 0.1% to 0.2% based on the average daily unused availability under the Revolving Credit Facility.

 

Payments must be made by the Company to the extent borrowings exceed the maximum amount then permitted to be drawn on the Credit Facilities and from the proceeds of certain transactions. Upon the occurrence of an event of default, the outstanding obligations may be accelerated and the Bank will have other customary remedies including resort to the security interest the Company provided to the Bank.

 

 

 

3.

EARNINGS PER SHARE

 

Basic earnings per share (“EPS”) is computed by dividing net income attributable to Ultralife by the weighted-average shares outstanding during the period. Diluted EPS includes the dilutive effect of securities, if any, and is calculated using the treasury stock method. For the three-month period ended June 30, 2021, 906,404 stock options and 14,164 restricted stock awards were included in the calculation of diluted EPS as such securities are dilutive. Inclusion of these securities resulted in 240,259 additional shares in the calculation of fully diluted earnings per share. For the comparable three-month period ended June 30, 2020, 866,910 stock options and 19,165 restricted stock awards were included in the calculation of diluted EPS resulting in 250,561 additional shares in the calculation of fully diluted earnings per share. For the six-month periods ended June 30, 2021 and June 30, 2020, 659,488 and 866,910 stock options and 14,164 and 19,165 restricted stock awards, respectively, were included in the calculation of diluted EPS as such securities are dilutive. Inclusion of these securities resulted in 197,848 and 234,532 additional shares, respectively, in the calculation of fully diluted EPS.

 

There were 414,916 and 896,167 outstanding stock options for the three-month periods ended June 30, 2021 and June 30, 2020, respectively, which were not included in EPS as the effect would be anti-dilutive. There were 414,916 and 896,167 outstanding stock options for the six-month periods ended June 30, 2021 and June 30, 2020, respectively, which were not included in EPS as the effect would be anti-dilutive.

 

6

 
 
 

4.

SUPPLEMENTAL BALANCE SHEET INFORMATION

 

Fair Value Measurements and Disclosures

 

The fair value of financial instruments approximated their carrying values at June 30, 2021 and December 31, 2020. The fair value of cash, accounts receivable, accounts payable, accrued liabilities, and the current portion of long-term debt approximates carrying value due to the short-term nature of these instruments.

 

Cash

 

The composition of the Company’s cash was as follows:

 

   

June 30,

   

December 31,

 
   

2021

   

2020

 

Cash

  $ 15,740     $ 10,562  

Restricted cash

    88       91  

Total

  $ 15,828     $ 10,653  

 

As of June 30, 2021 and December 31, 2020, restricted cash included $88 and $91, respectively, of euro-denominated deposits withheld by the Dutch tax authorities and third-party value-added tax (VAT) representatives in connection with a previously utilized logistics arrangement in the Netherlands. Restricted cash is included as a component of the cash balance for purposes of the Consolidated Statements of Cash Flows.

 

Inventories

 

Inventories are stated at the lower of cost or net realizable value, net of obsolescence reserves, with cost determined under the first-in, first-out (FIFO) method. The composition of inventories, net was:

 

 

   

June 30,

   

December 31,

 
   

2021

   

2020

 

Raw materials

  $ 16,817     $ 17,277  

Work in process

    3,117       3,411  

Finished goods

    7,480       7,505  

Total

  $ 27,414     $ 28,193  

 

Property, Plant and Equipment, Net

 

Major classes of property, plant and equipment consisted of the following:         

 

   

June 30,

   

December 31,

 
   

2021

   

2020

 

Land

  $ 1,273     $ 1,273  

Buildings and leasehold improvements

    15,407       15,393  

Machinery and equipment

    62,109       61,048  

Furniture and fixtures

    2,328       2,235  

Computer hardware and software

    7,124       6,894  

Construction in process

    1,189       1,227  
      89,430       88,070  

Less: Accumulated depreciation

    (66,710 )     (65,220 )

Property, plant and equipment, net

  $ 22,720     $ 22,850  

 

7

 
 

Depreciation expense for property, plant and equipment was as follows:

 

   

Three-month period ended

   

Six-month period ended

 
   

June 30,

   

June 30,

   

June 30,

   

June 30,

 
   

2021

   

2020

   

2021

   

2020

 

Depreciation expense

  $ 730     $ 582     $ 1,460     $ 1,161  

 

Goodwill

 

The following table summarizes the goodwill activity by segment for the six-month period ended June 30, 2021.

 

   

Battery &

Energy

   

Communications

         
   

Products

   

Systems

   

Total

 

Balance – December 31, 2020

  $ 15,525     $ 11,493     $ 27,018  

Effect of foreign currency translation

    97       -       97  

Balance – June 30, 2021

  $ 15,622     $ 11,493     $ 27,115  

 

Other Intangible Assets, Net

 

The composition of other intangible assets was:

 

   

June 30, 2021

 
           

Accumulated

         
   

Cost

   

Amortization

   

Net

 

Trademarks

  $ 3,412     $ -     $ 3,412  

Customer relationships

    9,207       5,313       3,894  

Patents and technology

    5,572       5,087       485  

Distributor relationships

    377       377       -  

Trade name

    1,530       385       1,145  

Total

  $ 20,098     $ 11,162     $ 8,936  

 

   

December 31, 2020

 
           

Accumulated

         
   

Cost

   

Amortization

   

Net

 

Trademarks

  $ 3,410     $ -     $ 3,410  

Customer relationships

    9,171       5,115       4,056  

Patents and technology

    5,557       5,014       543  

Distributor relationships

    377       377       -  

Trade name

    1,524       324       1,200  

Total

  $ 20,039     $ 10,830     $ 9,209  

 

 

The change in the cost of total intangible assets from December 31, 2020 to June 30, 2021 is a result of the effect of foreign currency translations.

 

Amortization expense for other intangible assets was as follows:

 

   

Three-month period ended

   

Six-month period ended

 
   

June 30,

   

June 30,

   

June 30,

   

June 30,

 
   

2021

   

2020

   

2021

   

2020

 

Amortization included in:

                               

Research and development

  $ 33     $ 30     $ 66     $ 61  

Selling, general and administrative

    123       116       244       234  

Total amortization expense

  $ 156     $ 146     $ 310     $ 295  

 

8

 
 

5.

STOCK-BASED COMPENSATION

 

We recorded non-cash stock compensation expense in each period as follows:

 

   

Three-month period ended

   

Six-month period ended

 
   

June 30,

   

June 30,

   

June 30,

   

June 30,

 
   

2021

   

2020

   

2021

   

2020

 

Stock options

  $ 174     $ 278     $ 337     $ 470  

Restricted stock grants

    12       26       33       64  

Total

  $ 186     $ 304     $ 370     $ 534  

 

We have stock options outstanding from various stock-based employee compensation plans for which we record compensation cost relating to share-based payment transactions in our financial statements. As of June 30, 2021, there was $296 of total unrecognized compensation cost related to outstanding stock options, which is expected to be recognized over a weighted average period of 0.9 years.

 

The following table summarizes stock option activity for the six-month period ended June 30, 2021:

 

   

Number of

Shares

   

Weighted

Average

Exercise

Price

   

Weighted

Average

Remaining

Contractual

Term (years)

   

Aggregate

Intrinsic

Value

 

Outstanding at January 1, 2021

    1,217,163     $ 6.50                  

Granted

    -       -                  

Exercised

    (128,096 )     4.60                  

Forfeited or expired

    (14,663 )     7.07                  

Outstanding at June 30, 2021

    1,074,404     $ 6.72       3.78     $ 2,037  

Vested and expected to vest at June 30, 2021

    998,941     $ 6.66       3.66     $ 1,963  

Exercisable at June 30, 2021

    744,455     $ 6.42       3.05     $ 1,710  

 

Cash received from stock option exercises under our stock-based compensation plans for the three-month periods ended June 30, 2021 and June 30, 2020 was $283 and $47, respectively. Cash received from stock option exercises under our stock-based compensation plans for the six-month periods ended June 30, 2021 and June 30, 2020 was $314 and $76, respectively.

 

In October 2020, 5,000 shares of restricted stock were awarded to an employee at a weighted-average grant date fair value of $6.08 per share. In April 2019, 20,000 shares of restricted stock were awarded to certain of our employees at a weighted-average grant date fair value of $11.12 per share. In January 2018, 17,500 shares of restricted stock were awarded to certain of our employees at a weighted-average grant date fair value of $7.16 per share. All outstanding restricted shares vest in equal annual installments over three (3) years. Unrecognized compensation cost related to these restricted shares was $37 at June 30, 2021, which is expected to be recognized over a weighted average period of 1.5 years.

 

 

 

6.

INCOME TAXES

 

Our effective income tax rate for the six-month periods ended June 30, 2021 and June 30, 2020 was 23.7% and 22.9% respectively. The period-over-period change was primarily attributable to the geographic mix of earnings.

 

As of December 31, 2020, we have domestic net operating loss (“NOL”) carryforwards of $47,755, which expire 2021 through 2035, and domestic tax credits of $2,070, which expire 2028 through 2039, available to reduce future taxable income.  As of June 30, 2021, management has concluded it is more likely than not that these domestic NOL and credit carryforwards will be fully utilized.

 

As of June 30, 2021, for certain past operations in the U.K., we continue to report a valuation allowance for NOL carryforwards of approximately $11,000, nearly all of which can be carried forward indefinitely. Utilization of the NOLs may be limited due to the change in the past U.K. operation and cannot currently be used to reduce taxable income at our other U.K. subsidiary, Accutronics Ltd.  There are no other deferred tax assets related to the past U.K. operations.

 

9

 

As of June 30, 2021, we have not recognized a valuation allowance against our other foreign deferred tax assets, as realization is considered to be more likely than not.

 

As of June 30, 2021, the Company maintains its assertion that all foreign earnings will be indefinitely reinvested in those operations, other than earnings generated in the U.K.

 

There were no unrecognized tax benefits related to uncertain tax positions at June 30, 2021 and December 31, 2020.

 

As a result of our operations, we file income tax returns in various jurisdictions including U.S. federal, U.S. state and foreign jurisdictions.  We are routinely subject to examination by taxing authorities in these various jurisdictions.  In August 2020, the Internal Revenue Service (“IRS”) completed its examination of the Company’s federal tax returns for 2016-2018 with no material adjustments identified.  Our U.S. tax matters for 2019 and 2020 remain subject to IRS examination.  Our U.S. tax matters for 2001, 2002, 2005-2007 and 2011-2015 also remain subject to IRS examination due to the remaining availability of NOL carryforwards generated in those years. Our U.S. tax matters for 2001, 2002, 2005-2007 and 2011-2020 remain subject to examination by various state and local tax jurisdictions. Our tax matters for the years 2010 through 2020 remain subject to examination by the respective foreign tax jurisdiction authorities.

 

 

 

7.

OPERATING LEASES

 

The Company has operating leases predominantly for operating facilities.  As of June 30, 2021, the remaining lease terms on our operating leases range from less than one (1) year to three (3) years.  Renewal options not yet exercised and termination options are not reasonably certain of exercise by the Company.  There is no transfer of title or option to purchase the leased assets upon expiration.  There are no residual value guarantees or material restrictive covenants.

 

The components of lease expense for the current and prior-year comparative periods were as follows:

 

   

Three months ended

   

Six months ended

 
   

June 30,

2021

   

June 30,

2020

   

June 30,

2021

   

June 30,

2020

 

Operating lease cost

  $ 189     $ 168     $ 376     $ 336  

Variable lease cost

    13       18       32       36  

Total lease cost

  $ 202     $ 186     $ 408     $ 372  

 

Supplemental cash flow information related to leases was as follows:

 

   

Six months ended

 
   

June 30,

2021

   

June 30,

2020

 

Cash paid for amounts included in the measurement of lease liabilities:

               

Operating cash flows from operating leases

  $ 365     $ 329  

Right-of-use assets obtained in exchange for lease liabilities:

  $ -     $ -  

 

Supplemental balance sheet information related to leases was as follows:

 

 

Balance Sheet Classification

 

June 30, 2021

   

December 31, 2020

 

Assets:

                 

Operating lease right-of-use asset

Other noncurrent assets

  $ 1,881     $ 2,189  
                   

Liabilities:

                 

Current operating lease liability

Accrued expenses and other current liabilities

  $ 663     $ 680  

Operating lease liability, net of current portion

Other noncurrent liabilities

    1,243       1,524  

Total operating lease liability

  $ 1,906     $ 2,204  
                   

Weighted-average remaining lease term (years)

    2.9       3.3  
                   

Weighted-average discount rate

    4.5 %     4.5 %

 

10

 

Future minimum lease payments as of June 30, 2021 are as follows:

 

Maturity of Operating Lease Liabilities

       

2021

    363  

2022

    700  

2023

    720  

2024

    279  

Total lease payments

    2,062  

Less: Imputed interest

    156  

Present value of remaining lease payments

  $ 1,906  

 

 

 

8.

COMMITMENTS AND CONTINGENCIES

 

a. Purchase Commitments

 

As of June 30, 2021, we have made commitments to purchase approximately $1,001 of production machinery and equipment.

 

b. Product Warranties

 

We estimate future warranty costs to be incurred for product failure rates, material usage and service costs in the development of our warranty obligations.  Estimated future warranty costs are based on actual past experience and are generally estimated as a percentage of sales over the warranty period.  Changes in our product warranty liability during the first six months of 2021 and 2020 were as follows:

 

   

Six-month period ended June 30,

 
   

2021

   

2020

 

Accrued warranty obligations – beginning

  $ 149     $ 195  

Accruals for warranties issued

    121       59  

Settlements made

    (108 )     (26 )

Accrued warranty obligations – ending

  $ 162     $ 228  

 

c. Contingencies and Legal Matters

 

We are subject to legal proceedings and claims that arise from time to time in the ordinary course of business.  We believe that the final disposition of any such matters of which we are currently aware will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.  However, recognizing that legal matters are subject to inherent uncertainties, there exists the possibility that ultimate resolution of current or future legal matters could have a material adverse impact on the Company’s financial position, results of operations or cash flows.  We are not aware of any such situations at this time.

 

11

 
 
 

9.

REVENUE RECOGNITION

 

Revenues are generated from the sale of products.  Performance obligations are met and revenue is recognized upon transfer of control to the customer, which is generally upon shipment.  When contract terms require transfer of control upon delivery at a customer’s location, revenue is recognized on the date of delivery.  For products shipped under vendor-managed inventory arrangements, revenue is recognized and billed when the product is consumed by the customer, at which point control has transferred and there are no further obligations by the Company.  Revenue is measured as the amount of consideration we expect to receive in exchange for shipped product. Sales, value-added and other taxes billed and collected from customers are excluded from revenue.  Customers, including distributors, do not have a general right of return.

 

Revenues recognized from prior period performance obligations for the six-month periods ended June 30, 2021 and 2020 were not material.

 

Deferred revenue, unbilled revenue and deferred contract costs recorded on our Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020 were not material.  As of June 30, 2021 and December 31, 2020, the Company had no unsatisfied performance obligations for contracts with an original expected duration of greater than one year.  Pursuant to Topic 606, we have applied the practical expedient with respect to disclosure of the deferral and future expected timing of revenue recognition for transaction price allocated to remaining performance obligations.

 

 

 

10.

BUSINESS SEGMENT INFORMATION

 

We report our results in two operating segments: Battery & Energy Products and Communications Systems. The Battery & Energy Products segment includes: Lithium 9-volt, cylindrical and various 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. 

 

The components of segment performance were as follows:

 

Three-month period ended June 30, 2021:

 

   

Battery &

Energy

Products

   

Communications

Systems

   

Corporate

   

Total

 

Revenues

  $ 22,875     $ 3,895     $ -     $ 26,770  

Segment contribution

    6,016       1,251       (6,176 )     1,091  

Other expense

                    (21 )     (21 )

Income tax provision

                    (248 )     (248 )

Non-controlling interest

                    (11 )     (11 )

Net income attributable to Ultralife

                          $ 811  

 

12

 
 

Three-month period ended June 30, 2020:

 

   

Battery &

Energy

Products

   

Communications

Systems

   

Corporate

   

Total

 

Revenues

  $ 24,036     $ 4,524     $ -     $ 28,560  

Segment contribution

    6,026       1,937       (5,669 )     2,294  

Other expense

                    (117 )     (117 )

Income tax provision

                    (499 )     (499 )

Non-controlling interest

                    (20 )     (20 )

Net income attributable to Ultralife

                          $ 1,658  

 

 

Six-month period ended June 30, 2021:

 

   

Battery &

Energy

Products

   

Communications Systems

   

Corporate

   

Total

 

Revenues

  $ 44,986     $ 7,757     $ -     $ 52,743  

Segment contribution

    11,452       2,793       (12,202 )     2,043  

Other expense

                    (77 )     (77 )

Income tax provision

                    (465 )     (465 )

Non-controlling interest

                    (19 )     (19 )

Net income attributable to Ultralife

                          $ 1,482  

 

 

Six-month period ended June 30, 2020:

 

   

Battery &

Energy

Products

   

Communications Systems

   

Corporate

   

Total

 

Revenues

  $ 44,797     $ 9,577     $ -     $ 54,374  

Segment contribution

    11,342       3,955       (11,518 )     3,779  

Other expense

                    (209 )     (209 )

Income tax provision

                    (818 )     (818 )

Non-controlling interest

                    (35 )     (35 )

Net income attributable to Ultralife

                          $ 2,717  

 

13

 
 

The following tables disaggregate our business segment revenues by major source and geography.

 

Commercial and Government/Defense Revenue Information:

 

Three-month period ended June 30, 2021:

 

   

Total

Revenue

   

Commercial

   

Government/

Defense

 

Battery & Energy Products

  $ 22,875     $ 16,011     $ 6,864  

Communications Systems

    3,895       -       3,895  

Total

  $ 26,770     $ 16,011     $ 10,759  
              60 %     40 %

 

Three-month period ended June 30, 2020:

 

   

Total

Revenue

   

Commercial

   

Government/

Defense

 

Battery & Energy Products

  $ 24,036     $ 16,172     $ 7,864  

Communications Systems

    4,524       -       4,524  

Total

  $ 28,560     $ 16,172     $ 12,388  
              57 %     43 %

 

Six-month period ended June 30, 2021:

 

   

Total

Revenue

   

Commercial

   

Government/

Defense

 

Battery & Energy Products

  $ 44,986     $ 30,356     $ 14,630  

Communications Systems

    7,757       -       7,757  

Total

  $ 52,743     $ 30,356     $ 22,387  
              58 %     42 %

 

Six-month period ended June 30, 2020:

 

   

Total

Revenue

   

Commercial

   

Government/

Defense

 

Battery & Energy Products

  $ 44,797     $ 30,974     $ 13,823  

Communications Systems

    9,577       -       9,577  

Total

  $ 54,374     $ 30,974     $ 23,400  
              57 %     43 %

 

14

 
 

U.S. and Non-U.S. Revenue Information1:

 

Three-month period ended June 30, 2021:

 

   

Total

Revenue

   

United

States

   

Non-United

States

 

Battery & Energy Products

  $ 22,875     $ 11,813     $ 11,062  

Communications Systems

    3,895       1,953       1,942  

Total

  $ 26,770     $ 13,766     $ 13,004  
              51 %     49 %

 

Three-month period ended June 30, 2020:

 

   

Total

Revenue

   

United

States

   

Non-United

States

 

Battery & Energy Products

  $ 24,036     $ 14,195     $ 9,841  

Communications Systems

    4,524       4,224       300  

Total

  $ 28,560     $ 18,419     $ 10,141  
              64 %     36 %

 

Six-month period ended June 30, 2021:

 

   

Total

Revenue

   

United

States

   

Non-United

States

 

Battery & Energy Products

  $ 44,986     $ 24,403     $ 20,583  

Communications Systems

    7,757       3,421       4,336  

Total

  $ 52,743     $ 27,824     $ 24,919  
              53 %     47 %

 

Six-month period ended June 30, 2020:

 

   

Total

Revenue

   

United

States

   

Non-United

States

 

Battery & Energy Products

  $ 44,797     $ 25,479     $ 19,318  

Communications Systems

    9,577       8,577       1,000  

Total

  $ 54,374     $ 34,056     $ 20,318  
              63 %     37 %

 

1 Sales classified to U.S. include shipments to U.S.-based prime contractors which in some cases may serve non-U.S. projects.

 

15

 
 
 

Item 2.   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward-Looking Statements

 

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, the effects of the novel coronavirus disease of 2019 (“COVID-19”); our reliance on certain key customers; possible future declines in demand for the products that use our batteries or communications systems; the unique risks associated with our China operations; potential costs because of the warranties we supply with our products and services; potential disruptions in our supply of raw materials and components; our efforts to develop new commercial applications for our products; reduced U.S. and foreign military spending including the uncertainty associated with government budget approvals; possible breaches in security and other disruptions; variability in our quarterly and annual results and the price of our common stock; safety risks, including the risk of fire; our entrance into new end-markets which could lead to additional financial exposure; fluctuations in the price of oil and the resulting impact on the level of downhole drilling; our ability to retain top management and key personnel; our resources being overwhelmed by our growth prospects; our inability to comply with changes to the regulations for the shipment of our products; our customers’ demand falling short of volume expectations in our supply agreements; possible impairments of our goodwill and other intangible assets; negative publicity concerning Lithium-ion batteries; our exposure to foreign currency fluctuations; 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; our ability to utilize our net operating loss carryforwards; 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 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,” “expect,” “seek,” “project,” “intend,” “plan,” “may,” “will,” “should,” or words of similar import, and in each case, their negatives, 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, 2020.

 

Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity and the development of the industries in which we operate may differ materially from those made in or suggested by the forward-looking statements contained herein. In addition, even if our results of operations, financial condition and liquidity and the development of the industries in which we operate are consistent with the forward-looking statements contained in this quarterly report, those results or developments may not be indicative of results or developments in subsequent periods. Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

 

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 Form 10-Q or our Annual Report on Form 10-K for the year ended December 31, 2020 to reflect new information or risk