UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-Q
______________
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 28, 2015
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 0-27460
(Exact
name of registrant as specified in its charter)
Delaware
(State
or other jurisdiction of incorporation)
2000
Technology Parkway
Newark,
New York
(Address
of principal executive offices) |
16-1387013
(I.R.S.
Employer Identification No.)
14513
(Zip
Code) |
___________________
Registrant's
telephone number, including area code: (315) 332-7100
_____________________________
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No
☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer: Large accelerated
filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company
☒
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The
number of shares outstanding of the registrant's common stock was 15,635,904, net of 3,338,307 treasury shares, as of July
29, 2015.
ULTRALIFE
CORPORATION
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ULTRALIFE CORPORATION AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) |
(unaudited) |
| |
| |
|
ASSETS |
| |
June 28, | |
December 31, |
| |
2015 | |
2014 |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 15,789 | | |
$ | 17,711 | |
Restricted cash | |
| 143 | | |
| 155 | |
Trade accounts receivable, net of allowance for doubtful accounts of $333 and $340, respectively | |
| 11,293 | | |
| 11,295 | |
Inventories, net | |
| 24,000 | | |
| 26,086 | |
Prepaid expenses and other current assets | |
| 1,122 | | |
| 1,313 | |
Due from insurance company | |
| 184 | | |
| 184 | |
Deferred income taxes | |
| 106 | | |
| 106 | |
Total current assets | |
| 52,637 | | |
| 56,850 | |
Property, equipment and improvements, net | |
| 9,501 | | |
| 9,812 | |
Goodwill | |
| 16,427 | | |
| 16,407 | |
Other intangible assets, net | |
| 4,219 | | |
| 4,338 | |
Security deposits and other non-current assets | |
| 151 | | |
| 235 | |
Total assets | |
$ | 82,935 | | |
$ | 87,642 | |
| |
| | | |
| | |
LIABILITIES AND SHAREHOLDERS' EQUITY | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 6,353 | | |
$ | 6,996 | |
Accrued compensation and related benefits | |
| 2,388 | | |
| 1,725 | |
Accrued expenses and other current liabilities | |
| 1,738 | | |
| 2,421 | |
Income taxes payable | |
| 127 | | |
| 69 | |
Total current liabilities | |
| 10,606 | | |
| 11,211 | |
Deferred income taxes | |
| 4,572 | | |
| 4,462 | |
Other non-current liabilities | |
| 56 | | |
| 56 | |
Total liabilities | |
| 15,234 | | |
| 15,729 | |
| |
| | | |
| | |
Commitments and contingencies (Note 10) | |
| | | |
| | |
| |
| | | |
| | |
Shareholders' equity: | |
| | | |
| | |
Preferred stock – par value $.10 per share; authorized 1,000,000 shares; none issued | |
| — | | |
| — | |
Common stock – par value $.10 per share; authorized 40,000,000 shares; issued - 18,974,211 shares
at June 28, 2015 and 18,941,544 shares at December 31, 2014 | |
| 1,897 | | |
| 1,894 | |
Capital in excess of par value | |
| 176,249 | | |
| 175,940 | |
Accumulated deficit | |
| (95,599 | ) | |
| (96,920 | ) |
Accumulated other comprehensive loss | |
| (401 | ) | |
| (467 | ) |
Treasury stock - at cost; 3,090,225 shares at June 28, 2015 and 1,600,731 | |
| | | |
| | |
shares at December 31, 2014 | |
| (14,307 | ) | |
| (8,420 | ) |
Total Ultralife equity | |
| 67,839 | | |
| 72,027 | |
Noncontrolling interest | |
| (138 | ) | |
| (114 | ) |
Total shareholders’ equity | |
| 67,701 | | |
| 71,913 | |
| |
| | | |
| | |
Total liabilities and shareholders' equity | |
$ | 82,935 | | |
$ | 87,642 | |
| |
| | | |
| | |
The accompanying notes are an integral part of these consolidated financial statements. |
ULTRALIFE CORPORATION AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF OPERATIONS AND |
COMPREHENSIVE INCOME (LOSS) |
(In Thousands except per share amounts) |
(unaudited) |
| |
| |
| |
| |
|
| |
Three month periods ended | |
Six month periods ended |
| |
June 28, | |
June 29, | |
June 28, | |
June 29, |
| |
2015 | |
2014 | |
2015 | |
2014 |
| |
| |
| |
| |
|
Revenues | |
$ | 18,955 | | |
$ | 15,199 | | |
$ | 38,132 | | |
$ | 30,484 | |
Cost of products sold | |
| 13,096 | | |
| 10,987 | | |
| 26,266 | | |
| 21,937 | |
Gross profit | |
| 5,859 | | |
| 4,212 | | |
| 11,866 | | |
| 8,547 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Research and development | |
| 1,334 | | |
| 1,560 | | |
| 2,693 | | |
| 2,996 | |
Selling, general and administrative | |
| 3,708 | | |
| 3,976 | | |
| 7,534 | | |
| 7,971 | |
Total operating expenses | |
| 5,042 | | |
| 5,536 | | |
| 10,227 | | |
| 10,967 | |
| |
| | | |
| | | |
| | | |
| | |
Operating income (loss) | |
| 817 | | |
| (1,324 | ) | |
| 1,639 | | |
| (2,420 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other (expense) income: | |
| | | |
| | | |
| | | |
| | |
Interest income | |
| 1 | | |
| — | | |
| 2 | | |
| 9 | |
Interest and financing expense | |
| (65 | ) | |
| (41 | ) | |
| (132 | ) | |
| (97 | ) |
Miscellaneous | |
| 92 | | |
| 46 | | |
| (30 | ) | |
| 30 | |
Income (loss) from continuing operations before income taxes | |
| 845 | | |
| (1,319 | ) | |
| 1,479 | | |
| (2,478 | ) |
Income tax provision | |
| 71 | | |
| 57 | | |
| 182 | | |
| 117 | |
| |
| | | |
| | | |
| | | |
| | |
Net income (loss) from continuing operations | |
| 774 | | |
| (1,376 | ) | |
| 1,297 | | |
| (2,595 | ) |
Loss from discontinued operations, net of tax | |
| — | | |
| — | | |
| — | | |
| (61 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net income (loss) | |
| 774 | | |
| (1,376 | ) | |
| 1,297 | | |
| (2,656 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss attributable to non-controlling interest | |
| 14 | | |
| 16 | | |
| 24 | | |
| 10 | |
| |
| | | |
| | | |
| | | |
| | |
Net income (loss) attributable to Ultralife | |
| 788 | | |
| (1,360 | ) | |
| 1,321 | | |
| (2,646 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other comprehensive income: | |
| | | |
| | | |
| | | |
| | |
Foreign currency translation adjustments | |
| 44 | | |
| 69 | | |
| 66 | | |
| 135 | |
| |
| | | |
| | | |
| | | |
| | |
Comprehensive income (loss) attributable to Ultralife | |
$ | 832 | | |
$ | (1,291 | ) | |
$ | 1,387 | | |
$ | (2,511 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net income (loss) per share attributable to Ultralife common shareholders – basic: | |
| | | |
| | | |
| | | |
| | |
Continuing operations | |
$ | .05 | | |
$ | (.08 | ) | |
$ | .08 | | |
$ | (.15 | ) |
Discontinued operations | |
| — | | |
| — | | |
| — | | |
| (.00 | ) |
Total | |
$ | .05 | | |
$ | (.08 | ) | |
$ | .08 | | |
$ | (.15 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net income per share attributable to Ultralife common shareholders – diluted: | |
| | | |
| | | |
| | | |
| | |
Continuing operations | |
$ | .05 | | |
| | | |
$ | .08 | | |
| | |
Discontinued operations | |
| — | | |
| | | |
| — | | |
| | |
Total | |
$ | .05 | | |
| | | |
$ | .08 | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average shares outstanding – basic | |
| 16,557 | | |
| 17,533 | | |
| 16,945 | | |
| 17,523 | |
Potential common shares | |
| 40 | | |
| | | |
| 32 | | |
| | |
Weighted average shares outstanding - diluted | |
| 16,597 | | |
| | | |
| 16,977 | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
The accompanying notes are an integral part of these consolidated financial statements. |
ULTRALIFE CORPORATION AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) |
(unaudited) |
| |
Six month periods ended |
| |
June 28, | |
June 29, |
| |
2015 | |
2014 |
OPERATING ACTIVITIES: | |
| | | |
| | |
Net income (loss) | |
$ | 1,297 | | |
$ | (2,656 | ) |
Loss from discontinued operations, net of tax | |
| — | | |
| 61 | |
Adjustments to reconcile net income (loss) from continuing operations to net cash | |
| | | |
| | |
provided by operating activities: | |
| | | |
| | |
Depreciation and amortization of financing fees | |
| 1,196 | | |
| 1,501 | |
Amortization of intangible assets | |
| 119 | | |
| 154 | |
Stock-based compensation | |
| 304 | | |
| 483 | |
Loss on long-lived asset disposals | |
| 36 | | |
| — | |
Changes in deferred income taxes | |
| 110 | | |
| 110 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| 22 | | |
| 4,128 | |
Inventories | |
| 2,331 | | |
| (1,042 | ) |
Prepaid expenses and other assets | |
| 193 | | |
| 313 | |
Accounts payable and other liabilities | |
| (863 | ) | |
| (2,066 | ) |
Net cash provided by operating activities | |
| 4,745 | | |
| 986 | |
| |
| | | |
| | |
INVESTING ACTIVITIES: | |
| | | |
| | |
Cash paid for property, equipment and improvements | |
| (884 | ) | |
| (398 | ) |
Change in restricted cash | |
| 12 | | |
| — | |
Net cash used in investing activities | |
| (872 | ) | |
| (398 | ) |
| |
| | | |
| | |
FINANCING ACTIVITIES: | |
| | | |
| | |
Cash paid to repurchase treasury stock | |
| (5,887 | ) | |
| (39 | ) |
Return of security deposit | |
| 66 | | |
| — | |
Proceeds from issuance of common stock | |
| 8 | | |
| 11 | |
Net cash used in financing activities | |
| (5,813 | ) | |
| (28 | ) |
| |
| | | |
| | |
Effect of exchange rate changes on cash and cash equivalents | |
| 18 | | |
| 111 | |
| |
| | | |
| | |
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | |
| (1,922 | ) | |
| 671 | |
| |
| | | |
| | |
Cash and cash equivalents, beginning of period | |
| 17,711 | | |
| 16,489 | |
Cash and cash equivalents, end of period | |
$ | 15,789 | | |
$ | 17,160 | |
| |
| | | |
| | |
| |
| | | |
| | |
NON-CASH ITEMS: | |
| | | |
| | |
Construction in progress in accounts payable | |
$ | — | | |
$ | 790 | |
The accompanying notes are an integral part of
these consolidated financial statements.
ULTRALIFE
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands – except share and per share amounts)
(unaudited)
The
accompanying unaudited Condensed Consolidated Financial Statements of Ultralife Corporation (the “Company”) and subsidiaries
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
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 and related notes thereto contained in our Form 10-K
for the year ended December 31, 2014.
The
December 31, 2014 condensed consolidated balance sheet data 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.
Our
quarters end on the last Sunday of the third month in the quarter, as opposed to a calendar month-based cycle for each fiscal
quarter. While the actual dates for the quarter-ends will change slightly each year, we believe that there are not any material
differences when making quarterly comparisons.
| 2. | SHARE
REPURCHASE PROGRAM |
On
April 28, 2014, the Company’s Board of Directors approved a share repurchase program (the “Share Repurchase Program”)
which became effective on May 1, 2014, under which the Company was authorized to repurchase up to 1.8 million shares of its outstanding
common stock over a period not to exceed twelve months.
On
April 28, 2015, the Board of Directors authorized an extension of the Share Repurchase Program for an additional twelve month
period beginning May 1, 2015 and ending April 30, 2016, subject, for the entire period as extended, to the 1.8 million share aggregate
limit established in the initial authorization.
On
June 2, 2015, the Board of Directors approved an expansion and extension of the Share Repurchase Program, authorizing the repurchase
of up to an additional 1.6 million shares through June 2, 2016.
Share
repurchases under this program are made in accordance with SEC Rule 10b-18 using a variety of methods, which may include open
market purchases, privately negotiated transactions and block trades, or any combination of such methods, in compliance with applicable
insider trading and other securities laws and regulations. With the exception of repurchases made during stock trading black-out
periods under a 10b5-1 Plan, the timing, manner, price and amount of any repurchase are determined at the Company’s discretion.
The Share Repurchase Program may be suspended, terminated or modified by the Company at any time and for any reason. The
Share Repurchase Program does not obligate the Company to repurchase any specific number of shares.
During
the three month period ended June 28, 2015, the Company repurchased 1,398,454 shares under this program for a total cost (excluding
fees and commissions) of $5,509. During the six month period ended June 28, 2015, the Company repurchased 1,476,855 shares under
this program for a total cost (excluding fees and commissions) of $5,805. From the inception of the Share Repurchase Program on
May 1, 2014 through July 29, 2015, the Company has repurchased 1,941,691 shares for an aggregate cost (excluding fees and commissions) of $7,525. The total remaining
balance of shares authorized for repurchase under the Share Repurchase Program is 1,458,309 shares as of July 29, 2015.
| 3. | CHINA
FACILITY RELOCATION |
During
2014, we were informed by local government authorities in Shenzhen, China that the lease for our facility there would not be extended,
and we commenced a search for an alternate site to relocate our facility. In July 2014, our subsidiary in China entered into a
lease for a replacement facility, also located in Shenzhen. During the fourth quarter of 2014, our subsidiary in China vacated
its former facility premises and substantially completed a move and transition to this new facility.
The
Company received compensation from the local government authorities for leasehold improvements and moving-related costs totaling
$815, of which $596 was recognized as a reduction of expenses incurred during 2014, which were $841. It is the Company’s
policy to recognize this compensation as a reduction of expenses as the expenses are recognized. Additional amounts totaling $158
and $219 of this government compensation were recognized as reductions of expenses during the three- and six-month periods ended
June 28, 2015, respectively. The related expenses incurred during the three- and six-month periods ended June 28, 2015 were $112
and $221, respectively. The relocation payments were complete as of June 28, 2015.
Inventories
are stated at the lower of cost or market with cost determined under the first-in, first-out (FIFO) method. The composition of
inventories was:
| |
June 28, | |
December 31, |
| |
2015 | |
2014 |
Raw materials | |
$ | 13,595 | | |
$ | 15,100 | |
Work in process | |
| 1,814 | | |
| 1,489 | |
Finished goods | |
| 8,591 | | |
| 9,497 | |
Total | |
$ | 24,000 | | |
$ | 26,086 | |
| 5. | PROPERTY,
EQUIPMENT AND IMPROVEMENTS |
Major
classes of property, equipment and improvements consisted of the following:
| |
June 28, | |
December 31, |
| |
2015 | |
2014 |
Land | |
$ | 123 | | |
$ | 123 | |
Buildings and leasehold improvements | |
| 7,475 | | |
| 7,437 | |
Machinery and equipment | |
| 48,395 | | |
| 48,054 | |
Furniture and fixtures | |
| 1,993 | | |
| 1,811 | |
Computer hardware and software | |
| 4,525 | | |
| 4,452 | |
Construction in process | |
| 1,390 | | |
| 1,351 | |
| |
| 63,901 | | |
| 63,228 | |
Less-accumulated depreciation | |
| (54,400 | ) | |
| (53,416 | ) |
Net property, equipment
and improvements | |
$ | 9,501 | | |
$ | 9,812 | |
Depreciation
expense for property, equipment and improvements was as follows:
| |
Three-month periods ended | |
Six-month periods ended |
| |
June 28, | |
June 29, | |
June 28, | |
June 29, |
| |
2015 | |
2014 | |
2015 | |
2014 |
Depreciation expense | |
$ | 582 | | |
$ | 754 | | |
$ | 1,178 | | |
$ | 1,465 | |
| 6. | GOODWILL,
INTANGIBLE ASSETS AND LONG TERM ASSETS |
a. Goodwill
The
following table summarizes the goodwill activity by segment for the six-month periods ended June 28, 2015 and June 29, 2014:
| |
| |
|
| |
Battery & Energy | |
Communi- cations | |
|
| |
Products | |
Systems | |
Total |
| |
| |
|
Balance - December 31, 2013 | |
$ | 4,926 | | |
$ | 11,493 | | |
$ | 16,419 | |
Effect of foreign currency translation | |
| (16 | ) | |
| — | | |
| (16 | ) |
Balance – June 29, 2014 | |
| 4,910 | | |
| 11,493 | | |
| 16,403 | |
Effect of foreign currency translation | |
| 4 | | |
| — | | |
| 4 | |
Balance - December 31, 2014 | |
| 4,914 | | |
| 11,493 | | |
| 16,407 | |
Effect of foreign currency translation | |
| 20 | | |
| — | | |
| 20 | |
Balance – June 28, 2015 | |
$ | 4,934 | | |
$ | 11,493 | | |
$ | 16,427 | |
b. Intangible Assets
The
composition of intangible assets was:
| |
| |
|
| |
at June 28, 2015 |
| |
| |
Accumulated | |
|
| |
Cost | |
amortization | |
Net |
| |
| |
|
Trademarks | |
$ | 3,568 | | |
$ | — | | |
$ | 3,568 | |
Patents and technology | |
| 4,514 | | |
| (4,184 | ) | |
| 330 | |
Customer relationships | |
| 4,037 | | |
| (3,738 | ) | |
| 299 | |
Distributor relationships | |
| 394 | | |
| (372 | ) | |
| 22 | |
Total intangible assets | |
$ | 12,513 | | |
$ | (8,294 | ) | |
$ | 4,219 | |
| |
| | | |
| | |
| |
| at December 31, 2014 |
| |
| |
Accumulated | |
|
| |
Cost | |
amortization | |
Net |
| |
| | | |
| | |
Trademarks | |
$ | 3,567 | | |
$ | — | | |
$ | 3,567 | |
Patents and technology | |
| 4,509 | | |
| (4,114 | ) | |
| 395 | |
Customer relationships | |
| 4,029 | | |
| (3,679 | ) | |
| 350 | |
Distributor relationships | |
| 391 | | |
| (365 | ) | |
| 26 | |
Total intangible assets | |
$ | 12,496 | | |
$ | (8,158 | ) | |
$ | 4,338 | |
Amortization
expense for intangible assets was as follows:
| |
Three-month periods ended | |
Six-month periods ended |
| |
June 28, | |
June 29, | |
June 28, | |
June 29, |
| |
2015 | |
2014 | |
2015 | |
2014 |
Amortization included in: | |
| | | |
| | | |
| | | |
| | |
Research and development | |
$ | 33 | | |
$ | 45 | | |
$ | 65 | | |
$ | 87 | |
Selling, general and administrative | |
| 26 | | |
| 35 | | |
| 54 | | |
| 67 | |
Total amortization expense | |
$ | 59 | | |
$ | 80 | | |
$ | 119 | | |
$ | 154 | |
The
change in the cost value of total intangible assets from December 31, 2014 to June 28, 2015 is a result of the effect of foreign
currency translations.
| 7. | REVOLVING
CREDIT AGREEMENT |
We
have financing through a Revolving Credit, Guaranty and Security Agreement, dated as of May 24, 2013, (the “Credit Agreement”)
and related security agreements with PNC Bank, National Association (“PNC”), which provides a $20 million secured
asset-based revolving credit facility that includes a $1 million letter of credit sub-facility (the “Credit Facility”).
The Credit Agreement provides that the Credit Facility may be increased with PNC’s concurrence to an amount not to exceed
$35 million, provided such increase must occur prior to the last six months of the term, which expires on May 24, 2017.
Our
available borrowing limit under the Credit Facility is based on a borrowing base formula equal to a percentage of accounts receivable,
inventory and eligible foreign in-transit inventory. Interest is payable quarterly and accrues on outstanding indebtedness under
the Credit Agreement at either a LIBOR-based rate or an alternate base rate, as defined in the Credit Agreement. We pay a quarterly
fee on the Credit Facility’s unused availability at 0.375% per annum.
As
of June 28, 2015, we had approximately $11,409 of borrowing capacity in addition to our cash on hand of $15,789, and we had no
outstanding borrowings or outstanding letters of credit under the Credit Facility at either June 28, 2015 or December 31, 2014.
On
June 5, 2015, the Company and PNC entered into a Fourth Amendment to the Credit Agreement, permitting the expansion and extension
of the Company’s Share Repurchase Program, described in Note 2 above, subject to the same terms and conditions set forth
in the previous amendments to the Credit Agreement.
We recorded non-cash
stock compensation expense in each period as follows:
| |
Three-month periods ended | |
Six-month periods ended |
| |
June 28, | |
June 29, | |
June 28, | |
June 29, |
| |
2015 | |
2014 | |
2015 | |
2014 |
Stock options | |
$ | 136 | | |
$ | 164 | | |
$ | 256 | | |
$ | 290 | |
Restricted stock grants: | |
| | | |
| | | |
| | | |
| | |
Employee | |
| 24 | | |
| — | | |
| 48 | | |
| — | |
President and CEO | |
| — | | |
| 34 | | |
| — | | |
| 83 | |
Board of Directors compensation – | |
| | | |
| | | |
| | | |
| | |
stock grant | |
| — | | |
| 55 | | |
| — | | |
| 110 | |
Total | |
$ | 160 | | |
$ | 253 | | |
$ | 304 | | |
$ | 483 | |
These are more fully
discussed as follows:
a. Stock Options
We
have stock options outstanding from various stock-based employee compensation plans for which we record compensation cost relating
to share-based payment transactions in our financial statements. As of June 28, 2015, there was $461 of total unrecognized compensation
cost related to outstanding stock options, which is expected to be recognized over a weighted average period of 1.2 years.
The
following table summarizes stock option activity for the six-month period ended June 28, 2015:
| |
Number of Shares | |
Weighted Average Exercise Price | |
Weighted Average Remaining Contractual Term (years) | |
Aggregate Intrinsic Value |
Outstanding at January 1, 2015 | |
| 2,056,122 | | |
$ | 6.66 | | |
| | | |
| | |
Granted | |
| 277,000 | | |
| 3.72 | | |
| | | |
| | |
Exercised | |
| (2,667 | ) | |
| 3.22 | | |
| | | |
| | |
Forfeited or expired | |
| (67,499 | ) | |
| 12.30 | | |
| | | |
| | |
Outstanding at June 28, 2015 | |
| 2,262,956 | | |
| 6.13 | | |
| 3.81 | | |
$ | 369 | |
| |
| | | |
| | | |
| | | |
| | |
Vested and expected to vest at June 28, 2015 | |
| 2,115,226 | | |
| 6.30 | | |
| 3.67 | | |
$ | 314 | |
Exercisable at June 28, 2015 | |
| 1,337,295 | | |
$ | 5.16 | | |
| 2.88 | | |
$ | 153 | |
Cash
received from stock option exercises under our stock-based compensation plans for the three-month periods ended June 28, 2015
and June 29, 2014 was $0 and $11, respectively. Cash received from stock option exercises for the six-month periods ended June
28, 2015 and June 29, 2014 was $9 and $11, respectively.
b. Restricted Stock
Awards
Our
President and Chief Executive Officer holds 60,000 unearned, unvested restricted stock units at June 28, 2015. In addition, 49,200
shares of restricted stock were awarded to certain of our employees in September, 2014. There is $82 of unrecognized compensation
cost related to these restricted shares at June 28, 2015.
We
use the asset and liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the
enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.
For
the three-month periods ended June 28, 2015 and June 29, 2014, we recorded $71 and $57, respectively, in income tax expense. For
the six-month periods ended June 28, 2015 and June 29, 2014, we recorded $182 and $117, respectively, in income tax expense. These
are detailed as follows:
| |
Three-month periods ended | |
Six-month periods ended |
| |
June 28, | |
June 29, | |
June 28, | |
June 29, |
| |
2015 | |
2014 | |
2015 | |
2014 |
Current income tax provision: | |
| | | |
| | | |
| | | |
| | |
Foreign | |
$ | (8 | ) | |
$ | — | | |
$ | 43 | | |
$ | — | |
Federal | |
| 22 | | |
| — | | |
| 22 | | |
| — | |
State | |
| 2 | | |
| 2 | | |
| 7 | | |
| 7 | |
Deferred income tax provision | |
| 55 | | |
| 55 | | |
| 110 | | |
| 110 | |
Total | |
$ | 71 | | |
$ | 57 | | |
$ | 182 | | |
$ | 117 | |
Deferred
income tax provision is primarily due to the recognition of deferred tax liabilities generated from goodwill and certain intangible
assets that cannot be predicted to reverse for book purposes during our loss carryforward periods. The remaining expense in 2014
was due to state income taxes, and in 2015 was primarily due to the income reported for our China operations during the period.
Our
overall effective tax rate is the result of the combination of income and losses in each of our tax jurisdictions, which is particularly
influenced by the fact that we have recorded a full reserve against our deferred tax assets pertaining to cumulative historical
losses for our U.S. operations and our U.K. subsidiary, as management does not believe, at this time, that it is more likely than
not that we will realize the benefit of these losses. Our tax rate for the six-month period ended June 28, 2015 was 12.3%, which
was different from the federal statutory rate due to the effect of the utilization of fully reserved net operating loss carryforwards
(“NOL”) as well as the effect of differing foreign income tax rates, principally in China. Our tax rate for the six-month
period ended June 29, 2014 was (4.7%), which was different from the federal statutory rate due to the loss incurred and our full
reserve against our NOLs, and the effect of differing foreign income tax rates, principally in China.
We
have substantial NOLs available to offset taxable income in the United States. However, we remain subject to the alternative minimum
tax in the United States. The alternative minimum tax limits the amount of NOL available to offset taxable income to 90% of the
current year income. We recorded a provision of $22 for U.S. alternative minimum tax for both the three and six months ended June
30, 2015, and no alternative minimum tax in either the three or six months ended June 29, 2014. The payment of the alternative
minimum tax normally results in the establishment of a deferred tax asset; however, we have established a full valuation allowance
for this related deferred tax asset.
As
of June 28, 2015, we have foreign and domestic NOL and credit carryforwards totaling approximately $86,200 and $1,400 available
to reduce future taxable income. Included in our NOL carryforwards are foreign loss carryforwards of approximately $12,400 that
can be carried forward indefinitely. The domestic NOL carryforward of $73,800 expires from 2019 through 2035. The domestic NOL
carryforward includes approximately $2,900 for which a benefit will be recorded in capital in excess of par value when realized.
Our
unrecognized tax benefits related to uncertain tax positions at June 28, 2015 pertain to foreign tax jurisdictions. The following
table summarizes the activity related to our unrecognized tax benefits:
| |
Six month periods ended |
| |
June 28, | |
June 29, |
| |
2015 | |
2014 |
| |
| |
|
Balance – beginning of period | |
$ | 7,296 | | |
$ | 7,296 | |
Increases related to current year tax positions | |
| — | | |
| — | |
Increases related to prior year tax positions | |
| — | | |
| — | |
Decreases related to prior year tax positions | |
| — | | |
| — | |
Expiration of statute of limitations for assessment of taxes | |
| — | | |
| — | |
Settlements of examinations | |
| (6,778 | ) | |
| — | |
Balance – end of period | |
$ | 518 | | |
$ | 7,296 | |
The
release of uncertain tax positions in 2015 relates to the successful conclusion of a federal tax examination, resulting in a $19.9
million increase in the amount of our reported domestic NOL carryforward.
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. Our U.S. tax matters for the years 2000 through 2014
remain subject to examination by the Internal Revenue Service (“IRS”) and by various state and local tax jurisdictions
due to our NOL carryforwards. Our tax matters for the years 2007 through 2014 remain subject to examination by the respective
foreign tax jurisdiction authorities. The IRS has now completed its examination of our 2011, 2012 and 2013 U.S. federal income
tax returns, with no resulting material effect to our financial position or results of operations.
Basic
earnings per share (“EPS”) is computed by dividing earnings attributable to the
Company’s common shareholders by the weighted-average shares outstanding during the period. Diluted EPS includes the dilutive
effect of securities, if any, and is calculated using the treasury stock method. For the three-month period ended June 28, 2015,
358,034 stock options and 34,200 restricted stock units were included in the calculation of Diluted EPS as such securities are
dilutive. Inclusion of these securities resulted in 39,426 additional shares in the calculation of fully diluted earnings per
share. For the six-month period ended June 28, 2015, 257,534 stock options and 34,200 restricted stock units were included in
the calculation of Diluted EPS as such securities are dilutive. Inclusion of these securities resulted in 31,903 additional shares
in the calculation of fully diluted earnings per share. Due to our net losses in both the three-month and six-month periods
ended June 29, 2014, no dilutive securities were considered.
There
were 1,904,922 and 2,271,923 outstanding stock options
for the three-month periods ended June 28, 2015 and June 29, 2014, respectively, that were not included in EPS as the effect would
be anti-dilutive. There were 2,005,422 and 2,271,923 outstanding stock options for
the six-month periods ended June 28, 2015 and June 29, 2014, respectively, that were not included in EPS as the effect would be
anti-dilutive.
| 11. | COMMITMENTS,
CONTINGENCIES AND SUBSEQUENT EVENT
|
a. Purchase Commitments
As
of June 28, 2015, we have made commitments to purchase approximately $338 of production machinery and equipment.
b. Product Warranties
We
estimate future costs associated with expected product failure rates, material usage and service costs in the development of our
warranty obligations. Warranty reserves are based on historical experience of warranty claims and generally will be estimated
as a percentage of sales over the warranty period. In the event the actual results of these items differ from the estimates, an
adjustment to the warranty obligation would be recorded. Changes in our product warranty liability during the first six months
of 2015 and 2014 were as follows:
| |
Six month periods ended |
| |
June 28, 2015 | |
June 29, 2014 |
Accrued warranty obligations – beginning | |
$ | 376 | | |
$ | 513 | |
Accruals for warranties issued | |
| 13 | | |
| 66 | |
Settlements made | |
| (13 | ) | |
| (50 | ) |
Accrued warranty obligations – ending | |
$ | 376 | | |
$ | 529 | |
c. 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 such matters, other than the matters described below, will not have a material adverse effect on our financial
position, results of operations or cash flows.
Dreamliner
Litigation
In
July 2013, an unoccupied Boeing 787 Dreamliner aircraft operated by Ethiopian Airlines was damaged by a fire while parked at London
Heathrow Airport. We participated in and provided technical assistance in support of an investigation of this incident conducted
by U.K. and U.S. regulatory authorities as well as by the manufacturer of the aircraft, as we are one of many downstream suppliers
to that manufacturer. While a final report has not been issued by the regulatory authorities, preliminary findings indicate
that the fire may have been caused by circumstances related to the plane’s emergency locator transmitter (“ELT”)
manufactured by another company. We continue to provide support and comment as required to the ongoing investigation.
On
May 4, 2015, we were notified of a lawsuit in which we were named, along with other suppliers to the aircraft manufacturer, concerning
that 2013 fire. The suit was filed by Ethiopian Airlines Enterprise in the Commercial Court, Queen’s Bench Division of the
High Court of Justice, London. The suit seeks as damages USD 42 million plus other unspecified amounts, including those for loss
of use and diminution in value of the aircraft. We maintain liability and products liability insurance through reputable providers,
and in accordance with our corporate practices, immediately advised and referred this matter to our insurers. We are working with
those insurers and their counsel to respond to and actively defend against this action.
A
component of the ELT is a battery pack which incorporates Ultralife’s industry-standard lithium manganese dioxide non-rechargeable
D-cell. Ultralife has had this cell in production since 2001, with millions of units produced and this cell is widely-used for
global defense and commercial applications. This battery product has gone through rigorous safety and qualification testing, including
United Nations Transport of Dangerous Goods, Manual of Tests and Criteria, and is authorized for use in aerospace applications
under Technical Standard Order C142.
At
this time, we believe that there is not a reasonable possibility that this incident will result in a material financial exposure
to the Company.
Arista Power Litigation
In
September 2011, we initiated an action against Arista Power, Inc. (“Arista”) and our former employee, David Modeen
(“Modeen”), in the State of New York Supreme Court, County of Wayne, in which we allege that Arista recruited all
but one of the members of its executive team from us, subsequently changed and redirected its business to compete directly with
us by using our confidential information, and during the summer of 2011, recruited Modeen to become an Arista employee. As
more fully disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014, we allege that both Arista and Modeen
breached agreements with us, that Arista’s employment of Modeen will inevitably lead to the disclosure and use of our trade
secrets by Arista. We seek damages as determined at trial and preliminary and permanent injunctive relief. The defendants
answered the allegations set forth in the Complaint and asserted claims against us, which
have since been dropped.
We
initiated the September 2011 Complaint against Arista Power to protect our shareholders, customers
and employees from the unauthorized use and theft of our investments in intellectual property, trade secrets and confidential
information by Arista and its employees. Protecting our intellectual property and know-how, developed and obtained at great
cost to us to form our competitive position in the marketplace and create value for our shareholders and stakeholders, is a fundamental
responsibility of all our employees.
Discovery
in this action is ongoing, and we plan to continue to pursue our complaint against Arista. It is not possible to predict
the outcome of this action, whether we will be granted the injunctive relief we seek, nor the monetary amount, if any, which we
may be awarded should we prevail.
| 12. | BUSINESS
SEGMENT INFORMATION |
We
report our results in two operating segments: Battery & Energy Products and Communications Systems. The Battery & Energy
Products segment includes: lithium 9-volt, cylindrical and various other non-rechargeable batteries, in addition to rechargeable
batteries, uninterruptable power supplies, charging systems and accessories, such as cables. The Communications Systems segment
includes: power supplies, cable and connector assemblies, RF amplifiers, amplified speakers, equipment mounts, case equipment,
integrated communication system kits and communications and electronics systems design. We believe that reporting performance
at the gross profit level is the best indicator of segment performance. As such, we report segment performance at the gross profit
level and operating expenses as Corporate charges.
The
components of segment performance were as follows:
Three-Month Period Ended
June 28, 2015:
| |
Battery & Energy Products | |
Communi- cations systems | |
Discontinued operations | |
Corporate | |
Total |
Revenues | |
$ | 15,972 | | |
$ | 2,983 | | |
$ | — | | |
$ | — | | |
$ | 18,955 | |
Segment contribution | |
| 4,542 | | |
| 1,317 | | |
| — | | |
| (5,042 | ) | |
| 817 | |
Interest, financing | |
| | | |
| | | |
| | | |
| | | |
| | |
and miscellaneous | |
| | | |
| | | |
| | | |
| | | |
| | |
expense, net | |
| | | |
| | | |
| | | |
| 28 | | |
| 28 | |
Tax provision | |
| | | |
| | | |
| | | |
| (71 | ) | |
| (71 | ) |
Discontinued operations | |
| | | |
| | | |
| | | |
| | | |
| | |
Noncontrolling interest | |
| | | |
| | | |
| | | |
| 14 | | |
| 14 | |
Net income attributable | |
| | | |
| | | |
| | | |
| | | |
| | |
to Ultralife | |
| | | |
| | | |
| | | |
| | | |
$ | 788 | |
Total assets | |
$ | 37,084 | | |
$ | 27,906 | | |
$ | — | | |
$ | 17,945 | | |
$ | 82,935 | |
Three-Month Period Ended
June 29, 2014:
| |
Battery & Energy Products | |
Communi- cations systems | |
Discontinued operations | |
Corporate | |
Total |
Revenues | |
$ | 12,165 | | |
$ | 3,034 | | |
$ | — | | |
$ | — | | |
$ | 15,199 | |
Segment contribution | |
| 2,876 | | |
| 1,336 | | |
| — | | |
| (5,536 | ) | |
| (1,324 | ) |
Interest, financing | |
| | | |
| | | |
| | | |
| | | |
| | |
and miscellaneous | |
| | | |
| | | |
| | | |
| | | |
| | |
expense, net | |
| | | |
| | | |
| | | |
| 5 | | |
| 5 | |
Tax provision | |
| | | |
| | | |
| | | |
| (57 | ) | |
| (57 | ) |
Noncontrolling interest | |
| | | |
| | | |
| | | |
| 16 | | |
| 16 | |
Net loss attributable | |
| | | |
| | | |
| | | |
| | | |
| | |
to Ultralife | |
| | | |
| | | |
| | | |
| | | |
$ | (1,360 | ) |
Total assets | |
$ | 37,586 | | |
$ | 29,866 | | |
$ | — | | |
$ | 19,479 | | |
$ | 86,931 | |
Six-Month Period Ended June
28, 2015:
| |
Battery & Energy Products | |
Communi- cations systems | |
Discontinued operations | |
Corporate | |
Total |
Revenues | |
$ | 32,248 | | |
$ | 5,884 | | |
$ | — | | |
$ | — | | |
$ | 38,132 | |
Segment contribution | |
| 9,326 | | |
| 2,540 | | |
| — | | |
| (10,227 | ) | |
| 1,639 | |
Interest, financing | |
| | | |
| | | |
| | | |
| | | |
| | |
and miscellaneous | |
| | | |
| | | |
| | | |
| | | |
| | |
expense, net | |
| | | |
| | | |
| | | |
| (160 | ) | |
| (160 | ) |
Tax provision | |
| | | |
| | | |
| | | |
| (182 | ) | |
| (182 | ) |
Noncontrolling interest | |
| | | |
| | | |
| | | |
| 24 | | |
| 24 | |
Net income attributable | |
| | | |
| | | |
| | | |
| | | |
| | |
to Ultralife | |
| | | |
| | | |
| | | |
| | | |
$ | 1,321 | |
Six-Month Period Ended June
29, 2014:
| |
Battery & Energy Products | |
Communi- cations systems | |
Discontinued operations | |
Corporate | |
Total |
Revenues | |
$ | 26,087 | | |
$ | 4,397 | | |
$ | — | | |
$ | — | | |
$ | 30,484 | |
Segment contribution | |
| 6,677 | | |
| 1,870 | | |
| — | | |
| (10,967 | ) | |
| (2,420 | ) |
Interest, financing | |
| | | |
| | | |
| | | |
| | | |
| | |
and miscellaneous | |
| | | |
| | | |
| | | |
| | | |
| | |
expense, net | |
| | | |
| | | |
| | | |
| (58 | ) | |
| (58 | ) |
Tax provision | |
| | | |
| | | |
| | | |
| (117 | ) | |
| (117 | ) |
Discontinued operations | |
| | | |
| | | |
| (61 | ) | |
| | | |
| (61 | ) |
Noncontrolling interest | |
| | | |
| | | |
| | | |
| 10 | | |
| 10 | |
Net loss attributable | |
| | | |
| | | |
| | | |
| | | |
| | |
to Ultralife | |
| | | |
| | | |
| | | |
| | | |
$ | (2,646 | ) |
| 13. | FAIR
VALUE OF FINANCIAL INSTRUMENTS |
FASB’s
guidance for the disclosure regarding fair value of financial instruments requires disclosure of an estimate of the fair value
of certain financial instruments. The fair value of financial instruments pursuant to FASB’s guidance for the disclosure
regarding fair value of financial instruments approximated their carrying values at June 28, 2015 and December 31, 2014. The
fair value of cash, trade accounts receivable, trade accounts payable and accrued liabilities approximates carrying value due
to the short-term nature of these instruments.
| 14. | FIRE
AT MANUFACTURING FACILITY |
In
June 2011, we experienced a fire that damaged certain inventory and machinery and equipment at our facility in China. The total
amount of the loss pertaining to assets and the related expenses was approximately $1,589. We have pursued a claim against our
insurance policy, with the majority of our insurance claim related to the recovery of damaged inventory. We have received payments
in June 2012 and April 2013 totaling approximately $1,286 as a partial payment on our insurance claim, which resulted in no gain
or loss being recognized. As of June 28, 2015 and December 31, 2014, we reflect a receivable from the insurance company relating
to this claim of $184, which is net of our deductible of approximately $132, and represents additional proceeds expected to be
received.
| 15. | RECENT
ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS |
In
May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, “Revenue from
Contracts with Customers.” This ASU amends the existing accounting standards for revenue recognition and is based
on the principle that revenue should be recognized to depict the transfer of goods or services to a customer at an amount that
reflects the consideration a company expects to receive in exchange for those goods or services. In April 2015, the
FASB proposed a one year delay in the effective date of ASU 2014-09. This standard currently becomes effective for the Company
on January 1, 2017, and the one-year delay, if promulgated as proposed, will make this standard effective for the Company on January
1, 2018. The Company is currently evaluating the potential impact of this new guidance as well as the available transition methods.
Item
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. This report
contains certain forward-looking statements and information that are based on the beliefs of management as well as assumptions
made by and information currently available to management. The statements contained in this report relating to matters that are
not historical facts are forward-looking statements that involve risks and uncertainties, including, but not limited to, our reliance
on a certain key customer; possible reduced or further delayed U.S. and foreign defense spending, including the uncertainty of
government budget approvals; possible delays or lack of success in our efforts to develop new commercial applications for our
products; possible declines in demand for products using our batteries or communications systems; general domestic and global
economic conditions; variability in our quarterly and annual results and price of our common stock; the unique risks associated
with our Chinese operations; the possibility of impairment of our intangible assets; potential breaches in security and other
disruptions; the possibility that our resources could be overwhelmed by our growth prospects; residual effects of negative news
related to our industries; potential significant costs from our warranties; loss of top management; possible disruptions in our
supply of raw materials and components; failure of customers to meet the volume expectations in our supply agreements; our inability
to adequately protect our proprietary and intellectual property; the possibility that our ability to use our NOL carryforwards
in the future may be limited; possible adverse effects from violations of the U.S. Foreign Corrupt Practices Act and other anti-corruption
laws; variability of foreign currencies; the process of U.S. defense procurement; possible effects of audits of our contracts
by the U.S. and foreign governments; our compliance with the regulations for the shipment of our products; business disruptions
and other safety risks including those caused by fires; government and environmental regulations; and other risks and uncertainties,
certain of which are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may differ materially from those forward-looking statements described herein. When
used in this report, the words “anticipate”, “believe”, “estimate” or “expect”
or words of similar import are intended to identify forward-looking statements. For further discussion of certain of the matters
described above and other risks and uncertainties, see Item 1A, “Risk Factors” in our Annual Report on Form 10-K for
the year ended December 31, 2014.
Undue
reliance should not be placed on our forward-looking statements. Except as required by law, we disclaim any obligation to update
any risk factors or to publicly announce the results of any revisions to any of the forward-looking statements contained in this
Quarterly Report on Form 10-Q or our Annual Report on Form 10-K for the year ended December 31, 2014 to reflect new information
or risks, future events or other developments.
The
following discussion and analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements
and Notes thereto appearing elsewhere in this Form 10-Q and the Risk Factors and our Consolidated Financial Statements and Notes
thereto contained in our Form 10-K for the year ended December 31, 2014.
The
financial information in this Management’s Discussion and Analysis of Financial Condition and Results of Operations is presented
in thousands of dollars, except for share and per share amounts. All figures presented below represent results from continuing
operations, unless otherwise specified.
General
We
offer products and services ranging from power solutions to communications and electronics systems. Through our engineering and
collaborative approach to problem solving, we serve government, defense and commercial customers across the globe. We design,
manufacture, install and maintain power and communications systems including rechargeable and non-rechargeable batteries, charging
systems, communications and electronics systems and accessories and custom engineered systems. We continually evaluate ways to
grow and broaden the scope of our products and services, including the design, development and sale of new products, expansion
of our sales force to penetrate new markets and geographies, as well as seeking opportunities to expand through acquisitions.
We sell our products worldwide through a variety of trade channels, including original equipment manufacturers (“OEMs”),
industrial and defense supply distributors and directly to U.S. and international defense departments.
We
report our results in two operating segments: Battery & Energy Products and Communications Systems. The Battery & Energy
Products segment includes lithium 9-volt, cylindrical and various other non-rechargeable batteries, in addition to rechargeable
batteries, uninterruptable power supplies, charging systems and accessories, such as cables. The Communications Systems segment
includes RF amplifiers, power supplies, cable and connector assemblies, amplified speakers, equipment mounts, case equipment,
integrated communication systems kits and communications and electronics systems design. We believe that reporting performance
at the gross profit level is the best indicator of segment performance. As such, we report segment performance at the gross
profit level and operating expenses as Corporate charges. (See Note 12 in the Notes to Consolidated Financial Statements)
Overview
Consolidated
revenues of $18,955 for the three-month period ended June 28, 2015, increased by $3,756 or 24.7%, from $15,199 during the three-month
period ended June 29, 2014, due primarily to increased orders from U.S. government and defense customers for our Battery &
Energy Products business.
Gross
profit for the three-month period ended June 28, 2015 was $5,859, or 30.9% of revenues, compared to $4,212, or 27.7% of revenues,
for the same quarter a year ago. The 320 basis points improvement is due primarily to favorable product mix, higher production
volume increasing the absorption of factory overhead and continued productivity improvements.
Operating
expenses decreased to $5,042 during the three-month period ended June 28, 2015, compared to $5,536 during the three-month period
ended June 29, 2014, resulting primarily from continued actions to reduce discretionary spending while focusing on the development
of new products and revenue growth.
The
increased revenue and resulting leverage on gross profit along with lower operating expenses resulted in an operating profit of
$817 for the three-month period ended June 28, 2015, compared to an operating loss of $1,324 for the three-month period ended
June 29, 2014. The year-over-year improvement in operating profit of $2,141 resulted from the 24.7% increase in sales that contributed
$1,041 to the improvement of operating profit, the 320 basis point improvement in gross margin which contributed $606 and the
lower operating expenses which contributed $494.
Net
income was $774, or $0.05 per share, for the three-month period ended June 28, 2015, compared to a net loss of $(1,376), or $(0.08)
per share, for the three-month period ended June 29, 2014.
Adjusted
EBITDA from continuing operations, defined as net income (loss) attributable to Ultralife before net interest expense, provision
(benefit) for income taxes, depreciation and amortization, amounted to $1,725 in the second quarter of 2015 compared to $(174)
in the second quarter of 2014. See the section “Adjusted EBITDA from continuing operations” beginning on Page 22 for
a reconciliation of Adjusted EBITDA from continuing operations to net income (loss) attributable to Ultralife.
As
a result of careful working capital management and cash generated from operations, our liquidity remains solid with no debt, and
cash and cash equivalents of $15,789, a $1,922 or 10.9% decrease from our cash position of $17,711 at December 31, 2014. The decrease
in cash and cash equivalents from year-end 2014 is primarily attributable to our purchases of stock under our Share Repurchase
Program which totaled $5,849 inclusive of fees and commissions related to such purchases, partially offset by cash generated from
our operating results and an 8.0% inventory reduction.
At the mid-point
of the year with revenue growth of 25.1% and EPS improvement of $0.23 over the first half of 2014, we have increasing confidence
in our outlook for top-line growth and profitable results in 2015.
Results of Operations
Three-month periods ended June
28, 2015 and June 29, 2014
Revenues.
Consolidated revenues for the three-month period ended June 28, 2015 amounted to $18,955, an increase of $3,756, or 24.7%,
from the $15,199 reported for the three-month period ended June 29, 2014.
Battery
& Energy Products revenues increased $3,807, or 31.3%, from $12,165 for the three-month period ended June 29, 2014 to $15,972
for the three-month period ended June 28, 2015. The increase was primarily attributable to higher shipments of batteries to U.S.
government and defense customers, which helped to increase government and defense shipments by 94.1% over the 2014 period, and
now comprise 42% of total Battery & Energy Products sales versus 28% for the second quarter of 2014. Commercial revenues for
the second quarter of 2015 increased 6.7% over the year-earlier period due to higher shipments of 9-Volt batteries to large global
smoke detector OEM’s and rechargeable batteries into medical channels.
Communications
Systems revenues decreased $51, or 1.7%, from $3,034 in the three-month period ended June 29, 2014 to $2,983 for the three-month
period ended June 28, 2015. The second quarter of 2014 benefitted from the fulfillment of a $1,895 order for Universal Vehicle
Adaptors shortly after its market launch. Nevertheless, for the 2015 period, we experienced more broad-based sales as well as
increases in our order flow reflecting increased demand from system integrators in support of U.S. Department of Defense program
and international projects.
Cost
of Products Sold. Cost of products sold totaled $13,096 for the quarter ended June 28, 2015, an increase of $2,109, or 19.2%%,
from the $10,987 reported for the same quarter a year ago. Consolidated cost of products sold as a percentage of total revenue
decreased from 72.3% for the three-month period ended June 29, 2014 to 69.1% for the three-month period ended June 28, 2015. Correspondingly,
consolidated gross margin was 30.9% for the three-month period ended June 28, 2015, compared with 27.7% for the three-month period
ended June 29, 2014, reflecting favorable product mix, higher production volume increasing the absorption of factory overhead
and continued productivity improvements.
In
our Battery & Energy Products segment, the cost of products sold increased $2,141, from $9,289 during the three-month period
ended June 29, 2014 to $11,430 during the three-month period ended June 28, 2015. Battery & Energy Products’ gross profit
for the second quarter of 2015 was $4,542, or 28.4% of revenues, an increase of $1,666 from gross profit of $2,876, or 23.6% of
revenues, for the second quarter of 2014. Battery & Energy Products’ gross margin as a percentage of revenues increased
for the three-month period ended June 28, 2015 by 480 basis points, reflecting favorable mix, higher production volume and ongoing
productivity improvements through the Lean process.
In
our Communications Systems segment, the cost of products sold decreased by $32 or 1.9% from $1,698 during the three-month period
ended June 29, 2014 to $1,666 during the three-month period ended June 28, 2015. Communications Systems’ gross profit for
the second quarter of 2015 was $1,317, or 44.2% of revenues, a decrease of $19 from gross profit of $1,336, or 44.0% of revenues,
for the second quarter of 2014. The 20 basis points increase in gross margin as a percentage of revenue during 2015 is driven
primarily by product mix.
Operating
Expenses. Operating expenses for the three-month period ended June 28, 2015 totaled $5,042, a decrease of $494 or 8.9% from
the $5,536 recorded during the three-month period ended June 290, 2014, resulting primarily from continued tight control over
all discretionary spending.
Overall,
operating expenses as a percentage of revenues were 26.6% for the quarter ended June 28, 2015 compared to 36.4% for the quarter
ended June 29, 2014. Amortization expense associated with intangible assets related to our acquisitions was $59 for the second
quarter of 2015 ($26 in selling, general and administrative expenses and $33 in research and development costs), compared with
$80 for the second quarter of 2014 ($35 in selling, general, and administrative expenses and $45 in research and development costs).
Research and development costs were $1,334 for the three-month period ended June 28, 2015, a decrease of $226, or 14.5%, from
$1,560 for the three-months ended June 29, 2014, as we continued to focus our spending on the development of new products with
the highest estimated return on investment. Selling, general, and administrative expenses decreased $268, or 6.7%, to $3,708 during
the second quarter of 2015 from $3,976 during the second quarter of 2014, reflecting continued actions to reduce discretionary expenses.
Other
Income (Expense). Other income (expense) totaled $28 for the three-month period ended June 28, 2015 compared to $5 for the
three-month period ended June 29, 2014. Interest and financing expense, net of interest income, increased $23, to $64 for the
second quarter of 2015 from $41 for the comparable period in 2014, as a result of costs to insure certain non-U.S. accounts receivable
consistent with our Credit Agreement with PNC Bank. Miscellaneous income (expense) amounted to $92 for the second quarter of 2015
compared with $46 for the second quarter of 2014, primarily due to transactions impacted by changes in foreign currencies relative
to the U.S. dollar.
Income
Taxes. We reflected a tax provision of $71 for the second quarter of 2015, an increase of $14 as compared to the $57 provision
reported for the second quarter of 2014, primarily as a result of estimated U.S. federal minimum taxes.
See
Note 9 in the Notes to Condensed Consolidated Financial Statements for additional information regarding our income taxes.
Certain
of our NOL carryforwards are subject to U.S. alternative minimum tax such that carryforwards can offset only 90% of alternative
minimum taxable income. This limitation resulted in an estimated minimum income tax provision for the second quarter of 2015 but
did not have an impact on income taxes determined for the second quarter of 2014. The use of our U.K. NOL carryforwards may be
limited due to the change in the U.K. operation during 2008 from a manufacturing and assembly center to primarily a distribution
and service center and its subsequent change to a sales center in 2012.
Net
Income (Loss) Attributable to Ultralife. Net income (loss) attributable to Ultralife and income (loss) attributable to Ultralife
common shareholders per diluted share was $788 and $0.05, respectively, for the three months ended June 28, 2015, compared to
($1,360) and $(0.08), respectively, for the three months ended June 29, 2014. Average common shares outstanding used to compute
diluted earnings per share decreased from 17,533,000 in the second quarter of 2014 to 16,597,000 in the second quarter of 2015
due to the repurchase of stock under our Share Repurchase Plan.
Six-month periods ended June
28, 2015 and June 29, 2014
Revenues.
Consolidated revenues for the six-month period ended June 28, 2015 amounted to $38,132, an increase of $7,648 or 25.1%, from
the $30,484 reported for the six-month period ended June 29, 2014.
Battery
& Energy Products revenues increased $6,161, or 23.6%, from $26,087 for the six-month period ended June 29, 2014 to $32,248
for the six-month period ended June 28, 2015. Government and defense sales of this business increased 63.8% over the 2014 six-month
period and now comprise 45.8% of total segment sales versus 34.5% last year. The year-over-year growth was driven by higher shipments
of batteries and chargers to a large international prime defense supplier and shipments of primary batteries to the U.S. Government’s
Defense Logistics Agency. Commercial sales increased 2.4% over the 2014 period reflecting higher shipments of 9-Volt batteries
to global smoke-detector OEM’s and rechargeable batteries into medical channels.
Communications
Systems revenues increased $1,487, or 33.8%, from $4,397 during the six-month period ended June 29, 2014 to $5,884 for the six-month
period ended June 28, 2015, reflecting increased demand from system integrators in support of U.S. Department of Defense programs
and international projects.
Cost
of Products Sold. Cost of products sold totaled $26,266 for the six-month period ended June 28, 2015, an increase of $4,329,
or 19.7%, from the $21,937 reported for the same six-month period a year ago. Consolidated cost of products sold as a percentage
of total revenue decreased from 72.0% for the six-month period ended June 29, 2014 to 68.9% for the six-month period ended June
28, 2015. Correspondingly, consolidated gross margin was 31.1% for the six-month period ended June 28, 2015, compared with 28.0%
for the six-month period ended June 29, 2014, reflecting favorable product mix, higher production volume increasing the absorption
of factory overhead and continued productivity improvements through the Company’s Lean process.
For
our Battery & Energy Products segment, the cost of products sold increased $3,512, from $19,410 during the six-month period
ended June 29, 2014 to $22,922 during the six-month period ended June 28, 2015. Battery & Energy Products’ gross profit
for the 2015 six-month period was $9,326, or 28.9% of revenues, an increase of $2,649 from gross profit of $6,677, or 25.6% of
revenues, for the 2014 six-month period. Battery & Energy Products’ gross margin as a percentage of revenues increased
for the six-month period ended June 28, 2015 by 330 basis points, reflecting favorable mix, higher production volumes and ongoing
productivity improvements through the Lean process.
For
our Communications Systems segment, the cost of products sold increased by $817 or 32.3% from $2,527 during the six-month period
ended June 29, 2014 to $3,344 during the six-month period ended June 28, 2015. Communications Systems’ gross profit for
the first six months of 2015 was $2,540, or 43.2% of revenues, an increase of $670 from gross profit of $1,870, or 42.5% of revenues,
for the second quarter of 2014. The 70 basis points increase in gross margin as a percentage of revenue during 2015 is due to
a greater mix of higher-margin new products and increased manufacturing throughput.
Operating
Expenses. Total operating expenses for the six-month period ended June 28, 2015 totaled $10,227, a decrease of $740 or 6.7%
from the $10,967 recorded during the six-month period ended June 29, 2014, resulting primarily from continued tight control over
all discretionary spending.
Overall,
operating expenses as a percentage of revenues were 26.8% for the six-month period ended June 28, 2015 compared to 36.0% for the
comparable 2014 period. Amortization expense associated with intangible assets related to our acquisitions was $119 for the first
six months of 2015 ($54 in selling, general and administrative expenses and $65 in research and development costs), compared with
$154 for the first six months of 2014 ($67 in selling, general, and administrative expenses and $87 in research and development
costs). Research and development costs were $2,693 for the six-month period ended June 28, 2015, a decrease of $303, or 10.1%,
from $2,996 for the six-months ended June 29, 2014, as we continued to focus our spending on the development of new products with
the highest estimated return on investment. Selling, general, and administrative expenses decreased $437, or 5.5%, from $7,971
during the first six months of 2014 to $7,534 during the first six months of 2015, reflecting continued actions to reduce discretionary
general and administrative expenses.
Other
Income (Expense). Other (expense) totaled $(160) for the six-month period ended June 28, 2015 compared to $(58) for the three-month
period ended June 29, 2014. Interest and financing expense, net of interest income, increased $42, to $130 for the 2015 period
from $88 for the comparable period in 2014, as a result of costs to insure certain non-U.S. accounts receivable consistent withour
Credit Agreement with PNC Bank. Miscellaneous income (expense) amounted to ($30) for the first six months of 2015 compared with
$30 for the first six months of 2014, primarily due to transactions impacted by changes in foreign currencies relative to the
U.S. dollar.
Income
Taxes. We reflected a tax provision of $182 for the first two quarters of 2015 compared with a tax provision of $117 for the
first two quarters of 2014. The increase of $65, or 55.6% was due to estimated U.S. minimum taxes in 2015 and increased foreign
tax liabilities. The effective consolidated tax rate for the six-month periods ended June 28, 2015 and June 29, 2014 were:
| |
Six-month periods ended |
| |
June 28, | |
June 29, |
| |
2015 | |
2014 |
Income (loss) income from continuing operations before | |
| | | |
| | |
income taxes (a) | |
$ | 1,479 | | |
$ | (2,478 | ) |
| |
| | | |
| | |
Income tax provision (b) | |
| 182 | | |
| 117 | |
| |
| | | |
| | |
Effective income tax rate (b/a) | |
| 12.3 | % | |
| (4.7 | )% |
See
Note 9 in the Notes to Condensed Consolidated Financial Statements for additional information regarding our income taxes.
Discontinued
Operations. Income (Loss) from discontinued operations, net of tax, totaled $0 for the first six months of 2015, compared
to ($61) for the comparable period in 2014. The loss for the 2014 period reflects the final settlement of the sale of our RedBlack
business.
Net
Income (Loss) Attributable to Ultralife. Net income (loss) attributable to Ultralife and income (loss) attributable to Ultralife
common shareholders per diluted share was $1,321 and $0.08, respectively, for the six months ended June 28, 2015, compared to
$($2,656) and $(0.15), respectively, for the six months ended June 29, 2014. Average common shares outstanding used to compute
diluted earnings per share decreased from 17,523,000 in the 2014 period to 16,977,000 in the 2015 period, mainly due to the repurchase
of stock under our Share Repurchase Plan, stock option exercises, vesting of restricted stock units and shares of common stock
issued to our non-employee directors.
Adjusted
EBITDA from Continuing Operations
In
evaluating our business, we consider and use Adjusted EBITDA from continuing operations, a non-GAAP financial measure, as a supplemental
measure of our operating performance. We define Adjusted EBITDA from continuing operations as net income (loss) attributable to
Ultralife before net interest expense, provision (benefit) for income taxes, depreciation and amortization, plus/minus expenses/income
that we do not consider reflective of our ongoing continuing operations. We use Adjusted EBITDA from continuing operations as
a supplemental measure to review and assess our operating performance and to enhance comparability between periods. We also believe
the use of Adjusted EBITDA from continuing operations facilitates investors’ use of operating performance comparisons from
period to period and company to company by backing out potential differences caused by variations in such items as capital structures
(affecting relative interest expense and stock-based compensation expense), the book amortization of intangible assets (affecting
relative amortization expense), the age and book value of facilities and equipment (affecting relative depreciation expense) and
other significant non-operating expenses or income. We also present Adjusted EBITDA from continuing operations because we believe
it is frequently used by securities analysts, investors and other interested parties as a measure of financial performance. We
reconcile Adjusted EBITDA from continuing operations to net income (loss) attributable to Ultralife, the most comparable financial
measure under U.S. generally accepted accounting principles (“U.S. GAAP”).
We
use Adjusted EBITDA from continuing operations in our decision-making processes relating to the operation of our business together
with U.S. GAAP financial measures such as income (loss) from operations. We believe that Adjusted EBITDA from continuing operations
permits a comparative assessment of our operating performance, relative to our performance based on our U.S. GAAP results, while
isolating the effects of depreciation and amortization, which may vary from period to period without any correlation to underlying
operating performance, and of non-cash stock-based compensation, which is a non-cash expense that varies widely among companies.
We believe that by limiting Adjusted EBITDA to continuing operations, we assist investors in gaining a better understanding of
our business on a going forward basis. We provide information relating to our Adjusted EBITDA from continuing operations so that
securities analysts, investors and other interested parties have the same data that we employ in assessing our overall operations.
We believe that trends in our Adjusted EBITDA from continuing operations are a valuable indicator of our operating performance
on a consolidated basis and of our ability to produce operating cash flows to fund working capital needs, to service debt obligations
and to fund capital expenditures.
The
term Adjusted EBITDA from continuing operations is not defined under U.S. GAAP, and is not a measure of operating income,
operating performance or liquidity presented in accordance with U.S. GAAP. Our Adjusted EBITDA from continuing operations
has limitations as an analytical tool, and when assessing our operating performance, Adjusted EBITDA from continuing operations
should not be considered in isolation or as a substitute for net income (loss) attributable to Ultralife or other consolidated
statement of operations data prepared in accordance with U.S. GAAP. Some of these limitations include, but are not limited
to, the following:
| · | Adjusted
EBITDA from continuing operations does not reflect (1) our cash expenditures or future
requirements for capital expenditures or contractual commitments; (2) changes in, or
cash requirements for, our working capital needs; (3) the interest expense, or the cash
requirements necessary to service interest or principal payments, on our debt; (4) income
taxes or the cash requirements for any tax payments; and (5) all of the costs associated
with operating our business; |
| · | although
depreciation and amortization are non-cash charges, the assets being depreciated and
amortized often will have to be replaced in the future, and Adjusted EBITDA from continuing
operations does not reflect any cash requirements for such replacements; |
| · | while
stock-based compensation is a component of cost of products sold and operating expenses,
the impact on our consolidated financial statements compared to other companies can vary
significantly due to such factors as assumed life of the stock-based awards and assumed
volatility of our common stock; |
| · | although
discontinued operations does not reflect our current business operations, discontinued
operations includes the costs we incurred by exiting our Energy Services and certain
of our UK businesses and divesting our RedBlack Communications business; and |
| · | other
companies may calculate Adjusted EBITDA from continuing operations differently than we
do, limiting its usefulness as a comparative measure. |
We
compensate for these limitations by relying primarily on our U.S. GAAP results and using Adjusted EBITDA from continuing operations
only supplementally. Adjusted EBITDA from continuing operations is calculated as follows for the periods presented:
| |
Three-month periods ended | |
Six-month periods ended |
| |
June 28, | |
June 29, | |
June 28, | |
June 29, |
| |
2015 | |
2014 | |
2015 | |
2014 |
| |
| |
| |
| |
|
Net income (loss) attributable to Ultralife | |
$ | 788 | | |
$ | (1,360 | ) | |
$ | 1,321 | | |
$ | (2,646 | ) |
Add (subtract): | |
| | | |
| | | |
| | | |
| | |
Interest and financing expense, net | |
| 65 | | |
| 41 | | |
| 132 | | |
| 97 | |
Income tax provision | |
| 71 | | |
| 57 | | |
| 182 | | |
| 117 | |
Depreciation expense | |
| 582 | | |
| 754 | | |
| 1,178 | | |
| 1,465 | |
Amortization of intangible assets | |
| 59 | | |
| 80 | | |
| 119 | | |
| 154 | |
Stock-based compensation expense | |
| 160 | | |
| 254 | | |
| 304 | | |
| 483 | |
Impairment of long-lived assets | |
| — | | |
| — | | |
| 36 | | |
| — | |
Loss
(gain) from discontinued operations | |
| — | | |
| — | | |
| — | | |
| 61 | |
Adjusted EBITDA | |
$ | 1,725 | | |
$ | (174 | ) | |
$ | 3,272 | | |
$ | (269 | ) |
Liquidity and Capital Resources
As
of June 28, 2015, cash and cash equivalents totaled $15,789, a decrease of $1,922 from the beginning of the year. During the six-month
period ended June 28, 2015, we generated $4,745 of cash from our operating activities as compared to cash generated totaling $986
during the six-month period ended June 29, 2014. Cash generated from operations in 2015 included our net income of $1,297 plus
non-cash expenses (depreciation, amortization and stock-based compensation) totaling $1,655, and cash provided by a $2,331 decrease
in inventories, offset partially by a decrease in accounts payable and other liabilities of $863. Cash generated from operations
in 2014 was positive despite our net loss of $2,656, as the loss was largely offset by non-cash expenses totaling $2,178. Cash
generated from operations in 2014 resulted primarily from a $4,128 decrease in accounts receivable, offset partially by our loss
of $2,656, a decrease in accounts payable and other liabilities of $2,106 and an increase in inventories which totaled $1,042.
Inventory
turnover for the first six months of 2015 was an annualized rate of approximately 1.9 turns per year, a slight improvement over
the 1.8 figure from the first six months of 2014.
We
used $872 in cash for investing activities during the six month period ended June 28, 2015 compared with $398 in cash used for
investing activities in the same period in 2014. In both periods, this spending was principally for the purchase of property,
equipment and improvements.
As
of June 28, 2015, we had made commitments to purchase approximately $338 of production machinery and equipment, which we expect
to fund through operating cash flows or debt borrowings.
On
April 28, 2014, the Company’s Board of Directors approved a share repurchase program (the “Share Repurchase Program”)
which became effective on May 1, 2014, under which the Company was authorized to repurchase up to 1.8 million shares of its outstanding
common stock over a period not to exceed twelve months.
On
April 28, 2015, the Board of Directors authorized an extension of the Share Repurchase Program for an additional twelve month
period beginning May 1, 2015 and ending April 30, 2016, subject, for the entire period as extended, to the 1.8 million share aggregate
limit established in the initial authorization.
On
June 2, 2015, the Board of Directors approved an expansion and extension of the Share Repurchase Program, authorizing the repurchase
of up to an additional 1.6 million shares through June 2, 2016.
Share
repurchases under this program are made in accordance with SEC Rule 10b-18 using a variety of methods, which may include open
market purchases, privately negotiated transactions and block trades, or any combination of such methods, in compliance with applicable
insider trading and other securities laws and regulations. With the exception of repurchases made during stock trading black-out
periods under a 10b5-1 Plan, the timing, manner, price and amount of any repurchase are determined at the Company’s discretion.
The Share Repurchase Program may be suspended, terminated or modified by the Company at any time and for any reason. The
Share Repurchase Program does not obligate the Company to repurchase any specific number of shares.
During
the three month period ended June 28, 2015, the Company repurchased 1,398,454 shares under this program for a total cost
(excluding fees and commissions) of $5,509. During the six month period ended June 28, 2015, the Company repurchased
1,476,855 shares under this program for a total cost (excluding fees and commissions) of $5,805. From the inception of the
Share Repurchase Program on May 1, 2014 through July 29, 2015, the Company has repurchased 1,941,691 shares for an aggregate
cost (excluding fees and commissions) of $7,525. The total remaining balance of shares authorized for repurchase under the
Share Repurchase Program is 1,458,309 shares as of July 29, 2015.
Debt Commitments
We
have financing through our Credit Facility with PNC Bank, which provides a $20 million secured asset-based revolving credit facility
that includes a $1 million letter of credit sub-facility. As of June 28, 2015, we had approximately
$11,409 of borrowing capacity under our $20 million Credit Facility with PNC Bank, in addition to our cash on hand of $15,789,
and we had no outstanding borrowings or outstanding letters of credit under the Credit Facility at either June 28, 2015 or June
29, 2014.
Our
available borrowing limit under the Credit Facility is based on a borrowing base formula equal to a percentage of accounts receivable,
inventory and eligible foreign in-transit inventory. Interest is payable quarterly and accrues on outstanding indebtedness under
the Credit Agreement at either a LIBOR-based rate or an alternate base rate, as defined in the Credit Agreement. We pay a quarterly
fee on the Credit Facility’s unused availability at 0.375% per annum.
Other Matters
During
2014, we were informed by local government authorities in Shenzhen, China that the lease for our facility there would not be extended,
and we commenced a search for an alternate site to relocate our facility. In July 2014, our subsidiary in China entered into a
lease for a replacement facility, also located in Shenzhen. During the fourth quarter of 2014, our subsidiary in China vacated
its former facility premises and substantially completed a move and transition to this new facility.
The
Company received compensation from the local government authorities for leasehold improvements and moving-related costs totaling
$815, of which $596 was recognized as a reduction of expenses incurred during 2014, which were $841. It is the Company’s
policy to recognize this compensation as a reduction of expenses as the expenses are recognized. An additional $158 and $61 of
this government compensation were recognized as reductions of expenses during the three and six month periods ended June 28, 2015,
respectively. The related expenses incurred during the three and six month periods ended June 28, 2015 were $103 and $212, respectively.
The relocation payments were complete as of June 28, 2015.
With
respect to our battery products, we typically offer warranties against any defects due to product malfunction or workmanship for
a period up to one year from the date of purchase. With respect to our communications accessory products, we typically offer a
three-year warranty. We provide for a reserve for these potential warranty expenses, which is based on an analysis of historical
warranty issues. There is no assurance that future warranty claims will be consistent with past history, and in the event we experience
a significant increase in warranty claims, there is no assurance that our reserves would be sufficient. This could have a material
adverse effect on our business, financial condition and results of operations.
Critical Accounting Policies
Management
exercises judgment in making important decisions pertaining to choosing and applying accounting policies and methodologies in
many areas. Not only are these decisions necessary to comply with U.S. GAAP, but they also reflect management’s view of
the most appropriate manner in which to record and report our overall financial performance. All accounting policies are important,
and all policies described in Note 1 (“Summary of Operations and Significant Accounting Policies”) to our Consolidated
Financial Statements in our 2014 Annual Report on Form 10-K should be reviewed for a greater understanding of how our financial
performance is recorded and reported.
During
the first six months of 2015, there were no significant changes in the manner in which our significant accounting policies were
applied or in which related assumptions and estimates were developed.
ITEM 4.
Controls and Procedures
Evaluation Of Disclosure Controls
And Procedures
Our
President and Chief Executive Officer (Principal Executive Officer) and our Chief Financial Officer and Treasurer (Principal Financial
Officer) have evaluated our disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e)) as of the
end of the period covered by this quarterly report. Based on this evaluation, our President and Chief Executive Officer and Chief
Financial Officer and Treasurer concluded that our disclosure controls and procedures were effective as of such date.
Changes In Internal Control Over
Financial Reporting
There
has been no change in our internal control over financial reporting (as defined in Securities Exchange Act Rule 13a-15(f)) that
occurred during the fiscal quarter covered by this quarterly report that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
PART
II OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
Dreamliner
Litigation
In
July 2013, an unoccupied Boeing 787 Dreamliner aircraft operated by Ethiopian Airlines was damaged by a fire while parked at London
Heathrow Airport. We participated in and provided technical assistance in support of an investigation of this incident conducted
by UK and US regulatory authorities as well as by the manufacturer of the aircraft, as we are one of many downstream suppliers
to that manufacturer. While a final report has not been issued by the regulatory authorities, preliminary findings indicate
that the fire may have been caused by circumstances related to the plane’s emergency locator transmitter (ELT) manufactured
by another company. We continue to provide support and comment as required to the ongoing investigation.
On
May 4, 2015, we were notified of a lawsuit in which we were named, along with other suppliers to the aircraft manufacturer, concerning
that 2013 fire. The suit was filed by Ethiopian Airlines Enterprise in the Commercial Court, Queen’s Bench Division of the
High Court of Justice, London. The suit seeks as damages USD 42 million plus other unspecified amounts, including those for loss
of use and diminution in value of the aircraft. We maintain liability and products liability insurance through reputable providers,
and in accordance with our corporate practices, immediately advised and referred this matter to our insurers. We are working with
those insurers and their counsel to respond to and actively defend against this action.
A
component of the ELT is a battery pack which incorporates Ultralife’s industry-standard lithium manganese dioxide non-rechargeable
D-cell. Ultralife has had this cell in production since 2001, with millions of units produced and this cell is widely-used for
global defense and commercial applications. This battery product has gone through rigorous safety and qualification testing, including
United Nations Transport of Dangerous Goods, Manual of Tests and Criteria, and is authorized for use in aerospace applications
under Technical Standard Order C142.
At
this time, we believe that there is not a reasonable possibility that this incident will result in a material financial exposure
to the Company.
Arista
Power Litigation
In
September 2011, we initiated an action against Arista Power, Inc. (“Arista”) and our former employee, David Modeen
(“Modeen”), in the State of New York Supreme Court, County of Wayne, in which we allege that Arista recruited all
but one of the members of its executive team from us, subsequently changed and redirected its business to compete directly with
us by using our confidential information, and during the summer of 2011, recruited Modeen to become an Arista employee. As
more fully disclosed in our Annual Report on Form 10-K, we allege that both Arista and Modeen breached agreements with us, that
Arista’s employment of Modeen will inevitably lead to the disclosure and use of our trade secrets by Arista. We seek
damages as determined at trial and preliminary and permanent injunctive relief. The defendants answered the allegations
set forth in the Complaint and asserted claims against us, which have since been dropped.
We
initiated the September 2011 Complaint against Arista Power to protect our shareholders, customers
and employees from the unauthorized use and theft of our investments in intellectual property, trade secrets and confidential
information by Arista and its employees. Protecting our intellectual property and know-how, developed and obtained at great
cost to us to form our competitive position in the marketplace and create value for our shareholders and stakeholders, is a fundamental
responsibility of all our employees.
Discovery
in this action is ongoing, and we plan to continue to pursue our complaint against Arista. It is not possible to predict
the outcome of this action, whether we will be granted the injunctive relief we seek, nor the monetary amount, if any, which we
may be awarded should we prevail.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
2(c)
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The
following table sets forth information regarding second quarter 2015 purchases of common stock under the Company’s stock
repurchase program. Under the repurchase program, the Board of Directors authorized the repurchase of up to 1.8 million shares
of the Company’s Common Stock through April 30, 2015. The Board of Directors has since extended the program through June
2, 2016 and expanded the maximum number of shares authorized to be repurchased from 1.8 million shares to 3.4 million shares.
Since
the commencement of this repurchase plan through June 28, 2015, the Company has repurchased 1,693,609 common shares under this
plan for an aggregate dollar amount of $6,572.
| |
Total Number of Shares Purchased | |
Average Price Paid Per Share(2) | |
Total Number of Shares Purchased as Part of Publicly Announced Program | |
Maximum Number of Shares That May Yet Be Purchased Under the Program(1) |
| | | |
| | | |
| | | |
| | | |
| | |
| March 30 – April 26 | | |
| 38,406 | | |
$ | 3.80 | | |
| 38,406 | | |
| 3,066,439 | |
| April 27 – May 24 | | |
| 1,196,761 | | |
| 3.91 | | |
| 1,196,761 | | |
| 1,869,678 | |
| May 25 – June 28 | | |
| 163,287 | | |
| 4.21 | | |
| 163,287 | | |
| 1,706,391 | |
| Total | | |
| 1,398,454 | | |
$ | 3.94 | | |
| 1,398,454 | | |
| 1,706,391 | |
| | | |
| | | |
| | | |
| | | |
| | |
(1)April
and May share figures have been retroactively adjusted to include 1.6 million share expansion of the share repurchase program
approved on June 2, 2015.
(2)Average
Price Paid Per Share excludes fees and commissions related to such repurchases. Including these costs, the average price paid
per share for all purchases under the Share Repurchase Program is $3.97.
ITEM 6. EXHIBITS
Exhibit
Index |
Description of Document |
|
Incorporated By Reference
from: |
|
|
|
|
31.1 |
Rule 13a-14(a) / 15d-14(a)
CEO Certifications |
|
Filed herewith |
31.2 |
Rule 13a-14(a) / 15d-14(a)
CFO Certifications |
|
Filed herewith |
32 |
Section 1350 Certifications |
|
Filed herewith |
101.INS |
XBRL Instance Document |
|
|
101.SCH |
XBRL Taxonomy Extension
Schema Document |
|
|
101.CAL |
XBRL Taxonomy Calculation
Linkbase Document |
|
|
101.LAB |
XBRL Taxonomy Label Linkbase
Document |
|
|
101.PRE |
XBRL Taxonomy Presentation
Linkbase Document |
|
|
101.DEF |
XBRL Taxonomy Definition
Document |
|
|
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
ULTRALIFE
CORPORATION |
|
|
|
(Registrant) |
|
|
|
|
|
|
Date: July 30, 2015 |
By: /s/ Michael
D. Popielec |
|
|
|
Michael D. Popielec |
|
|
|
President and Chief Executive Officer |
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
Date: July 30, 2015 |
By: /s/ Philip
A. Fain |
|
|
|
Philip A. Fain |
|
|
|
Chief Financial Officer and Treasurer |
|
|
|
(Principal Financial Officer and |
|
|
|
Principal
Accounting Officer) |
|
Index to Exhibits
| 31.1 | Certification of Chief Executive
Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2 | Certification of Chief Financial
Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32 | Certification pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 |
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Taxonomy Extension
Schema Document |
| 101.CAL | XBRL Taxonomy Calculation
Linkbase Document |
| 101.LAB | XBRL Taxonomy Label Linkbase
Document |
| 101.PRE | XBRL Taxonomy Presentation
Linkbase Document |
| 101.DEF | XBRL Taxonomy Definition
Document |
30
Exhibit 31.1
I, Michael D. Popielec, certify that:
1. I have reviewed this quarterly report
on Form 10-Q of Ultralife Corporation;
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial
statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s)
and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b) Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated
the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d) Disclosed
in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s)
and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant
deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud,
whether or not material, that involves management or other employees who have a significant role in the registrant's internal control
over financial reporting.
|
Date: July 30, 2015 |
By: /s/ Michael D. Popielec |
|
|
|
Michael D. Popielec |
|
|
|
President and Chief Executive Officer |
|
Exhibit 31.2
I, Philip A. Fain, certify that:
1. I have reviewed this quarterly report
on Form 10-Q of Ultralife Corporation;
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial
statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s)
and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b) Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated
the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d) Disclosed
in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s)
and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant
deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud,
whether or not material, that involves management or other employees who have a significant role in the registrant's internal control
over financial reporting.
|
Date: July 30,
2015 |
By: /s/
Philip A. Fain |
|
|
|
Philip A. Fain |
|
|
|
Chief Financial Officer and Treasurer |
|
Exhibit 32
Section 1350 Certification
Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), Michael D. Popielec and
Philip A. Fain, the President and Chief Executive Officer and Chief Financial Officer and Treasurer, respectively, of
Ultralife Corporation, certify that (i) the Quarterly Report on Form 10-Q for the quarter ended June 28, 2015 fully
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information
contained in such report fairly presents, in all material respects, the financial condition and results of operations of
Ultralife Corporation.
A signed original of this written statement
required by Section 906 has been provided to Ultralife Corporation and will be retained by Ultralife Corporation and furnished
to the Securities and Exchange Commission or its staff upon request.
|
|
|
|
|
Date: July 30,
2015 |
By: /s/ Michael D. Popielec |
|
|
|
Michael D. Popielec |
|
|
|
President and Chief Executive Officer |
|
|
|
|
|
|
Date: July 30,
2015 |
By: /s/ Philip A. Fain |
|
|
|
Philip A. Fain |
|
|
|
Chief Financial Officer and Treasurer |
|
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