UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from ____________ to ____________
Commission file number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation of organization) (Address of principal executive offices) (Zip Code) |
(I.R.S. Employer Identification No.) ( (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:
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(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.
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).
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.
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Large accelerated filer ☐ |
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Non-accelerated filer ☐ |
Smaller reporting company |
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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
As of October 24, 2022, the registrant had
ULTRALIFE CORPORATION AND SUBSIDIARIES
INDEX
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Page |
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PART I. |
FINANCIAL INFORMATION |
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Item 1. |
Consolidated Financial Statements (unaudited): |
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Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 |
1 |
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Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income for the Three and Nine-Month Periods Ended September 30, 2022 and September 30, 2021 |
2 |
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Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30, 2022 and September 30, 2021 |
3 |
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Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine-Month Periods Ended September 30, 2022 and September 30, 2021 |
4 |
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Notes to Consolidated Financial Statements |
5 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
20 |
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Item 4. |
Controls and Procedures |
29 |
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PART II. |
OTHER INFORMATION |
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| Item 1A. | Risk Factors | 30 |
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Item 6. |
Exhibits |
30 |
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Signatures |
31 |
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PART I. FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
ULTRALIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands except share amounts)
(Unaudited)
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September 30, 2022 |
December 31, |
|||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
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Cash |
$ | $ | ||||||
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Trade accounts receivable, net of allowance for doubtful accounts of $ and $ |
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Inventories, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Goodwill |
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Other intangible assets, net |
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Deferred income taxes, net |
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Other noncurrent assets |
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Total assets |
$ | $ | ||||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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| Current liabilities: | ||||||||
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Accounts payable |
$ | $ | ||||||
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Current portion of long-term debt |
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Accrued compensation and related benefits |
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Accrued expenses and other current liabilities |
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Total current liabilities |
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Long-term debt, net |
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Deferred income taxes |
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Other noncurrent liabilities |
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Total liabilities |
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| Commitments and contingencies (Note 9) | ||||||||
| Stockholders’ equity: | ||||||||
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Preferred stock – par value $ per share; authorized |
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Common stock – par value $ per share; authorized |
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Capital in excess of par value |
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Accumulated deficit |
( |
) | ( |
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Accumulated other comprehensive loss |
( |
) | ( |
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Treasury stock - at cost; |
( |
) | ( |
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Total Ultralife Corporation equity |
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Non-controlling interest |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
$ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
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ULTRALIFE CORPORATION AND SUBSIDIARIES |
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CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME |
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(In thousands except per share amounts) |
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(Unaudited) |
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Three-month period ended |
Nine-month period ended |
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September 30, 2022 |
September 30, 2021 |
September 30, 2022 |
September 30, 2021 |
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Revenues |
$ | $ | $ | $ | ||||||||||||
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Cost of products sold |
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Gross profit |
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| Operating expenses: | ||||||||||||||||
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Research and development |
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Selling, general and administrative |
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Total operating expenses |
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Operating (loss) income |
( |
) | ( |
) | ( |
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| Other (income) expense: | ||||||||||||||||
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Interest and financing expense |
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Miscellaneous |
( |
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) | ( |
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Total other (income) expense |
( |
) | ( |
) | ( |
) | ||||||||||
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(Loss) income before income taxes |
( |
) | ( |
) | ( |
) | ||||||||||
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Income tax (benefit) provision |
( |
) | ( |
) | ( |
) | ||||||||||
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Net (loss) income |
( |
) | ( |
) | ||||||||||||
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Net (loss) income attributable to non-controlling interest |
( |
) | ( |
) | ||||||||||||
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Net (loss) income attributable to Ultralife Corporation |
( |
) | ( |
) | ||||||||||||
| Other comprehensive loss: | ||||||||||||||||
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Foreign currency translation adjustments |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
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Comprehensive (loss) income attributable to Ultralife Corporation |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||
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Net (loss) income per share attributable to Ultralife common stockholders – basic |
$ | ) | $ | ) | $ | $ | ||||||||||
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Net (loss) income per share attributable to Ultralife common stockholders – diluted |
$ | ) | $ | ) | $ | $ | ||||||||||
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Weighted average shares outstanding – basic |
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Potential common shares |
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Weighted average shares outstanding - diluted |
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The accompanying notes are an integral part of these consolidated financial statements.
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ULTRALIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) |
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Nine-month period ended |
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September 30, 2022 |
September 30, 2021 |
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OPERATING ACTIVITIES: |
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Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||
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Depreciation |
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Amortization of intangible assets |
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Amortization of financing fees |
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Stock-based compensation |
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Deferred income taxes |
( |
) | ||||||
| Changes in operating assets and liabilities: | ||||||||
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Accounts receivable |
( |
) | ||||||
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Inventories |
( |
) | ||||||
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Prepaid expenses and other assets |
( |
) | ||||||
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Accounts payable and other liabilities |
( |
) | ||||||
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Net cash (used in) provided by operating activities |
( |
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| INVESTING ACTIVITIES: | ||||||||
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Purchases of property, plant and equipment |
( |
) | ( |
) | ||||
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Net cash used in investing activities |
( |
) | ( |
) | ||||
| FINANCING ACTIVITIES: | ||||||||
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Borrowings on revolving credit facility |
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Payments on term loan facility |
( |
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Proceeds from exercise of stock options |
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Payment of debt issuance costs |
( |
) | - | |||||
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Tax withholdings on stock-based awards |
( |
) | ( |
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Net cash provided by (used in) financing activities |
( |
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Effect of exchange rate changes on cash |
( |
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(DECREASE) INCREASE IN CASH |
( |
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Cash, Beginning of period |
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Cash, End of period |
$ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
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ULTRALIFE CORPORATION AND SUBSIDIARIES |
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY |
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(In thousands except share amounts) (Unaudited) |
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Capital |
Accumulated |
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Common Stock |
in Excess |
Other |
Non- |
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Number of |
of Par |
Comprehensive |
Accumulated |
Treasury |
Controlling |
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Shares |
Amount |
Value |
Income (Loss) |
Deficit |
Stock |
Interest |
Total |
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Balance – December 31, 2020 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||||
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Net income |
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Stock option exercises |
( |
) | ||||||||||||||||||||||||||||||
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Stock-based compensation – stock options |
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Stock-based compensation -restricted stock |
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Vesting of restricted stock |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
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Foreign currency translation adjustments |
( |
) | ( |
) | ||||||||||||||||||||||||||||
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Balance – September 30, 2021 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||||
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Balance – December 31, 2021 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||||
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Net income |
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Stock option exercises |
( |
) | ||||||||||||||||||||||||||||||
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Stock-based compensation – stock options |
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Stock-based compensation -restricted stock |
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Vesting of restricted stock |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
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Foreign currency translation adjustments |
( |
) | ( |
) | ||||||||||||||||||||||||||||
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Balance – September 30, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||||
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Balance – June 30, 2021 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||||
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Net loss |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
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Stock option exercises |
( |
) | ||||||||||||||||||||||||||||||
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Stock-based compensation – stock options |
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Stock-based compensation -restricted stock |
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Vesting of restricted stock |
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Foreign currency translation adjustments |
( |
) | ( |
) | ||||||||||||||||||||||||||||
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Balance – September 30, 2021 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||||
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Balance – June 30, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||||
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Net loss |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
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Stock option exercises |
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Stock-based compensation – stock options |
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Stock-based compensation -restricted stock |
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Vesting of restricted stock |
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Foreign currency translation adjustments |
( |
) | ( |
) | ||||||||||||||||||||||||||||
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Balance – September 30, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
ULTRALIFE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share amounts)
(Unaudited)
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1. |
BASIS OF PRESENTATION |
The accompanying unaudited consolidated financial statements of Ultralife Corporation and its subsidiaries (the “Company” or “Ultralife”) 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 notes 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 a 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, 2021.
The December 31, 2021 consolidated balance sheet information referenced herein was derived from audited 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.
Significant Accounting Policies
We regularly review of our accounting policies and make modifications as necessary to align with new accounting standards and changing business conditions. Accordingly, the accounting policies below have been updated during the current year. Reference should be made to Note 1 to the consolidated financial statements in our 2021 Annual Report on Form 10-K for all other of the Company’s significant accounting policies.
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2. |
ACQUISITION |
On December 13, 2021, the Company acquired all the outstanding shares of Excell (as defined below) for an aggregate net purchase price of $
On December 13, 2021, 1336889 B.C. Unlimited Liability Company, a British Columbia unlimited liability company and wholly-owned subsidiary of Ultralife Canada Holding Corp., a Delaware corporation (“UCHC”) and wholly-owned subsidiary of Ultralife Excell Holding Corp., a Delaware corporation (“UEHC”) and wholly-owned subsidiary of Ultralife Corporation, completed the acquisition of all issued and outstanding shares of Excell Battery Canada Inc., a British Columbia corporation (“Excell Canada”) (the “Excell Canada Acquisition”), and, concurrently, 1336902 B.C. Unlimited Liability Company, a British Columbia unlimited liability company and wholly-owned subsidiary of UCHC, completed the acquisition of all issued and outstanding shares of 656700 B.C. LTD, a British Columbia corporation and sole owner of all issued and outstanding shares of Excell Battery Corporation USA, a Texas corporation (“Excell USA”, and together with Excell Canada, “Excell Battery Group” or “Excell”) (the “Excell USA Acquisition”, and together with the Excell Canada Acquisition, the “Excell Acquisition”).
Based in Canada with U.S. operations, Excell is a leading independent designer and manufacturer of high-performance smart battery systems, battery packs and monitoring systems to customer specifications. Excell serves a variety of industrial markets including downhole drilling, OEM industrial and medical devices, automated meter reading, ruggedized computers, and mining, marine and other mission critical applications which demand uncompromised safety, service, reliability and quality.
The Excell Canada Acquisition was completed pursuant to a Share Purchase Agreement dated December 13, 2021 (the “Excell Canada Acquisition Agreement”) by and among 1336889 B.C. Unlimited Liability Company, Mark Kroeker, Randolph Peters, Brian Larsen, M. & W. Holdings Ltd., Karen Kroeker, Heather Peterson, Michael Kroeker, Nicholas Kroeker, Brentley Peters, Craig Peters, Kurtis Peters, Heather Larsen, Ian Kane, Carol Peters, and 0835205 B.C. LTD (the “Excell Canada Sellers”), Mark Kroeker in his capacity as the Excell Canada Sellers’ Representative, and Excell Canada. The Excell USA Acquisition was completed pursuant to a Share Purchase Agreement dated December 13, 2021 (the “Excell USA Acquisition Agreement”, and together with the Excell Canada Acquisition Agreement, the “Excell Acquisition Agreements”) by and among 1336902 B.C. Unlimited Liability Company, M. & W. Holdings Ltd., Ian Kane, Sanford Capital Ltd., Arcee Enterprises Inc., and 0835205 B.C. Ltd. (the “Excell USA Sellers”, and together with the Excell Canada Sellers, the “Sellers”), Mark Kroeker in his capacity as the Excell USA Sellers’ Representative, and 656700 B.C. LTD. The Excell Acquisition Agreements contain customary terms and conditions including representations, warranties and indemnification provisions. A portion of the consideration paid to the Sellers is being held in escrow for indemnification purposes for a period of twelve months from the closing date.
The Excell Acquisition was funded by the Company through a combination of cash on hand and borrowings under the Amended Credit Facilities (Note 3).
The Excell Acquisition was accounted for in accordance with the accounting treatment of a business combination pursuant to FASB ASC Topic 805, Business Combinations (“ASC 805”). Accordingly, the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values on the acquisition date. The excess of the purchase price over the estimated fair value of the separately identifiable assets acquired and liabilities assumed was allocated to goodwill. Management is responsible for determining the acquisition date fair value of the assets acquired and liabilities assumed, which requires the use of various assumptions and judgments that are inherently subjective. The purchase price allocation presented below reflects all known information about the fair value of the assets acquired and liabilities assumed as of the acquisition date. The purchase price allocation is subject to change should additional information existing as of the acquisition date about the fair value of the assets acquired and liabilities assumed becomes known. The final purchase price allocation may reflect material changes in the valuation of assets acquired and liabilities assumed, including but not limited to intangible assets, fixed assets, deferred taxes, and residual goodwill.
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Cash |
$ | |||
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Accounts receivable |
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Inventories |
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Prepaid expenses and other current assets |
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Property, plant and equipment |
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Goodwill |
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Other intangible assets |
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Other noncurrent assets |
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Accounts payable |
( |
) | ||
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Accrued compensation and related benefits |
( |
) | ||
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Accrued expenses and other current liabilities |
( |
) | ||
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Deferred tax liability, net |
( |
) | ||
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Other noncurrent liabilities |
( |
) | ||
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Net assets acquired |
$ |
The purchase price allocation was adjusted during the nine-month period ended September 30, 2022 to reflect a change in the estimated fair value of certain other intangible assets acquired. The measurement period adjustment resulted in a $
The goodwill included in the Company’s purchase price allocation presented above represents the value of Excell’s assembled and trained workforce, the incremental value that Excell engineering and technology is expected to bring to the Company and the revenue growth expected to occur over time attributable to increased market penetration from future new products and customers. The goodwill acquired in connection with the acquisition is not deductible for income tax purposes.
Other intangible assets were valued using the income approach which requires a forecast of all expected future cash flows and the use of certain assumptions and estimates. The following table summarizes the estimated fair value and annual amortization for each of the identifiable intangible assets acquired.
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Annual Amortization |
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Estimated |
Amortization |
Year |
Year |
Year |
Year |
Year |
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Customer relationships |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
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Trade name |
Indefinite |
- | - | - | - | - | ||||||||||||||||||||||
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Customer contracts |
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Backlog |
- | - | - | - | ||||||||||||||||||||||||
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Technology |
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Total |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
We acquired right-of-use assets and assumed lease liabilities of $
The operating results and cash flows of Excell are reflected in the Company’s consolidated financial statements from the date of acquisition. Excell is included in the Battery & Energy Products segment.
For the three months ended September 30, 2022, Excell contributed revenue of $
|
3. |
DEBT |
On December 13, 2021, Ultralife, Southwest Electronic Energy Corporation, a Texas corporation (“SWE”), CLB, INC., a Texas corporation and wholly owned subsidiary of SWE (“CLB”), UEHC, UCHC and Excell USA, as borrowers, entered into the Second Amendment Agreement with KeyBank National Association (“KeyBank” or the “Bank”), as lender and administrative agent, to amend the Credit and Security Agreement dated May 31, 2017 as amended by the First Amendment Agreement by and among Ultralife, SWE, CLB and KeyBank dated May 1, 2019 (the “Credit Agreement”, and together with the Second Amendment Agreement, the “Amended Credit Agreement”).
The Amended Credit Agreement, among other things, provides for a
As of September 30, 2022, the Company had $
The remaining availability under the Revolving Credit Facility is subject to certain borrowing base limits based on trade receivables and inventories.
The Company is required to repay the borrowings under the Term Loan Facility in equal consecutive monthly payments commencing on February 1, 2022, 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 January 1, 2027. All unpaid principal and accrued and unpaid interest with respect to the Revolving Credit Facility is due and payable in full on May 30, 2025. The Company may voluntarily prepay principal amounts outstanding at any time subject to certain restrictions.
In addition to the customary affirmative and negative covenants, the Company must maintain a consolidated senior leverage ratio, as defined in the Amended Credit Agreement, of equal to or less than
Borrowings under the Amended Credit Facilities are secured by substantially all the assets of the Company and its subsidiaries.
Interest will accrue on outstanding indebtedness under the Amended 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 highest of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus
The Company must pay a fee of
Payments must be made by the Company to the extent borrowings exceed the maximum amount then permitted to be drawn on the Amended 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.
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4. |
EARNINGS PER SHARE |
Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) 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 September 30, 2022, there were no outstanding stock awards included in the calculation of diluted weighted average shares outstanding and no potential common shares included in the calculation of diluted EPS, as no securities were dilutive. There were
For the comparable three-month period ended September 30, 2021, there were no outstanding stock awards included in the calculation of diluted weighted average shares outstanding and no potential common shares included in the calculation of diluted EPS, as no securities were dilutive. There were
For the nine-month period ended September 30, 2022, there were
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5. |
SUPPLEMENTAL BALANCE SHEET INFORMATION |
Fair Value Measurements and Disclosures
The fair value of financial instruments approximated their carrying values at September 30, 2022 and December 31, 2021. 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:
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September 30, |
December 31, |
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2022 |
2021 |
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Cash |
$ | $ | ||||||
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Restricted cash |
||||||||
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Total |
$ | $ | ||||||
As of September 30, 2022 and December 31, 2021, restricted cash included $
Inventories, Net
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:
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September 30, |
December 31, |
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2022 |
2021 |
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Raw materials |
$ | $ | ||||||
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Work in process |
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Finished goods |
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Total |
$ | $ | ||||||
Property, Plant and Equipment, Net
Major classes of property, plant and equipment consisted of the following:
|
September 30, |
December 31, |
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|
2022 |
2021 |
|||||||
|
Land |
$ | $ | ||||||
|
Buildings and leasehold improvements |
||||||||
|
Machinery and equipment |
||||||||
|
Furniture and fixtures |
||||||||
|
Computer hardware and software |
||||||||
|
Construction in process |
||||||||
|
Less: Accumulated depreciation |
( |
) | ( |
) | ||||
|
Property, plant and equipment, net |
$ | $ | ||||||
Depreciation expense for property, plant and equipment was as follows:
|
Three-month period ended |
Nine-month period ended |
|||||||||||||||
|
September 30, |
September 30, |
September 30, |
September 30, |
|||||||||||||
|
2022 |
2021 |
2022 |
2021 |
|||||||||||||
|
Depreciation expense |
$ | $ | $ | $ | ||||||||||||
Goodwill
The following table summarizes the goodwill activity by segment for the nine-month period ended September 30, 2022.
|
Battery & Energy |
Communications |
|||||||||||
|
Products |
Systems |
Total |
||||||||||
|
Balance – December 31, 2021 |
$ | $ | $ | |||||||||
|
Measurement period adjustment (1) |
( |
) | ( |
) | ||||||||
|
Effect of foreign currency translation |
( |
) | ( |
) | ||||||||
|
Balance – September 30, 2022 |
$ | $ | $ | |||||||||
|
(1) |
Change for measurement period adjustment related to Excell Acquisition (Note 2). |
Other Intangible Assets, Net
The composition of other intangible assets was:
|
at September 30, 2022 |
||||||||||||
|
Accumulated |
||||||||||||
|
Cost |
Amortization |
Net |
||||||||||
|
Customer relationships |
$ | $ | $ | |||||||||
|
Patents and technology |
||||||||||||
|
Trade names |
||||||||||||
|
Trademarks |
||||||||||||
|
Other |
||||||||||||
|
Total other intangible assets |
$ | $ | $ | |||||||||
|
at December 31, 2021 |
||||||||||||
|
Accumulated |
||||||||||||
|
Cost |
Amortization |
Net |
||||||||||
|
Customer relationships |
$ | $ | $ | |||||||||
|
Patents and technology |
||||||||||||
|
Trade names |
||||||||||||
|
Trademarks |
||||||||||||
|
Other |
||||||||||||
|
Total other intangible assets |
$ | $ | $ | |||||||||
The change in the cost of total intangible assets from December 31, 2021 to September 30, 2022 is a result of measurement period adjustments for the Excell Acquisition (Note 2) and the effect of foreign currency translations.
Amortization expense for other intangible assets was as follows:
|
Three-month period ended |
Nine-month period ended |
|||||||||||||||
|
September 30, |
September 30, |
September 30, |
September 30, |
|||||||||||||
|
2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Amortization included in: | ||||||||||||||||
|
Research and development |
$ | $ | $ | $ | ||||||||||||
|
Selling, general and administrative |
||||||||||||||||
|
Total amortization expense |
$ | $ | $ | $ | ||||||||||||
|
6. |
STOCK-BASED COMPENSATION |
We recorded non-cash stock compensation expense in each period as follows:
|
Three-month period ended |
Nine-month period ended |
|||||||||||||||
|
September 30, |
September 30, |
September 30, |
September 30, |
|||||||||||||
|
2022 |
2021 |
2022 |
2021 |
|||||||||||||
|
Stock options |
$ | $ | $ | $ | ||||||||||||
|
Restricted stock grants |
||||||||||||||||
|
Total |
$ | $ | $ | $ | ||||||||||||
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 September 30, 2022, there was $
The following table summarizes stock option activity for the nine-month period ended September 30, 2022:
|
Number of |
Weighted |
Weighted |
Aggregate |
|||||||||||||
|
Outstanding at January 1, 2022 |
$ | |||||||||||||||
|
Granted |
||||||||||||||||
|
Exercised |
( |
) | ||||||||||||||
|
Forfeited or expired |
( |
) | ||||||||||||||
|
Outstanding at September 30, 2022 |
$ | $ | ||||||||||||||
|
Vested and expected to vest at September 30, 2022 |
$ | $ | ||||||||||||||
|
Exercisable at September 30, 2022 |
$ | $ | ||||||||||||||
Cash received from stock option exercises under our stock-based compensation plans for the three-month periods ended September 30, 2022 and September 30, 2021 was $
Outstanding restricted shares vest in equal annual installments over three years. There were
|
7. |
INCOME TAXES |
Our effective tax rate for the nine-month periods ended September 30, 2022 and September 30, 2021 was and
As of December 31, 2021, we have domestic net operating loss (“NOL”) carryforwards of $
As of September 30, 2022, for certain past operations in the U.K., we continue to report a valuation allowance for NOL carryforwards of approximately $
As of September 30, 2022, we have recognized a valuation allowance against our other foreign deferred tax assets, as realization is considered to be more likely than not.
As of September 30, 2022, 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 unrecognized tax benefits related to uncertain tax positions at September 30, 2022 and December 31, 2021.
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 2019-2021 remain subject to IRS examination. Our U.S. tax matters for , 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 , 2005-2007 and 2011-2021 remain subject to examination by various state and local tax jurisdictions. Our tax matters for the years through 2021 remain subject to examination by the respective foreign tax jurisdiction authorities.
|
8. |
OPERATING LEASES |
The Company has operating leases predominantly for operating facilities. As of September 30, 2022, the remaining lease terms on our operating leases range from approximately one year to ten years. Lease terms include renewal options reasonably certain of exercise. 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 |
Nine months ended |
|||||||||||||||
|
September |
September |
September |
September |
|||||||||||||
|
Operating lease cost |
$ | $ | $ | $ | ||||||||||||
|
Variable lease cost |
||||||||||||||||
|
Total lease cost |
$ | $ | $ | $ | ||||||||||||
Supplemental cash flow information related to leases was as follows:
|
Nine-month period ended |
||||||||
|
September |
September |
|||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
|
Operating cash flows used in operating leases |
$ | $ | ||||||
Supplemental consolidated balance sheet information related to leases was as follows:
|
Balance sheet classification |
September |
December |
|||||||
|
Assets: |
|||||||||
|
Operating lease right-of-use asset |
Other noncurrent assets |
$ | $ | ||||||
|
Liabilities: |
|||||||||
|
Current operating lease liability |
Accrued expenses and other current liabilities |
$ | $ | ||||||
|
Operating lease liability, net of current portion |
Other noncurrent liabilities |
||||||||
|
Total operating lease liability |
$ | $ | |||||||
|
Weighted-average remaining lease term (years) |
|||||||||
|
Weighted-average discount rate |
% | % | |||||||
Future minimum lease payments as of September 30, 2022 are as follows:
|
Maturity of operating lease liabilities |
||||
|
2022 |
$ | |||
|
2023 |
||||
|
2024 |
||||
|
2025 |
||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
|
Total lease payments |
||||
|
Less: Imputed interest |
( |
) | ||
|
Present value of remaining lease payments |
$ |
|
9. |
COMMITMENTS AND CONTINGENCIES |
Purchase Commitments
As of September 30, 2022, we have made commitments to purchase approximately $
Product Warranties
We generally offer standard warranties against product defects. We also offer separately priced extended warranty contracts on certain products. Warranty costs expected to be incurred are estimated based on the Company’s experience and recorded as costs of products sold. Standard warranty costs are recognized upon product sale. Extended warranty costs are recognized over the term of the contract.
|
Nine-month period ended September 30, |
||||||||
|
2022 |
2021 |
|||||||
|
Accrued warranty obligations – beginning |
$ | $ | ||||||
|
Accruals for warranties issued |
||||||||
|
Settlements made |
( |
) | ( |
) | ||||
|
Accrued warranty obligations – ending |
$ | $ | ||||||
Contingencies and Legal Matters
We are subject to legal proceedings and claims that arise from time to time in the normal course of business. We believe that the final disposition of any such matters 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 these 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.
| 10. |
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.
Separately priced extended warranty contracts are offered on certain Communications Systems products for a duration of up to eight (8) years. Extended warranties are treated as separate performance obligations and recognized to revenue evenly over the term of the respective contract. Revenue not yet recognized on extended warranty contracts is recorded as deferred revenue on the consolidated balance sheet.
As of September 30, 2022, there was deferred revenue on extended warranty contracts of $
|
11. |
BUSINESS SEGMENT INFORMATION |
We report our results in (2) 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. We report operating expenses as Corporate charges.
Three-month period ended September 30, 2022:
|
Battery & |
Communications Systems |
Corporate |
Total |
|||||||||||||
|
Revenues |
$ | $ | $ | $ | ||||||||||||
|
Segment contribution |
( |
) | ( |
) | ||||||||||||
|
Other income |
||||||||||||||||
|
Income tax benefit |
||||||||||||||||
|
Non-controlling interest |
||||||||||||||||
|
Net loss attributable to Ultralife |
$ | ( |
) | |||||||||||||
Three-month period ended September 30, 2021:
|
Battery & |
Communications Systems |
Corporate |
Total |
|||||||||||||
|
Revenues |
$ | $ | $ | $ | ||||||||||||
|
Segment contribution |
( |
) | ( |
) | ||||||||||||
|
Other income |
||||||||||||||||
|
Income tax benefit |
||||||||||||||||
|
Non-controlling interest |
||||||||||||||||
|
Net loss attributable to Ultralife |
$ | ( |
) | |||||||||||||
Nine-month period ended September 30, 2022:
|
Battery & |
Communications |
Corporate |
Total |
|||||||||||||
|
Revenues |
$ | $ | $ | $ | ||||||||||||
|
Segment contribution |
( |
) | ( |
) | ||||||||||||
|
Other income |
||||||||||||||||
|
Income tax benefit |
||||||||||||||||
|
Non-controlling interest |
||||||||||||||||
|
Net income attributable to Ultralife |
$ | |||||||||||||||
Nine-month period ended September 30, 2021:
|
Battery & |
Communications Systems |
Corporate |
Total |
|||||||||||||
|
Revenues |
$ | $ | $ | $ | ||||||||||||
|
Segment contribution |
( |
) | ||||||||||||||
|
Other expense |
( |
) | ( |
) | ||||||||||||
|
Income tax provision |
( |
) | ( |
) | ||||||||||||
|
Non-controlling interest |
( |
) | ( |
) | ||||||||||||
|
Net income attributable to Ultralife |
$ | |||||||||||||||
The following tables disaggregate our business segment revenues by major source and geography.
Commercial and Government/Defense Revenue Information:
Three-month period ended September 30, 2022:
|
Total Revenue |
Commercial |
Government/ Defense |
||||||||||
|
Battery & Energy Products |
$ | $ | $ | |||||||||
|
Communications Systems |
||||||||||||
|
Total |
$ | $ | $ | |||||||||
| % | % | |||||||||||
Three-month period ended September 30, 2021:
|
Total Revenue |
Commercial |
Government/ Defense |
||||||||||
|
Battery & Energy Products |
$ | $ | $ | |||||||||
|
Communications Systems |
||||||||||||
|
Total |
$ | $ | $ | |||||||||
| % | % | |||||||||||
Nine-month period ended September 30, 2022:
|
Total Revenue |
Commercial |
Government/ Defense |
||||||||||
|
Battery & Energy Products |
$ | $ | $ | |||||||||
|
Communications Systems |
||||||||||||
|
Total |
$ | $ | $ | |||||||||
| % | % | |||||||||||
Nine-month period ended September 30, 2021:
|
Total Revenue |
Commercial |
Government/ Defense |
||||||||||
|
Battery & Energy Products |
$ | $ | $ | |||||||||
|
Communications Systems |
||||||||||||
|
Total |
$ | $ | $ | |||||||||
| % | % | |||||||||||
U.S. and Non-U.S. Revenue Information1:
Three-month period ended September 30, 2022:
|
Total Revenue |
United |
Non-United |
||||||||||
|
Battery & Energy Products |
$ | $ | $ | |||||||||
|
Communications Systems |
||||||||||||
|
Total |
$ | $ | $ | |||||||||
| < | ||||||||||||