UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 27, 2004
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 BATTERIES, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 16-1387013
-------- ----------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2000 Technology Parkway, Newark, New York 14513
-----------------------------------------------
(Address of principal executive offices)
(Zip Code)
(315) 332-7100
--------------
(Registrant's telephone number, including area code)
________________________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes...X... No.....
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes ...X... No ......
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $.10 par value - 14,039,657 shares of common stock
outstanding, net of 727,250 treasury shares, as of March 27, 2004.
1
ULTRALIFE BATTERIES, INC.
INDEX
- --------------------------------------------------------------------------------
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
March 27, 2004 and December 31, 2003...............................3
Condensed Consolidated Statements of Operations -
Three months ended March 27, 2004 and March 29, 2003...............4
Condensed Consolidated Statements of Cash Flows -
Three months ended March 27, 2004 and March 29, 2003...............5
Notes to Consolidated Financial Statements...........................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.....................12
Item 3. Quantitative and Qualitative Disclosures
About Market Risk.................................................18
Item 4. Controls and Procedures.............................................18
PART II OTHER INFORMATION
Item 1. Legal Proceedings...................................................19
Item 6. Exhibits and Reports on Form 8-K....................................20
Signatures..........................................................21
Exhibits............................................................22
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ULTRALIFE BATTERIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Amounts)
(unaudited)
- --------------------------------------------------------------------------------
March 27, December 31,
ASSETS 2004 2003
--------- ------------
Current assets:
Cash and cash equivalents $ 1,136 $ 830
Restricted cash 51 50
Trade accounts receivable (less allowance for doubtful accounts
of $176 at March 27, 2004 and $168 at December 31, 2003) 20,487 17,803
UTI Note Receiveable 2,350 2,350
Inventories 13,970 10,209
Prepaid expenses and other current assets 1,032 1,314
--------- ---------
Total current assets 39,026 32,556
--------- ---------
Property, plant and equipment, net 17,976 18,213
Other assets:
Investment in UTI 1,550 1,550
Technology license agreements (net of accumulated
amortization of $1,443 at March 27, 2004 and $1,418 at December 31, 2003) 8 33
--------- ---------
1,558 1,583
--------- ---------
Total Assets $ 58,560 $ 52,352
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt $ 5,940 $ 8,295
Accounts payable 8,730 6,385
Income taxes payable 8 106
Other current liabilities 3,320 3,068
--------- ---------
Total current liabilities 17,998 17,854
Long-term liabilities:
Debt and capital lease obligations 68 68
Commitments and contingencies (Note 9)
Shareholders' equity:
Preferred stock, par value $0.10 per share, authorized 1,000,000 shares;
none outstanding -- --
Common stock, par value $0.10 per share, authorized 40,000,000 shares;
issued - 14,766,907 at March 27, 2004 and 14,302,782 at December 31, 2003 1,477 1,430
Capital in excess of par value 123,338 120,626
Accumulated other comprehensive loss (653) (723)
Accumulated deficit (81,290) (84,525)
--------- ---------
42,872 36,808
Less --Treasury stock, at cost -- 727,250 shares 2,378 2,378
--------- ---------
Total shareholders' equity 40,494 34,430
--------- ---------
Total Liabilities and Shareholders' Equity $ 58,560 $ 52,352
========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
3
ULTRALIFE BATTERIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
(unaudited)
Three Months Ended
March 27, March 29,
2004 2003
--------- ---------
Revenues $ 26,988 $ 15,428
Cost of products sold 20,656 12,269
-------- --------
Gross margin 6,332 3,159
-------- --------
Operating expenses:
Research and development 503 585
Selling, general, and administrative 2,471 1,962
-------- --------
Total operating expenses 2,974 2,547
-------- --------
Operating income 3,358 612
Other income (expense):
Interest income 20 1
Interest expense (125) (92)
Miscellaneous 61 (210)
-------- --------
Income before income taxes 3,314 311
-------- --------
Income taxes 79 --
-------- --------
Net income $ 3,235 $ 311
======== ========
Earnings per share - basic $ 0.23 $ 0.02
======== ========
Earnings per share - diluted $ 0.22 $ 0.02
======== ========
Weighted average shares outstanding - basic 13,772 12,852
======== ========
Weighted average shares outstanding - diluted 14,890 12,938
======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
4
ULTRALIFE BATTERIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(unaudited)
- --------------------------------------------------------------------------------
Three Months Ended
March 27, March 29,
2004 2003
--------- ---------
OPERATING ACTIVITIES
Net income $ 3,235 $ 311
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 864 737
Gain on asset disposal (1) --
Foreign exchange (gain)/loss (61) 194
Non-cash stock-based compensation 10 26
Changes in operating assets and liabilities:
Accounts receivable (2,684) (3,496)
Inventories (3,761) 69
Prepaid expenses and other current assets 282 117
Income taxes payable (98) --
Accounts payable and other current liabilities 2,587 1,980
------- -------
Net cash provided by (used in) operating activities 373 (62)
------- -------
INVESTING ACTIVITIES
Purchase of property and equipment (501) (1,359)
Proceeds from asset disposal 2 --
Purchase of securities (1) --
------- -------
Net cash used in investing activities (500) (1,359)
------- -------
FINANCING ACTIVITIES
Change in revolving credit facilities (2,155) 123
Proceeds from issuance of common stock 2,759 2
Proceeds from issuance of debt -- 500
Principal payments on long-term debt and capital lease obligations (200) (200)
Proceeds from grant -- 117
------- -------
Net cash provided by financing activities 404 542
------- -------
Effect of exchange rate changes on cash 29 (49)
------- -------
Increase/(Decrease) in cash and cash equivalents 306 (928)
Cash and cash equivalents at beginning of period 830 1,322
------- -------
Cash and cash equivalents at end of period $ 1,136 $ 394
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION
Taxes paid $ 184 $ --
======= =======
Interest paid $ 116 $ 68
======= =======
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
5
ULTRALIFE BATTERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Thousands - Except Share and Per Share Amounts)
(unaudited)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals and adjustments) considered necessary for a fair
presentation of the condensed consolidated financial statements have been
included. Results for interim periods should not be considered indicative
of results to be expected for a full year. Reference should be made to the
consolidated financial statements contained in the Company's Form 10-K for
the twelve-month period ended December 31, 2003.
The Company's monthly closing schedule is a weekly-based cycle as
opposed to a calendar month-based cycle. While the actual dates for the
quarter-ends will change slightly each year, the Company believes that
there are not any material differences when making quarterly comparisons.
2. EARNINGS PER SHARE
Basic earnings per share are calculated by dividing net income by
the weighted average number of common shares outstanding during the
period. Diluted earnings per share are calculated by dividing net income,
adjusted for interest on convertible securities, by potentially dilutive
common shares, which include stock options, warrants and convertible
securities.
The computation of basic and diluted earnings per share is
summarized as follows:
(In thousands, except per share data) Three Months Ended
---------------------
March 27, March 29,
2004 2003
---------------------
Net Income (a) $ 3,235 $ 311
Effect of Dilutive Securities:
Stock Options / Warrants -- --
Convertible Note -- 3
---------------------
Net Income - Adjusted (b) $ 3,235 $ 314
=====================
Average Shares Outstanding - Basic (c) 13,772 12,852
Effect of Dilutive Securities:
Stock Options / Warrants 1,118 23
Convertible Note -- 63
---------------------
Average Shares Outstanding - Diluted (d) 14,890 12,938
=====================
EPS - Basic (a/c) $ 0.23 $ 0.02
EPS - Diluted (b/d) $ 0.22 $ 0.02
6
3. STOCK-BASED COMPENSATION
The Company has various stock-based employee compensation plans. The
Company applies Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations
which require compensation costs to be recognized based on the difference,
if any, between the quoted market price of the stock on the grant date and
the exercise price. As all options granted to employees under such plans
had an exercise price at least equal to the market value of the underlying
common stock on the date of grant, and given the fixed nature of the
equity instruments, no stock-based employee compensation cost is reflected
in net income. The effect on net income and earnings per share if the
Company had applied the fair value recognition provisions of Statement of
Financial Accounting Standards ("SFAS") No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure, an Amendment of SFAS
No. 123", to stock-based employee compensation is as follows:
Three Months Ended
-------------------------
March 27, March 29,
2004 2003
-------------------------
Net income, as reported $3,235 $311
Add: Stock-based employee compensation
expense included in reported net income,
net of related tax effects -- --
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects
(221) (226)
-------------------------
Pro forma net income $3,014 $ 85
Earnings per share:
Basic - as reported $0.23 $0.02
Basic - pro forma $0.22 $0.01
Diluted - as reported $0.22 $0.02
Diluted - pro forma $0.20 $0.01
During the first three months of 2004, the Company issued 464,125
shares of common stock as a result of exercises of stock options and
warrants. The Company received approximately $2,759 in cash proceeds as a
result of these transactions.
7
4. COMPREHENSIVE INCOME
The components of the Company's total comprehensive income were:
Three Months Ended
March 27, March 29,
2004 2003
-----------------------
Net income $3,235 $311
Foreign currency translation adjustments 70 59
-----------------------
Total comprehensive income $3,305 $370
=======================
5. INVENTORIES
Inventories are stated at the lower of cost or market with cost
determined under the first-in, first- out (FIFO) method. The composition
of inventories was:
March 27, 2004 December 31, 2003
---------------------------------
Raw materials $ 6,175 $ 5,946
Work in process 3,799 2,306
Finished goods 4,933 2,699
---------------------------------
14,907 10,951
Less: Reserve for obsolescence 937 742
---------------------------------
$13,970 $10,209
=================================
6. PROPERTY, PLANT AND EQUIPMENT
Major classes of property, plant and equipment consisted of the
following:
March 27, 2004 December 31, 2003
----------------------------------
Land $123 $ 123
Buildings and leasehold improvements 2,376 1,845
Machinery and equipment 33,814 33,207
Furniture and fixtures 367 358
Computer hardware and software 1,610 1,554
Construction in progress 1,232 1,748
----------------------------------
39,522 38,835
Less: Accumulated depreciation 21,546 20,622
----------------------------------
$17,976 $18,213
==================================
7. DEBT
As of March 27, 2004, the Company had $1,067 outstanding under the
term loan component of its credit facility with its primary lending bank,
and had $4,155 of borrowings outstanding under the revolver component of
the credit facility. The Company's additional borrowing capacity under the
revolver component of the credit facility as of March 27, 2004 was
approximately $5,714, net of outstanding letters of credit of $3,600. At
March 27, 2004, the Company's net worth was $40,494, compared to the debt
covenant requiring a minimum net worth of approximately $22,406.
8
As of March 27, 2004, the Company's wholly-owned U.K. subsidiary,
Ultralife Batteries (UK) Ltd., had approximately $700 outstanding under
its revolving credit facility with a commercial bank in the U.K. This
credit facility provides the Company's U.K. operation with additional
financing flexibility for its working capital needs. Any borrowings
against this credit facility are collateralized with that company's
outstanding accounts receivable balances. There was no additional
borrowing capacity under this credit facility as of March 27, 2004.
8. INCOME TAXES
The liability method, prescribed by SFAS No. 109, "Accounting for
Income Taxes", is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and
are measured using the enacted tax rates and laws that may be in effect
when the differences are expected to reverse. The Company recorded an
income tax expense of $79 for the three months ended March 27, 2004
relating to alternative minimum tax calculations.
As of December 31, 2003, the Company had foreign and domestic net
operating loss carryforwards totaling approximately $76,829 that are
available to reduce future taxable income. The Company has determined that
a change in ownership as defined under Internal Revenue Code Section 382
occurred during the fourth quarter of 2003. As a result, the net operating
loss carryforwards will be subject to an annual limitation, currently
estimated to be in the range of approximately $14,000 to $18,000. Such a
limitation could result in the possibility of a cash outlay for income
taxes in a future year when earnings exceed the amount of NOLs that can be
used by the Company.
9. COMMITMENTS AND CONTINGENCIES
As of March 27, 2004, the Company had $51 in restricted cash in
support of a corporate credit card account.
As of March 27, 2004, the Company had open capital commitments to
purchase approximately $1,710 of production machinery and equipment.
The Company estimates future costs associated with expected product
failure rates, material usage and service costs in the development of its
warranty obligations. Warranty reserves, included in other current
liabilities on the Company's Consolidated Balance Sheet, are based on
historical experience of warranty claims and generally will be estimated
as a percentage of sales over the warranty period. In the event the actual
results of these items differ from the estimates, an adjustment to the
warranty obligation would be recorded. Changes in the Company's product
warranty liability during the first three months of 2004 were as follows:
Balance at December 31, 2003 $278
Accruals for warranties issued 184
Settlements made (73)
----
Balance at March 27, 2004 $389
====
The Company is subject to legal proceedings and claims which arise
in the normal course of business. The Company believes that the final
disposition of such matters will not have a material adverse effect on the
financial position or results of operations of the Company.
In conjunction with the Company's purchase/lease of its Newark, New
York facility in 1998, the Company entered into a payment-in-lieu of tax
agreement which provides the Company with real
9
estate tax concessions upon meeting certain conditions. In connection with
this agreement, a consulting firm performed a Phase I and II Environmental
Site Assessment which revealed the existence of contaminated soil and
ground water around one of the buildings. The Company retained an
engineering firm which estimated that the cost of remediation should be in
the range of $230. This cost, however, is merely an estimate and the cost
may in fact be much higher. In February, 1998, the Company entered into an
agreement with a third party which provides that the Company and this
third party will retain an environmental consulting firm to conduct a
supplemental Phase II investigation to verify the existence of the
contaminants and further delineate the nature of the environmental
concern. The third party agreed to reimburse the Company for fifty percent
(50%) of the cost of correcting the environmental concern on the Newark
property. The Company has fully reserved for its portion of the estimated
liability. Test sampling was completed in the spring of 2001, and the
engineering report was submitted to the New York State Department of
Environmental Conservation (NYSDEC) for review. NYSDEC reviewed the report
and, in January 2002, recommended additional testing. The Company
submitted a work plan to NYSDEC in October 2003, which was approved
shortly thereafter. The Company sought proposals from engineering firms to
complete the remedial work outlined in the work plan. A firm was selected
to perform the tasks associated with the remediation activities, which
were completed in December 2003. The test results were then forwarded to
NYSDEC for comment. NYSDEC responded to the Company in March 2004
requesting a report summarizing the data, findings, discussions and
conclusions. The report has been submitted to NYSDEC who will review and
make recommendations as to whether additional remediation is required.
Because the Company believes that the source of the contamination has been
removed, NYSDEC recommended that the Company conduct quarterly monitoring
of the groundwater for one year. The Company believes that the final cost
to remediate will not exceed the original estimate. The Company awaits
final comments from the NYSDEC and will begin the additional sampling upon
approval of the conclusions stated in the report. Because this is a
voluntary remediation, there is no requirement for the Company to complete
the project within any specific time frame. The ultimate resolution of
this matter may have a significant adverse impact on the results of
operations in the period in which it is resolved. Furthermore, the Company
may face claims resulting in substantial liability which could have a
material adverse effect on the Company's business, financial condition and
the results of operations in the period in which such claims are resolved.
A retail end-user of a product manufactured by one of Ultralife's
customers (the "Customer") has made a claim against the Customer wherein
it is asserted that the Customer's product, which is powered by an
Ultralife battery, does not operate according to the Customer's product
specification. No claim has been filed against Ultralife. However, in the
interest of fostering good customer relations, in September 2002,
Ultralife agreed to lend technical support to the Customer in defense of
its claim. The claim between the end-user and the Customer has now been
settled. Ultralife has renewed its commitment to the Customer to honor its
warranty by replacing any batteries that may be determined to be
defective. In the event a claim is filed against Ultralife and it is
ultimately determined that Ultralife's product was defective, replacement
of batteries to this Customer or end-user may have a material adverse
effect on the Company's financial position and results of operations.
10. BUSINESS SEGMENT INFORMATION
The Company reports its results in three operating segments: Primary
Batteries, Rechargeable Batteries, and Technology Contracts. The Primary
Batteries segment includes 9-volt, cylindrical and various other
non-rechargeable specialty batteries. The Rechargeable Batteries segment
includes the Company's lithium polymer and lithium ion rechargeable
batteries. The Technology Contracts segment includes revenues and related
costs associated with various government and military development
contracts. The Company looks at its segment performance at the gross
margin level, and does not allocate research and development or selling,
general and administrative costs against the segments. All
10
other items that do not specifically relate to these three segments and
are not considered in the performance of the segments are considered to be
Corporate charges.
Three Months Ended March 27, 2004
---------------------------------
Primary Rechargeable Technology
Batteries Batteries Contracts Corporate Total
-------------------------------------------------------------------------------
Revenues $25,322 $1,374 $292 $ -- $26,988
Segment contribution 6,774 (485) 43 (2,974) 3,358
Interest expense, net (105) (105)
Miscellaneous 61 61
Income taxes (79) (79)
--------
Net income $ 3,235
Total assets $46,223 $3,632 $364 $8,341 $58,560
Three Months Ended March 29, 2003
---------------------------------
Primary Rechargeable Technology
Batteries Batteries Contracts Corporate Total
-------------------------------------------------------------------------------
Revenues $14,632 $ 380 $416 $ -- $15,428
Segment contribution 3,165 (208) 202 (2,547) 612
Interest expense, net (91) (91)
Miscellaneous (210) (210)
Income taxes -- --
--------
Net income $ 311
Total assets $26,102 $3,220 $207 $ 4,763 $34,292
11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(In whole dollars)
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This report contains certain
forward-looking statements and information that are based on the beliefs of
management as well as assumptions made by and information currently available to
management. The statements contained in this report relating to matters that are
not historical facts are forward-looking statements that involve risks and
uncertainties, including, but not limited to, future demand for the Company's
products and services (particularly from the U.S. Government for BA-5390
batteries), the successful commercialization of the Company's advanced
rechargeable batteries, general economic conditions, government and
environmental regulation, competition and customer strategies, technological
innovations in the primary and rechargeable battery industries, changes in the
Company's business strategy or development plans, capital deployment, business
disruptions, including those caused by fires, raw materials supplies,
environmental regulations, and other risks and uncertainties, certain of which
are beyond the Company's control. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may differ materially from those described herein as anticipated,
believed, estimated or expected.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the accompanying
consolidated financial statements and notes thereto contained herein and the
Company's consolidated financial statements and notes thereto contained in the
Company's Form 10-K for the year ended December 31, 2003.
The financial information in this Management's Discussion and Analysis of
Financial Condition and Results of Operations is presented in whole dollars.
General
Ultralife Batteries, Inc. develops, manufactures and markets a wide range
of standard and customized lithium primary (non-rechargeable), lithium ion and
lithium polymer rechargeable batteries for use in a wide array of applications.
The Company believes that its technologies allow the Company to offer batteries
that are flexibly configured, lightweight and generally achieve longer operating
time than many competing batteries currently available. The Company has focused
on manufacturing a family of lithium primary batteries for military, industrial
and consumer applications, which it believes is one of the most comprehensive
lines of lithium manganese dioxide primary batteries commercially available. The
Company also supplies rechargeable lithium ion and lithium polymer batteries for
use in portable electronic applications.
The Company reports its results in three operating segments: Primary
Batteries, Rechargeable Batteries, and Technology Contracts. The Primary
Batteries segment includes 9-volt, cylindrical and various other
non-rechargeable specialty batteries. The Rechargeable Batteries segment
includes the Company's lithium polymer and lithium ion rechargeable batteries.
The Technology Contracts segment includes revenues and related costs associated
with various government and military development contracts. The Company looks at
its segment performance at the gross margin level, and does not allocate
research and development or selling, general and administrative costs against
the segments. All other items that do not specifically relate to these three
segments and are not considered in the performance of the segments are
considered to be Corporate charges.
12
Results of Operations (in whole dollars)
Three months ended March 27, 2004 and March 29, 2003
Revenues. Consolidated revenues for the three-month period ended March 27,
2004 amounted to $26,988,000, an increase of $11,560,000, or 75%, from the
$15,428,000 reported in the same quarter in the prior year. Primary battery
sales increased $10,690,000, or 73%, from $14,632,000 last year to $25,322,000
this year, as a result of strong shipments of HiRate(R) battery products,
including sales of BA-5390 batteries used mainly in various military
communications and weapons applications. This increase was offset in part by a
decrease in 9-volt sales versus last year's strong performance that included the
delivery on a sizeable order from the U.K. Ministry of Defence that did not
recur in 2004. Rechargeable revenues rose $994,000 to $1,374,000, primarily due
to higher shipments to military and commercial customers of the rechargeable
version of the BA-5390 battery and various rechargeable battery packs.
Technology Contract revenues were $292,000 in the first quarter of 2004,
attributable to the initial work on the Company's $2,700,000 development
contract with General Dynamics. Compared with the same period a year ago, this
represents a decrease of $124,000 related to contracts with different customers
in each period.
Cost of Products Sold. Cost of products sold totaled $20,656,000 for the
quarter ended March 27, 2004, an increase of $8,387,000, or 68% over the same
three-month period a year ago. The gross margin on consolidated revenues for the
quarter was $6,332,000, or 23% of revenues, an improvement of $3,173,000 over
the $3,159,000, or 20% of revenues, reported in the same quarter in the prior
year. Gross margins in the Company's primary battery operations improved
$3,609,000, from $3,165,000 in 2003 to $6,774,000 in 2004. As a percentage of
revenues, primary battery margins amounted to 27% in the first quarter of 2004
compared with 22% in 2003. This percentage improvement resulted mainly from
higher sales and production volumes that spread manufacturing overhead costs
over a broader base, as well as improvements in manufacturing efficiencies. In
the Company's rechargeable operations, the gross margin loss amounted to
$485,000 in the first quarter of 2004, compared to a loss of $208,000 in 2003.
The rechargeable margins in 2004 were negatively impacted by a $250,000 increase
in reserves for obsolete inventory, while the margins in 2003 were favorably
impacted by early termination fees associated with the closeout of a certain
production contract. In addition, product mix somewhat impacted the rechargeable
margins as well. Gross margins in the Technology Contract segment were $43,000
in the first quarter of 2004 compared to $202,000 in 2003, a decrease of
$159,000 mainly due to the timing of different technology contracts.
Operating Expenses. Operating expenses for the three months ended March
27, 2004 totaled $2,974,000, a $427,000 increase over the prior year's amount of
$2,547,000. Research and development charges decreased $82,000 to $503,000 in
2004 due to the consolidation of all R&D efforts to the U.S. facility. Although
the R&D line reflects a decline, the Company also considers its efforts in the
Technology Contracts segment to be related to key battery development efforts.
Selling, general, and administrative expenses increased $509,000 to $2,471,000
due mainly to higher costs related to managing a growing business. Overall,
operating expenses as a percentage of sales improved significantly, declining
from 17% in the March 2003 quarter to 11% in the March 2004 quarter.
Other Income (Expense). Interest expense, net, for the first quarter of
2004 was $105,000, an increase of $14,000 from the comparable period in 2003,
mainly as a result of higher outstanding revolving loan balances to support
working capital needs. Miscellaneous income / expense changed from an expense of
$210,000 in 2003 to income of $61,000 in 2004 mostly due to changes in foreign
currency, primarily related to the strengthening of the U.K. pound against the
U.S. dollar in connection with the Company's intercompany loan with its U.K.
subsidiary.
Income Taxes. The Company recorded income tax expense of $79,000 for the
three months ended March 27, 2004. While the Company has significant net
operating loss carryforwards (NOLs)
13
related to past years' cumulative losses, it is subject to a U.S. alternative
minimum tax where NOLs can offset only 90% of taxable income.
Net Income. Net income and diluted earnings per share were $3,235,000 and
$0.22, respectively, for the three months ended March 27, 2004, compared to
$311,000 and $0.02, respectively, for the same quarter last year, primarily as a
result of the reasons described above. Average common shares outstanding used to
compute basic earnings per share increased from 12,852,000 in the first quarter
of 2003 to 13,772,000 in 2004 mainly due to stock option exercises, as well as
the conversion of a short-term note into 125,000 common shares in the second
quarter of 2003 and a private equity placement of 200,000 common shares during
the fourth quarter of 2003. The impact from "in the money" stock options and
warrants resulted in an additional 1,118,000 and 86,000 shares for the average
diluted shares outstanding computation in 2004 and 2003, respectively.
Liquidity and Capital Resources (in whole dollars)
As of March 27, 2004, cash and cash equivalents totaled $1,136,000,
excluding restricted cash of $51,000. During the three months ended March 27,
2004, the Company provided $373,000 of cash in operating activities as compared
to using $62,000 for the three months ended March 29, 2003, mainly due to the
increase in net income offset by an increase in inventory due to higher
production volumes. In the three months ended March 27, 2004, the Company used
$501,000 to purchase plant, property and equipment, a decrease of $858,000 from
the prior year's capital expenditures. This decrease was mainly attributable to
the timing of various projects. During the three month period ended March 27,
2004, the Company generated $404,000 in funds from financing activities. The
financing activities included inflows from the issuance of stock, mainly as
stock options were exercised during the period, and outflows resulting from a
reduction in the Company's revolving loan balance. During the first three months
of 2004, the Company issued 464,125 shares of common stock as a result of
exercises of stock options and warrants. The Company received approximately
$2,759,000 in cash proceeds as a result of these transactions.
Inventory turnover for the first quarter of 2004 was 6.1 times, a decline
from the 6.7 turns reflected during the full year of 2003, mainly due to the
timing of production and shipments. The Company's Days Sales Outstanding (DSOs)
was an average of 48 days for the first three months of 2004, improving slightly
from 50 days reflected for the full 12-month period in 2003.
At March 27, 2004, the Company had a capital lease obligation outstanding
of $86,000 for the Company's Newark, New York offices and manufacturing
facilities.
As of March 27, 2004, the Company had open capital commitments to purchase
approximately $1,710,000 of production machinery and equipment.
As of March 27, 2004, the Company had $1,067,000 outstanding under the
term loan component of its credit facility with its primary lending bank, and
had $4,155,000 of borrowings outstanding under the revolver component of the
credit facility. The Company's additional borrowing capacity under the revolver
component of the credit facility as of March 27, 2004 was approximately
$5,714,000, net of outstanding letters of credit of $3,600,000. At March 27,
2004, the Company's net worth was $40,494,000, compared to the debt covenant
requiring a minimum net worth of approximately $22,406,000. The current credit
facility is scheduled to expire on June 30, 2004. The Company is currently
seeking and reviewing proposals from various lending institutions that would
provide it with greater borrowing capacity, increased flexibility and lower
borrowing costs. The Company plans to refinance this debt, or extend its current
credit flexibility, before its current arrangement expires.
14
As of March 27, 2004, the Company's wholly-owned U.K. subsidiary,
Ultralife Batteries (UK) Ltd., had approximately $700,000 outstanding under its
revolving credit facility with a commercial bank in the U.K. This credit
facility provides the Company's U.K. operation with additional financing
flexibility for its working capital needs. Any borrowings against this credit
facility are collateralized with that company's outstanding accounts receivable
balances. There was no additional borrowing capacity under this credit facility
as of March 27, 2004.
The Company continues to be optimistic about its future prospects and
growth potential. However, the recent rapid growth of the business has created a
near-term need for certain machinery, equipment and working capital in order to
enhance capacity and build product to meet demand. The recent positive financial
results during 2003 have enhanced the Company's ability to acquire additional
financing. The Company continually explores various sources of capital,
including utilizing its unleveraged assets as collateral for additional
borrowing capacity, issuing new or refinancing existing debt, and raising equity
through private or public offerings. Although it is evaluating these
alternatives, the Company believes it has the ability over the next 12 months to
finance its operations primarily through internally generated funds, or through
the use of additional financing that currently is available to the Company.
As described in Part II, Item 1, "Legal Proceedings", the Company is
involved in certain environmental matters with respect to its facility in
Newark, New York. Although the Company has reserved for expenses related to
this, there can be no assurance that this will be the maximum amount. The
ultimate resolution of this matter may have a significant adverse impact on the
results of operations in the period in which it is resolved.
The Company typically offers warranties against any defects due to product
malfunction or workmanship for a period up to one year from the date of
purchase. The Company also offers a 10-year warranty on its 9-volt batteries
that are used in ionization-type smoke detector applications. The Company
provides for a reserve for this potential warranty expense, which is based on an
analysis of historical warranty issues. While the Company believes that its
current warranty reserves are adequate, there is no assurance that future
warranty claims will be consistent with past history. In the event the Company's
experiences a significant increase in warranty claims, there is no assurance
that the Company's reserves are sufficient. This could have a material adverse
effect on the Company's business, financial condition and results of operations.
Outlook (in whole dollars)
The Company currently expects revenues in its second quarter of 2004 to
reach approximately $28,000,000, as current order visibility and demand for
military products remain strong and as overall capacity increases. In addition
to the strong demand from the military, particularly for the BA-5390 battery,
interest levels and order activity are high for other products, including
rechargeable battery products and Thin Cell battery products. The outlook for
the second half of the year, at this time, is that the military demand may level
off somewhat. The results in each of the quarters can be subject to fluctuations
as the timing of some customer orders is not often easy to predict. In
particular, 9-volt revenues depend upon continued demand from the Company's
customers, some of which depend upon retail sell-through. Similarly, revenues
from sales of cylindrical products, primarily to military customers, depend upon
a variety of factors, including the timing of the battery solicitation process
within the military, the Company's ability to successfully win contract awards,
successful qualification of the Company's products in the applicable military
applications, the timing of shipments related to lot acceptance, and the timing
of order releases against such contracts. Additionally, there is always a risk
that Congressional appropriations might vary from what is needed or expected.
Some of these factors are outside of the Company's direct control. Combined with
the results for the first quarter that were ahead of the guidance that had been
previously provided, revenues for the full year 2004 are now expected to
15
reach at least $106,000,000 (up from the previous guidance of approximately
$104,000,000), compared with $79,450,000 in 2003, an increase of approximately
33%. Over the next three to five years, with anticipated growth in various
target markets, such as military, medical, automotive telematics, and search and
rescue, the Company has targeted an annual growth rate in revenues of 20% - 30%,
heading toward $200,000,000. While the Company's revenues are expected to be
comprised of approximately 60% from military sales in 2004, this percentage is
expected to decline over time as the Company generates sales from customers in
commercial markets.
As discussed in the Company's Form 10-K for the year ended December 31,
2003, Phase IV of the Next Gen II solicitation, referred to as the "Rectangular"
phase, was issued in January 2004. This phase was split into two pieces, one of
which included the BA-5390 battery that the Company is already manufacturing
under exigent, or non-bid, contracts. The other piece consisted of the BA-5347
battery, for which the solicitation will result in a small business set-aside
contract. Bids were submitted for these products in mid-March 2004. The Company
cannot predict when final awards will be made or what the final outcome may be.
The total amount for this phase of Next Gen II is expected to be in the range of
up to approximately $200-$300 million over five years. In the meantime, the
Company plans to continue to fulfill its current obligations related to exigent
contracts, and to pursue other such contracts as the opportunity arises. The
Company's current guidance incorporates ongoing BA-5390 contracts.
The Company has a fairly substantial fixed cost infrastructure to support
its overall operations. As sales continue to grow, manufacturing efficiencies
are realized, and operating expenses (R&D and SG&A) are closely controlled, the
Company believes it can generate favorable returns to scale in the range of 30%,
and possibly as high as 50%, on incremental revenues, depending on product mix.
Conversely, decreasing volumes will likely result in the opposite effect. Gross
margins in 2004 are expected to be in the range of 23% - 24%. Within the next
couple of years, the Company believes that its gross margins can reach a range
of 26%-27% as operating efficiencies improve and the mix of products with higher
margins increases. It has set a target of 30% gross margins for the longer-term,
i.e. within the next five years.
Recently, the interest from potential customers for various types of new
batteries has increased significantly. As a result, management has made a
commitment to increase resources in the R&D area, mainly related to new product
development. The Company plans to continue its recent successful efforts related
to new cylindrical battery development for applications that initially have a
military focus, but often have sizeable commercial applications as well. In
addition, it is committing funds for the development of various Thin Cell and
rechargeable products. In order to keep up with this increase in opportunities,
R&D costs are now expected to increase in the range of 25% or more. While the
R&D expense line is now expected to increase somewhat, it is also important to
note that the Company also enhances its R&D efforts with technology contracts,
the revenues and related costs for which are reported as a part of the
Technology Contracts segment.
While the Company continues to monitor its operating costs very tightly,
it expects that SG&A costs will increase modestly over 2003 as it invests in
additional sales and marketing efforts, and general administrative costs rise to
support the growth of the business. Overall, the Company expects that total
operating expenses (R&D and SG&A) will amount to approximately 12% of total
revenues during 2004, compared with 14% in 2003. Within the next couple of
years, the Company believes that its operating expenses will be in the range of
11%-12% of revenues, and it has set a target to reach 10% of revenues in the
longer-term.
As revenues are projected to increase in the second quarter of 2004 to
approximately $28,000,000, the Company projects operating income will reach
approximately $3,500,000 for the second three months of 2004. For the full year,
as gross margins improve and the Company continues to control its operating
expenses, operating income is now expected to amount to approximately
$12,500,000 in 2004. Within the next couple of years, operating income as a
percentage of revenues, is projected to be in
16
the range of 15%, with a longer-term target of 20%, resulting from higher gross
margins and lower operating expenses as a percentage of sales.
At December 31, 2003, the Company had approximately $76,829,000 in net
operating loss (NOL) carryforwards available to offset current and future
taxable income. The Company determined there was not sufficient positive
evidence in accordance with FAS 109 to record a deferred tax asset at December
31, 2003. The Company will continue to assess the appropriateness based upon
profitability of recording a deferred tax asset for 2004 and beyond.
In addition, in early 2004, the Company determined that a change in
ownership, as defined under Internal Revenue Code Section 382, had occurred
during fourth quarter of 2003, resulting in an annual limitation on the
utilization of the net operating loss carryforwards. The Company currently
estimates that the amount of such limitation will be in the range of
approximately $14,000,000 to $18,000,000 annually. If the Company's U.S. taxable
income were to exceed this annual limitation, it could result in a higher than
anticipated current tax expense for any year in which this occurs.
During 2004, the Company projects that it will spend approximately
$5,000,000 to $6,000,000 on capital expenditures for machinery and equipment.
Nearly one-half of these expenditures are expected to be for projects that
enhance manufacturing productivity, with relatively quick returns. The remainder
of these expenditures will be used to alleviate bottlenecks and increase
capacity, as well as for tooling of new products.
In October 2003, the Company advanced $2,350,000 to Ultralife Taiwan, Inc.
(UTI), in which the Company has an approximate 9.2% ownership interest. This
transaction was done in order to provide short term financing to UTI while they
work to complete an additional equity infusion into UTI to support its growth
plans. This short-term note receivable was originally scheduled to mature on
March 1, 2004 with interest accruing at 3% per annum. Effective March 1, 2004,
the Company extended the maturity date of this note to June 30, 2004, allowing
UTI to continue its efforts to raise additional equity capital. The Company will
reconsider periodic extensions of this note receivable on a quarterly basis. If
UTI is successful in raising additional funds, the Company may elect to convert
this note into shares of UTI common stock. In addition to the note, the
Company's ownership interest in UTI is reflected on the Company's March 27, 2004
consolidated balance sheet. The amount of this investment is $1,550,000,
accounted for under the cost method of accounting. The Company does not
guarantee the obligations of UTI and is not required to provide any additional
funding. Because of their current uncertain financial condition, UTI may not be
able to raise the necessary additional funds from other investors and the
Company may not be able to recover or realize any gain on the note or the
Company's investment. Such an occurrence could have a material adverse effect on
the Company's business, financial condition and results of operations.
In June 2004, the Company's credit facility with its primary lending bank
is scheduled to expire. The Company is currently seeking and reviewing proposals
from various lending institutions that would provide it with greater borrowing
capacity, increased flexibility and lower borrowing costs. The Company plans to
refinance this debt, or extend its current credit flexibility, before its
current arrangement expires.
In general, the Company continually explores its financing alternatives,
including utilizing its unleveraged assets as collateral for additional
borrowing capacity, refinancing current debt or issuing new debt, leasing
assets, and raising equity through private or public offerings. During 2003, the
Company successfully managed its growth through various debt and equity
financings. Although the Company is confident that it will be successful in
continuing to arrange adequate financing to support its growth, there can be no
assurance that the Company will be able to do so. Therefore, this could have a
material adverse effect on the Company's business, financial position and
results of operations.
17
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various market risks in the normal course of
business, primarily interest rate risk and changes in market value of its
investments and believes its exposure to these risks is minimal. The Company's
investments are made in accordance with the Company's investment policy and
primarily consist of commercial paper and U.S. corporate bonds. The Company does
not currently invest in derivative financial instruments.
Item 4. Controls and Procedures
Evaluation Of Disclosure Controls And Procedures - The Company's president
and chief executive officer (principal executive officer) and its vice
president- finance and chief financial officer (principal financial officer)
have evaluated the disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this
quarterly report. Based on this evaluation, the president and chief executive
officer and vice president - finance and chief financial officer concluded that
the Company's disclosure controls and procedures were effective as of such date.
Changes In Internal Controls Over Financial Reporting - There has been no
change in the internal controls over financial reporting that occurred during
the fiscal quarter covered by this quarterly report that has materially
affected, or is reasonably likely to materially affect, the internal controls
over financial reporting.
18
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to legal proceedings and claims which arise in the
normal course of business. The Company believes that the final disposition of
such matters will not have a material adverse effect on the financial position
or results of operations of the Company.
In conjunction with the Company's purchase/lease of its Newark, New York
facility in 1998, the Company entered into a payment-in-lieu of tax agreement
which provides the Company with real estate tax concessions upon meeting certain
conditions. In connection with this agreement, a consulting firm performed a
Phase I and II Environmental Site Assessment which revealed the existence of
contaminated soil and ground water around one of the buildings. The Company
retained an engineering firm which estimated that the cost of remediation should
be in the range of $230,000. This cost, however, is merely an estimate and the
cost may in fact be much higher. In February, 1998, the Company entered into an
agreement with a third party which provides that the Company and this third
party will retain an environmental consulting firm to conduct a supplemental
Phase II investigation to verify the existence of the contaminants and further
delineate the nature of the environmental concern. The third party agreed to
reimburse the Company for fifty percent (50%) of the cost of correcting the
environmental concern on the Newark property. The Company has fully reserved for
its portion of the estimated liability. Test sampling was completed in the
spring of 2001, and the engineering report was submitted to the New York State
Department of Environmental Conservation (NYSDEC) for review. NYSDEC reviewed
the report and, in January 2002, recommended additional testing. The Company
submitted a work plan to NYSDEC in October 2003, which was approved shortly
thereafter. The Company sought proposals from engineering firms to complete the
remedial work outlined in the work plan. A firm was selected to perform the
tasks associated with the remediation activities, which were completed in
December 2003. The test results were then forwarded to NYSDEC for comment.
NYSDEC responded to the Company in March 2004 requesting a report summarizing
the data, findings, discussions and conclusions. The report has been submitted
to NYSDEC who will review and make recommendations as to whether additional
remediation is required. Because the Company believes that the source of the
contamination has been removed, NYSDEC recommended that the Company conduct
quarterly monitoring of the groundwater for one year. The Company believes that
the final cost to remediate will not exceed the original estimate. The Company
awaits final comments from the NYSDEC and will begin the additional sampling
upon approval of the conclusions stated in the report. Because this is a
voluntary remediation, there is no requirement for the Company to complete the
project within any specific time frame. The ultimate resolution of this matter
may have a significant adverse impact on the results of operations in the period
in which it is resolved. Furthermore, the Company may face claims resulting in
substantial liability which could have a material adverse effect on the
Company's business, financial condition and the results of operations in the
period in which such claims are resolved.
A retail end-user of a product manufactured by one of Ultralife's
customers (the "Customer"), has made a claim against the Customer wherein it is
asserted that the Customer's product, which is powered by an Ultralife battery,
does not operate according to the Customer's product specification. No claim has
been filed against Ultralife. However, in the interest of fostering good
customer relations, in September 2002, Ultralife agreed to lend technical
support to the Customer in defense of its claim. The claim between the end-user
and the Customer has now been settled. Ultralife has renewed its commitment to
the Customer to honor its warranty by replacing any batteries that may be
determined to be defective. In the event a claim is filed against Ultralife and
it is ultimately determined that Ultralife's product was defective, replacement
of batteries to this Customer or end-user may have a material adverse effect on
the Company's financial position and results of operations.
19
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Section 302 Certification - CEO
31.2 Section 302 Certification - CFO
32 Section 906 Certifications
(b) Reports on Form 8-K
On January 5, 2004, the Company filed a Form 8-K with the Securities and
Exchange Commission indicating that it will be presenting at the 6th Annual
Needham Growth Conference on January 8, 2004.
On January 23, 2004, the Company filed Form 8-K with the Securities and
Exchange Commission announcing that it will report its fourth quarter 2003
results for the period ended December 31, 2003 before the market opens on
Thursday, February 5, 2004.
On January 29, 2004, the Company filed Form 8-K with the Securities and
Exchange Commission announcing it had received an order valued at over $1
million for its BA-5390 and UBI-2590 military batteries from one of its U.S.
battery distributors.
On February 2, 2004, the Company filed Form 8-K with the Securities and
Exchange Commission announcing that it was awarded a production contract for its
BA-5390/U battery valued at approximately $12 million, by the U.S. Army
Communications Electronics Command (CECOM).
On February 3, 2004, the Company filed a Form 8-K with the Securities and
Exchange Commission indicating that it will be presenting at the SG Cowen 25th
Annual Global Aerospace Technology Conference on February 10, 2004.
On February 5, 2004, the Company filed a Form 8-K with the Securities and
Exchange Commission announcing its financial results for the quarter and year
ended December 31, 2003.
On February 11, 2004, the Company filed a Form 8-K with the Securities and
Exchange Commission indicating that it will be presenting on February 18, 2004
at The Roth Capital Partners 16th Annual Growth Stock Conference taking place at
the St. Regis Monarch Beach Resort and Spa in Dana Point, California.
On February 24, 2004, the Company filed a Form 8-K with the Securities and
Exchange Commission announcing that it had received a development contract from
General Dynamics valued at approximately $2.7 million.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ULTRALIFE BATTERIES, INC.
(Registrant)
Date: May 3, 2004 By: /s/ John D. Kavazanjian
----------------------------------
John D. Kavazanjian
President and Chief Executive Officer
Date: May 3, 2004 By: /s/ Robert W. Fishback
----------------------------------
Robert W. Fishback
Vice President - Finance and
Chief Financial Officer
21
Exhibit 31.1
I, John D. Kavazanjian, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ultralife Batteries,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: May 3, 2004 /s/ John D. Kavazanjian
-------------------------------------
John D. Kavazanjian
President and Chief Executive Officer
Exhibit 31.2
I, Robert W. Fishback, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ultralife Batteries,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: May 3, 2004 /s/ Robert W. Fishback
----------------------------
Robert W. Fishback
Vice President - Finance and
Chief Financial Officer
Exhibit 32
Section 1350 Certification
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 ("Section 906"), John D. Kavazanjian and Robert W.
Fishback, the President and Chief Executive Officer and Vice President - Finance
and Chief Financial Officer, respectively, of Ultralife Batteries, Inc., certify
that (i) the Quarterly Report on Form 10-Q for the quarter ended March 27, 2004
fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and (ii) the information contained in such report fairly
presents, in all material respects, the financial condition and results of
operations of Ultralife Batteries, Inc.
A signed original of this written statement required by Section 906 has been
provided to Ultralife Batteries, Inc. and will be retained by Ultralife
Batteries, Inc. and furnished to the Securities and Exchange Commission or its
staff upon request.
Date: May 3, 2004 /s/ John D. Kavazanjian
-------------------------------------
John D. Kavazanjian
President and Chief Executive Officer
Date: May 3, 2004 /s/ Robert W. Fishback
-------------------------------------
Robert W. Fishback
Vice President - Finance and
Chief Financial Officer