UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 2003
------------------
or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
________________ to ________________
Commission file number 0-20852
ULTRALIFE BATTERIES, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 16-1387013
-------- ----------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2000 Technology Parkway, Newark, New York 14513
-----------------------------------------------
(Address of principal executive offices)
(Zip Code)
(315) 332-7100
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(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes ___ No _X_
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $.10 par value - 13,542,452 shares of common stock
outstanding, net of 727,250 treasury shares, as of November 1, 2003.
ULTRALIFE BATTERIES, INC.
INDEX
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Page
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
September 27, 2003 and December 31, 2002...........................3
Condensed Consolidated Statements of Operations -
Three and nine months ended September 27, 2003
and September 28, 2002..........................................4
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 27, 2003
and September 28, 2002..........................................5
Notes to Consolidated Financial Statements............................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.....................16
Item 3. Quantitative and Qualitative Disclosures
About Market Risks................................................26
Item 4. Controls and Procedures..............................................26
PART II OTHER INFORMATION
Item 1. Legal Proceedings....................................................27
Item 6. Exhibits and Reports on Form 8-K.....................................28
Signatures...........................................................30
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ULTRALIFE BATTERIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Amounts)
(unaudited)
September 27, December 31,
ASSETS 2003 2002
---- ----
Current assets:
Cash and cash equivalents $ 877 $ 1,322
Available-for-sale securities 2 2
Restricted cash 50 50
Trade accounts receivable (less allowance for doubtful accounts
of $210 at September 27, 2003 and $297 at December 31, 2002) 15,842 6,200
Inventories 7,572 5,813
Prepaid expenses and other current assets 2,383 968
-------- --------
Total current assets 26,726 14,355
-------- --------
Property, plant and equipment, net 17,783 15,336
Other assets:
Investment in UTI 1,550 1,550
Technology license agreements (net of accumulated
amortization of $1,393 at September 27, 2003 and $1,318 at December 31, 2002) 58 133
-------- --------
1,608 1,683
-------- --------
Total Assets $ 46,117 $ 31,374
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt $ 6,391 $ 816
Accounts payable 7,472 4,283
Other current liabilities 2,951 2,045
-------- --------
Total current liabilities 16,814 7,144
Long-term liabilities:
Debt and capital lease obligations 87 1,354
Grant -- 633
-------- --------
87 1,987
Commitments and contingencies (Note 10)
Shareholders' equity:
Preferred stock, par value $0.10 per share, authorized 1,000,000 shares;
none outstanding -- --
Common stock, par value $0.10 per share, authorized 40,000,000 shares
issued - 14,050,002 at September 27, 2003 and 13,579,519 at December 31, 2002) 1,405 1,358
Capital in excess of par value 117,990 115,251
Accumulated other comprehensive loss (1,066) (1,016)
Accumulated deficit (86,735) (90,972)
-------- --------
31,594 24,621
Less -- Treasury stock, at cost -- 727,250 shares 2,378 2,378
-------- --------
Total shareholders' equity 29,216 22,243
-------- --------
Total Liabilities and Shareholders' Equity $ 46,117 $ 31,374
======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
3
ULTRALIFE BATTERIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
(unaudited)
Three Months Ended Nine Months Ended
Sept 27, Sept 28, Sept 27, Sept 28,
2003 2002 2003 2002
---- ---- ---- ----
Revenues $19,874 $ 6,847 $55,412 $ 24,287
Cost of products sold 15,981 6,718 43,629 22,151
------- ------- ------- --------
Gross margin 3,893 129 11,783 2,136
Operating expenses:
Research and development 652 477 1,883 2,614
Selling, general, and administrative 2,098 1,569 6,247 5,305
Impairment of long-lived assets -- -- -- 14,318
------- ------- ------- --------
Total operating expenses 2,750 2,046 8,130 22,237
------- ------- ------- --------
Operating income (loss) 1,143 (1,917) 3,653 (20,101)
Other income (expense):
Interest income 1 33 6 39
Interest expense (144) (115) (386) (322)
Equity loss in UTI -- (959) -- (2,138)
Gain from forgiveness of debt/grant 781 -- 781 --
Miscellaneous (4) 221 183 486
------- ------- ------- --------
Income (loss) before income taxes 1,777 (2,737) 4,237 (22,036)
------- ------- ------- --------
Income taxes -- -- -- --
------- ------- ------- --------
Net income (loss) $ 1,777 $(2,737) $ 4,237 $(22,036)
======= ======= ======= ========
Earnings (loss) per share - basic $ 0.13 $ (0.21) $ 0.33 $ (1.72)
======= ======= ======= ========
Earnings (loss) per share - diluted $ 0.12 $ (0.21) $ 0.31 $ (1.72)
======= ======= ======= ========
Weighted average shares outstanding - basic 13,229 13,137 13,004 12,807
======= ======= ======= ========
Weighted average shares outstanding - diluted 14,361 13,137 13,701 12,807
======= ======= ======= ========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
4
ULTRALIFE BATTERIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(unaudited)
Nine Months Ended
Sept 27, Sept 28,
2003 2002
---- ----
OPERATING ACTIVITIES
Net income (loss) $ 4,237 $(22,036)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 2,292 2,805
Loss on asset disposal -- 4
Foreign exchange gains (188) (423)
Equity loss in UTI -- 2,138
Non-cash stock-based compensation 26 --
Non-cash gain from forgiveness of debt/grant (781) --
Impairment of long-lived assets -- 14,318
Changes in operating assets and liabilities:
Accounts receivable (9,642) (721)
Inventories (1,759) 224
Prepaid expenses and other current assets (1,415) 72
Accounts payable and other current liabilities 4,126 (414)
------- --------
Net cash used in operating activities (3,104) (4,033)
------- --------
INVESTING ACTIVITIES
Purchase of property and equipment (4,542) (893)
Proceeds from sale leaseback -- 451
Proceeds from asset disposal -- 8
Purchase of securities -- 666
Sales of securities -- 1,399
------- --------
Net cash (used in) provided by investing activities (4,542) 1,631
------- --------
FINANCING ACTIVITIES
Change in revolving credit facilities 4,908 --
Proceeds from issuance of common stock 2,260 2,350
Proceeds from issuance of debt 500 600
Principal payments on long-term debt and capital lease obligations (600) (813)
Proceeds from grant 117 395
------- --------
Net cash provided by financing activities 7,185 2,532
------- --------
Effect of exchange rate changes on cash 16 93
------- --------
(Decrease)/Increase in cash and cash equivalents (445) 223
------- --------
Cash and cash equivalents at beginning of period 1,322 706
------- --------
Cash and cash equivalents at end of period $ 877 $ 929
======= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 238 $ 378
======= ========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
5
ULTRALIFE BATTERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Thousands - Except Share and Per Share Amounts)
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals and adjustments) considered necessary for a fair
presentation of the condensed consolidated financial statements have been
included. Results for interim periods should not be considered indicative
of results to be expected for a full year. Reference should be made to the
consolidated financial statements contained in the Company's Transition
Report on Form 10-K for the six-month period ended December 31, 2002.
As of July 1, 2002, the Company changed its monthly closing
schedule, moving to a weekly-based cycle as opposed to a calendar month -
based cycle. While the actual dates for the quarter-ends will change
slightly each year, the Company believes that there will not be any
material differences when making quarterly comparisons.
Effective December 31, 2002, the Company changed its fiscal year-end
from June 30 to December 31.
Certain amounts in the prior years' consolidated financial
statements have been reclassified to conform to the current year
presentation.
2. IMPAIRMENT OF LONG-LIVED ASSETS
In June 2002, the Company reported a $14,318 impairment charge. This
impairment charge related to a writedown of long-lived assets in the
Company's rechargeable production operations, reflecting a change in the
Company's strategy. Changes in external economic conditions culminated in
June 2002, reflecting a slowdown in the mobile electronics marketplace and
a realization that near-term business opportunities utilizing the high
volume rechargeable production equipment had dissipated. These changes
caused the Company to shift away from high volume polymer battery
production to higher value, lower volume opportunities. The Company's
redefined strategy eliminates the need for its high volume production line
that had been built mainly to manufacture Nokia cell phone replacement
batteries. The new strategy is a three-pronged approach. First, the
Company will manufacture in-house for the higher value, lower volume
polymer rechargeable opportunities. Second, the Company will utilize its
affiliate in Taiwan, Ultralife Taiwan, Inc., as a source for both polymer
and liquid lithium cells. And third, the Company will look to other
rechargeable cell manufacturers as sources for cells that the Company can
then assemble into completed battery packs.
The impairment charge was accounted for under Financial Accounting
Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of", which requires evaluating the
assets' carrying value based on future cash flows. As a result of the
impairment of the Company's fixed assets, depreciation charges were
reduced by approximately $1,800 per year.
6
3. EARNINGS (LOSS) PER SHARE
Basic earnings per share are calculated by dividing net income by
the weighted average number of common shares outstanding during the
period. Diluted earnings per share are calculated by dividing net income,
adjusted for interest on convertible securities, by potentially dilutive
common shares, which include stock options, warrants and convertible
securities.
Net loss per share is calculated by dividing net loss by the
weighted average number of common shares outstanding during the period.
The impact of conversion of dilutive securities, such as stock options and
warrants, are not considered where a net loss is reported as the inclusion
of such securities would be anti-dilutive. As a result, basic loss per
share is the same as diluted loss per share.
The computation of basic and diluted earnings per share is
summarized as follows:
(In thousands, except per share data) Three Months Ended Nine Months Ended
------------------ -----------------
Sept 27, Sept 28, Sept 27, Sept 28,
2003 2002 2003 2002
------------------------------------------------------
Net Income (a) $ 1,777 ($ 2,737) $ 4,237 ($22,036)
Effect of Dilutive Securities:
Stock Options / Warrants -- -- 44 --
Convertible Note -- -- 9 --
------------------------------------------------------
Net Income - Adjusted (b) $ 1,777 ($ 2,737) $ 4,290 ($22,036)
======================================================
Average Shares Outstanding - Basic (c) 13,229 13,137 13,004 12,807
Effect of Dilutive Securities:
Stock Options / Warrants 1,132 -- 614 --
Convertible Note -- -- 83 --
------------------------------------------------------
Average Shares Outstanding - Diluted (d) 14,361 13,137 13,701 12,807
======================================================
EPS - Basic (a/c) $ 0.13 ($ 0.21) $ 0.33 ($ 1.72)
EPS - Diluted (b/d) $ 0.12 ($ 0.21) $ 0.31 ($ 1.72)
The Company also had the equivalent of 19,000 and 2,556,000 options
and warrants outstanding for the three-month periods ended as of September
27, 2003 and September 28, 2002, respectively, and 285,000 and 2,455,000
options and warrants outstanding for the nine-month periods ended as of
September 27, 2003 and September 28, 2002, respectively, which were not
included in the computation of diluted EPS because these securities would
have been anti-dilutive for the periods presented.
4. STOCK-BASED COMPENSATION
The Company has various stock-based employee compensation plans. The
Company applies Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations
which require compensation costs to be recognized based on the difference,
if any, between the quoted market price of the stock on the grant date and
the exercise price. As all options granted to employees under such plans
had an exercise price at least equal to the market value of the underlying
common stock on the date of grant, and given the fixed nature of the
equity instruments, no stock-based employee compensation cost is reflected
in net income (loss). The
7
effect on net income (loss) and earnings per share if the Company
had applied the fair value recognition provisions of Statement of
Financial Accounting Standards ("SFAS") No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure, an Amendment
of SFAS No. 123" (as discussed below in Note 12 - Recent Accounting
Pronouncements), to stock-based employee compensation is as follows:
Three Months Ended Nine Months Ended
Sept 27, Sept 28, Sept 27, Sept 28,
2003 2002 2003 2002
-------------------------------------------------
Net income (loss), as reported $1,777 $(2,737) $4,237 $(22,036)
Add: Stock-based employee compensation
expense included in reported net income
(loss), net of related tax effects -- -- -- --
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (296) (273) (839) (926)
-------------------------------------------------
Pro forma net income (loss) $1,481 $(3,010) $3,398 $(22,962)
Earnings (loss) per share:
Basic - as reported $0.13 $(0.21) $0.33 $(1.72)
Basic - pro forma $0.11 $(0.23) $0.26 $(1.79)
Diluted - as reported $0.12 $(0.21) $0.31 $(1.72)
Diluted - pro forma $0.10 $(0.23) $0.25 $(1.79)
5. COMPREHENSIVE INCOME (LOSS)
The components of the Company's total comprehensive income (loss)
were:
Three Months Ended Nine Months Ended
Sept 27, Sept 28, Sept 27, Sept 28,
2003 2002 2003 2002
-----------------------------------------------------
Net income (loss) $1,777 $(2,737) $4,237 $(22,036)
Foreign currency translation adjustments 15 (63) (50) (84)
-----------------------------------------------------
Total comprehensive income (loss) $1,792 $(2,800) $4,187 $(22,120)
======================================================
8
6. INVENTORIES
Inventories are stated at the lower of cost or market with cost
determined under the first-in, first- out (FIFO) method. The composition
of inventories was:
September 27, 2003 December 31, 2002
---------------------------------------
Raw materials $6,291 $3,259
Work in process 1,437 1,882
Finished goods 1,038 1,207
---------------------------------------
8,766 6,348
Less: Reserve for obsolescence 1,194 535
---------------------------------------
$7,572 $5,813
=======================================
7. PROPERTY, PLANT AND EQUIPMENT
Major classes of property, plant and equipment consisted of the
following:
September 27, 2003 December 31, 2002
---------------------------------------
Land $123 $123
Buildings and leasehold improvements 1,625 1,619
Machinery and equipment 31,706 28,772
Furniture and fixtures 339 319
Computer hardware and software 1,557 1,405
Construction in progress 1,972 291
---------------------------------------
37,322 32,529
Less: Accumulated depreciation 19,539 17,193
---------------------------------------
$17,783 $15,336
=======================================
8. DEBT
In November 2001, the Company received approval for a $750
grant/loan from a federally sponsored small cities program. The grant/loan
has assisted in funding capital expansion plans that the Company expected
would lead to job creation. The Company has been reimbursed for approved
capital as it incurred the cost. In August 2002, the $750 small cities
grant/loan documentation was finalized and the Company was reimbursed
approximately $400 for costs it had incurred to date for equipment
purchases applicable under this grant/loan. During the first quarter of
2003, $117 under this grant/loan was reimbursed as the Company incurred
additional expenses and submitted requests for reimbursement. By the end
of March 2003, all $750 had been advanced to the Company. If the Company
were to meet its employment quota requirements by April 1, 2005, the loan
and all associated accrued interest would be forgiven. If the Company did
not meet its employment quota requirements, then the funds advanced and
the associated interest would be converted into a loan that will be repaid
over a seven-year period. The Company had initially recorded the proceeds
from this grant/loan as a long-term liability. In September 2003, the
Company fulfilled its obligations and had met its employment quota
requirements, and the loan was forgiven. As a result, the Company
reclassified this liability and associated accrued interest from the
Consolidated Balance Sheet and has recorded miscellaneous income of $781
in the September 2003 quarter. Interest had been accrued at a rate of 5%
per year.
On March 4, 2003, the Company completed a short-term financing to
help it meet certain working capital needs as the Company was growing
rapidly. The three-month, $500 note, which
9
accrued interest at 7.5% per annum, was converted into 125,000 shares of
common stock at $4.00 per share on June 4, 2003, at the option of the note
holder. Accrued interest was paid to the note holder on the maturity date.
On March 25, 2003, the Company's primary lending bank agreed to
amend the Company's credit facility. Among other things, this amendment
included an extension of the credit agreement through June 30, 2004, a
release of accounts receivable at the Company's U.K. subsidiary in order
to allow that subsidiary to obtain its own revolving credit facility with
a U.K. bank, and a formula adjustment in the borrowing base that enhanced
the eligible receivables related to the U.S. military in recognition of
the increasing business with the U.S. Army. Since this credit facility is
currently scheduled to expire in less than one year from the September 27,
2003 balance sheet date, all liabilities associated with this facility as
of this date have been reflected as a current liability.
On April 29, 2003, Ultralife Batteries (UK) Ltd., the Company's
wholly-owned U.K. subsidiary, completed an agreement for a revolving
credit facility with a commercial bank in the U.K. Any borrowings against
this credit facility are collateralized with that company's outstanding
accounts receivable balances. The maximum credit available to that company
under the facility is approximately $700. This credit facility provides
the Company's U.K. operation with additional financing flexibility for its
working capital needs. At September 27, 2003, the outstanding borrowings
under this revolver were $340.
9. INCOME TAXES
The liability method, prescribed by SFAS No. 109, "Accounting for
Income Taxes", is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and
are measured using the enacted tax rates and laws that may be in effect
when the differences are expected to reverse. The Company recorded no
income tax benefit or expense relating to the operating results generated
during the nine-month periods ended September 27, 2003 and September 28,
2002, as such income tax benefit or expense was offset by changes in the
valuation allowance. A valuation allowance is required when it is more
likely than not that the recorded value of a deferred tax asset will not
be realized.
10. COMMITMENTS AND CONTINGENCIES
As of December 31, 2002, the Company had foreign and domestic net
operating loss carryforwards totaling approximately $78,816 that are
available to reduce future taxable income. If it is determined that a
change in ownership as defined under Internal Revenue Code Section 382 has
occurred, the net operating loss carryforwards will be subject to an
annual limitation. Such a limitation could result in the possibility of a
cash outlay for income taxes for the year ended December 31, 2003.
As of September 27, 2003, the Company had $50 in restricted cash in
support of a corporate credit card account.
As of September 27, 2003, the Company had open capital commitments
to purchase approximately $2,584 of production machinery and equipment, of
which $1,416 is expected to be reimbursed to the Company and owned by the
U.S. Army / CECOM in conjunction with the agreement announced in September
2003. Pursuant to that agreement, the U.S. Army will pay approximately
$3,100 for the installation of machinery and equipment through the end of
the first quarter of 2004, increasing the production capacity for military
batteries. As of September 27, 2003,
10
the Company had incurred expenditures of approximately $1,400 on behalf of
the U.S. Army / CECOM, which was included in other current assets on the
Consolidated Balance Sheet because the Company will invoice the U.S. Army
/ CECOM for reimbursement of these funds.
In March 1998, the Company received a $500 grant from the Empire
State Development Corporation to fund certain equipment purchases. The
grant was contingent upon the Company achieving and maintaining minimum
employment levels for a period of five years. If annual levels of
employment were not maintained, a portion of the grant might have become
repayable. Through the first four years of the grant period, the Company
met the requirements. The Company believes that it has also met the
requirements in the fifth and final year, and it has recognized this
portion of the grant into income during 2002. However, there is some
uncertainty with the interpretation of the grant agreement, and it is
possible that the Company may be required to repay $100 of the grant. The
Company believes that the likelihood of a repayment is remote, and it is
discussing its position with the Empire State Development Corporation
accordingly. At September 27, 2003, there is no balance pertaining to this
grant on the balance sheet.
The Company estimates future costs associated with expected product
failure rates, material usage and service costs in the development of its
warranty obligations. Warranty reserves, included in other current
liabilities on the Company's Consolidated Balance Sheet, are based on
historical experience of warranty claims and generally will be estimated
as a percentage of sales over the warranty period. In the event the actual
results of these items differ from the estimates, an adjustment to the
warranty obligation would be recorded. Changes in the Company's product
warranty liability during the first nine months of 2003 were as follows:
Balance at December 31, 2002 $236
Accruals for warranties issued 78
Settlements made (46)
-----
Balance at September 27, 2003 $268
=====
The Company is subject to legal proceedings and claims which arise
in the normal course of business. The Company believes that the final
disposition of such matters will not have a material adverse effect on the
financial position or results of operations of the Company.
In conjunction with the Company's purchase/lease of its Newark, New
York facility in 1998, the Company entered into a payment-in-lieu of tax
agreement which provides the Company with real estate tax concessions upon
meeting certain conditions. In connection with this agreement, a
consulting firm performed a Phase I and II Environmental Site Assessment
which revealed the existence of contaminated soil and ground water around
one of the buildings. The Company retained an engineering firm which
estimated that the cost of remediation should be in the range of $230.
This cost, however, is merely an estimate and the cost may in fact be much
higher. In February, 1998, the Company entered into an agreement with a
third party which provides that the Company and this third party will
retain an environmental consulting firm to conduct a supplemental Phase II
investigation to verify the existence of the contaminants and further
delineate the nature of the environmental concern. The third party agreed
to reimburse the Company for fifty percent (50%) of the cost of correcting
the environmental concern on the Newark property. The Company has fully
reserved for its portion of the estimated liability, reflected as a part
of other current liabilities on the Company's Consolidated Balance Sheet.
Test sampling was completed in the spring of 2001, and the engineering
report was submitted to the New York State Department of Environmental
Conservation (NYSDEC) for review. NYSDEC reviewed the report and, in
January 2002, recommended additional testing. The Company responded by
submitting a work plan to NYSDEC, which was approved in April 2002. The
Company has sought proposals from environmental remediation firms to
complete the remedial work contained in the work plan, but it is unknown
at this time whether the final cost to remediate will be in the range of
the original estimate, given the passage of time. Because this is a
11
voluntary remediation, the Company does not have a specified time frame in
which to complete the project. The ultimate resolution of this matter may
have a significant adverse impact on the results of operations in the
period in which it is resolved. Furthermore, the Company may face claims
resulting in substantial liability which could have a material adverse
effect on the Company's business, financial condition and the results of
operations in the period in which such claims are resolved.
A retail end-user of a product manufactured by one of Ultralife's
customers (the "Customer"), has made a claim against the Customer wherein
it is asserted that the Customer's product, which is powered by an
Ultralife battery, does not operate according to the Customer's product
specification. No claim has been filed against Ultralife. However, in the
interest of fostering good customer relations, in September 2002,
Ultralife agreed to lend technical support to the Customer in defense of
its claim. The claim between the end-user and the Customer has now been
settled. Ultralife has renewed its commitment to the Customer to honor its
warranty by replacing any batteries that may be determined to be
defective. In the event a claim is filed against Ultralife and it is
ultimately determined that Ultralife's product was defective, replacement
of batteries to this Customer or end-user may have a material adverse
effect on the Company's financial position and results of operations.
11. BUSINESS SEGMENT INFORMATION
The Company reports its results in four operating segments: Primary
Batteries, Rechargeable Batteries, Technology Contracts and Corporate. The
Primary Batteries segment includes 9-volt, cylindrical and various other
non-rechargeable specialty batteries. The Rechargeable Batteries segment
includes the Company's lithium polymer and lithium ion rechargeable
batteries. The Technology Contracts segment includes revenues and related
costs associated with various government and military development
contracts. The Corporate segment consists of all other items that do not
specifically relate to the three other segments and are not considered in
the performance of the other segments.
Effective January 1, 2003, the Company revised its definition of
segment contribution for each of its segments to be defined as gross
margin (excluding the Corporate segment). Previously, segment contribution
included applicable research and development costs. The Corporate segment
now includes all of the Company's operating expenses, including research
and development costs. This change in presentation was made to be
consistent with the manner in which the Company's management views its
results from operations. Certain amounts in the prior year's segment
information have been reclassified to conform to the current year
presentation.
Three Months Ended September 27, 2003
- -------------------------------------
Primary Rechargeable Technology
Batteries Batteries Contracts Corporate Total
-----------------------------------------------------------------------
Revenues $19,450 $ 293 $131 $ -- $19,874
Segment contribution 4,125 (318) 86 (2,750) 1,143
Interest expense, net (143) (143)
Equity loss in UTI -- --
Miscellaneous 777 777
Income taxes -- --
-------
Net income (loss) $ 1,777
Total assets $35,529 $3,379 $ 99 $ 7,110 $46,117
12
Three Months Ended September 28, 2002
- -------------------------------------
Primary Rechargeable Technology
Batteries Batteries Contracts Corporate Total
-----------------------------------------------------------------------
Revenues $6,678 $169 $0 $ -- $6,847
Segment contribution 421 (292) 0 (2,046) (1,917)
Interest expense, net (82) (82)
Equity loss in UTI (959) (959)
Miscellaneous 221 221
Income taxes -- --
--------
Net income (loss) $(2,737)
Total assets $20,428 $4,076 $0 $8,747 $33,251
Nine Months Ended September 27, 2003
- ------------------------------------
Primary Rechargeable Technology
Batteries Batteries Contracts Corporate Total
-----------------------------------------------------------------------
Revenues $53,652 $931 $829 $ -- $55,412
Segment contribution 12,297 (914) 400 (8,130) 3,653
Interest expense, net (380) (380)
Equity loss in UTI -- --
Miscellaneous 964 964
Income taxes -- --
--------
Net income (loss) $4,237
Total assets $35,529 $3,379 $99 $7,110 $46,117
Nine Months Ended September 28, 2002
- ------------------------------------
Primary Rechargeable Technology
Batteries Batteries Contracts Corporate Total
-----------------------------------------------------------------------
Revenues $23,717 $327 $243 $ -- $24,287
Segment contribution 3,424 (1,310) 22 (22,237) (20,101)
Interest expense, net (283) (283)
Equity loss in UTI (2,138) (2,138)
Miscellaneous 486 486
Income taxes -- --
--------
Net income (loss) $(22,036)
Total assets $20,428 $4,076 $0 $8,747 $33,251
12. RECENT ACCOUNTING PRONOUNCEMENTS
In November 2002, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Others
Indebtedness." This Interpretation elaborates on the disclosures to be
made by a guarantor in its interim and annual financial statements about
its obligations under certain guarantees that it has issued. It also
clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. This Interpretation also incorporates, without
change, the guidance in FASB Interpretation No. 34, "Disclosure of
Indirect Guarantees of Indebtedness of Others." The initial recognition
and measurement provisions of this Interpretation are applicable on a
prospective basis to guarantees issued or modified after December 31,
2002, irrespective of the guarantor's fiscal year-end. The disclosure
requirements in this Interpretation are effective for financial statements
of interim or annual periods ending after December 15, 2002. The only
material guarantees that the Company has in accordance with FASB
Interpretation No. 45 are product warranties. All such guarantees have
been appropriately recorded in the financial statements.
13
In December 2002, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of FASB Statement No.
123." This statement amends SFAS No. 123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures
in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the
method used on reported results. SFAS No. 148 does not permit the use of
the original SFAS No. 123 prospective method of transition for changes to
the fair value based method made in fiscal years after December 15, 2003.
The Company currently applies the intrinsic value method and has no plans
to convert to the fair value method.
In December 2002, the FASB issued Interpretation No. 46
"Consolidation of Variable Interest Entities." This Interpretation
requires companies to reevaluate their accounting for certain investments
in "variable interest entities." A variable interest entity is a
corporation, partnership, trust, or any other legal structure used for
business purposes that either (a) does not have equity investors with
voting rights or (b) has equity investors that do not provide sufficient
financial resources for the entity to support its activities. A variable
interest entity often holds financial assets, including loans or
receivables, real estate or other property. A variable interest entity may
be essentially passive or it may engage in research and development or
other activities on behalf of another company. Variable interest entities
are to be consolidated if the Company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to
receive a majority of the entity's residual returns or both. The
disclosure requirements of this Interpretation are effective for all
financial statements issued after January 31, 2003. The consolidation
requirements of this Interpretation have been deferred and are effective
for all periods ending after December 15, 2003. The Company has no
investments in variable interest entities.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." The standard amends
and clarifies financial reporting for derivative instruments and for
hedging activities accounted for under SFAS No. 133 and is effective for
contracts entered into or modified, and for hedges designated, after June
30, 2003. The Company has no derivative instruments and adoption of the
standard is not expected to have a material impact on the Company's
consolidated financial position, results of operations or cash flows.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Instruments with Characteristics of Both Liabilities and Equity." The
standard establishes how an issuer classifies and measures certain
freestanding financial instruments with characteristics of liabilities and
equity and requires that such instruments be classified as liabilities.
The standard is effective for financial instruments entered into or
modified after May 31, 2003 and is generally effective at the beginning of
the first interim period beginning after June 15, 2003. Adoption of the
standard has not had a material impact on the Company's consolidated
financial position, results of operations or cash flows.
In May 2003, the Emerging Issues Task Force (EITF) issued Issue No.
00-21, "Accounting for Revenue Arrangements with Multiple Deliverables".
EITF Issue No. 00-21 provides guidance on how to determine when an
arrangement that involves multiple revenue-generating activities or
deliverables should be divided into separate units of accounting for
revenue recognition purposes, and if this division is required, how the
arrangement consideration should be allocated among the separate units of
accounting. The guidance in this Issue is effective for revenue
arrangements entered into in fiscal periods beginning after June 15, 2003.
Adoption of this Issue has not had a material impact on the Company's
consolidated financial position, results of operations or cash flows.
14
In May 2003, the EITF issued Issue No. 01-08, "Determining Whether
an Arrangement Contains a Lease". EITF Issue No. 01-08 provides guidance
on how to determine whether an arrangement contains a lease that is within
the scope of SFAS No.13, "Accounting for leases". The guidance in this
Issue is effective for arrangements agreed or committed to, or modified
after July 1, 2003. Adoption of the standard has not had a material impact
on the Company's consolidated financial position, results of operations or
cash flows.
13. SUBSEQUENT EVENTS
On October 7, 2003, the Company completed a private placement of
200,000 shares of unregistered common stock at a price of $12.50 per
share, for a total of $2,500. The net proceeds of the private placement,
$2,350, were used to advance funds to Ultralife Taiwan, Inc. (UTI), in
which Ultralife has an approximate 9.2% ownership interest. This
transaction was done in order to provide some bridge financing to UTI
while they work to complete an additional equity infusion into UTI to
support their growth plans. The transaction was recorded as a short-term
note receivable maturing on March 1, 2004 with interest accruing at 3% per
annum. The Company expects to convert this note receivable into shares of
UTI common stock on or before March 1, 2004, assuming UTI is successful in
raising additional equity capital. Pursuant to the agreement, the Company
expects to file an S-3 Registration Statement with the SEC within 30 days
of the initial transaction to initiate the process of registering these
shares for unrestricted trading. The Company accounts for its investment
in UTI using the cost method. The carrying value of the Company's 9.2%
ownership interest in UTI reflected on the Company's Consolidated Balance
Sheet as of September 27, 2003 was $1,550. The Company does not guarantee
the obligations of UTI and is not required to provide any additional
funding.
In May 2003, the Company announced a contract with the U.S. Army /
CECOM to provide BA-5390 batteries worth a total of approximately $18,600.
Unlike contract awards that result from a competitive bidding process,
this contract was an "exigent" contract, which is subject to an audit and
a final price adjustment. The contract authorized the U.S. Army / CECOM to
pay up to 50% of the total value specified, precluding any further
payments until the contract was definitized. As of September 27, 2003, the
Company had reached the 50% threshold under this contract. In the first
week of November 2003, the audit process was completed, resulting in a
reduction of the margin over the term of the contract. This lower margin
is reflected in the third quarter results, resulting in a $547 lower
margin than was anticipated under the original terms of the contract.
15
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (In whole dollars)
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This report contains certain
forward-looking statements and information that are based on the beliefs of
management as well as assumptions made by and information currently available to
management. The statements contained in this report relating to matters that are
not historical facts are forward-looking statements that involve risks and
uncertainties, including, but not limited to, future demand for the Company's
products and services, the successful commercialization of the Company's
advanced rechargeable batteries, general economic conditions, government and
environmental regulation, competition and customer strategies, technological
innovations in the primary and rechargeable battery industries, changes in the
Company's business strategy or development plans, capital deployment, business
disruptions, including those caused by fires, raw materials supplies,
environmental regulations, and other risks and uncertainties, certain of which
are beyond the Company's control. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may differ materially from those described herein as anticipated,
believed, estimated or expected.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the accompanying
consolidated financial statements and notes thereto contained herein and the
Company's consolidated financial statements and notes thereto contained in the
Company's Transition Report on Form 10-K as of and for the six-month period
ended December 31, 2002.
The financial information in this Management's Discussion and Analysis of
Financial Condition and Results of Operations are presented in whole dollars.
General
Ultralife Batteries, Inc. develops, manufactures and markets a wide range
of standard and customized lithium primary (non-rechargeable), lithium ion and
lithium polymer rechargeable batteries for use in a wide array of applications.
The Company believes that its technologies allow the Company to offer batteries
that are flexibly configured, lightweight and generally achieve longer operating
time than many competing batteries currently available. The Company has focused
on manufacturing a family of lithium primary batteries for military, industrial
and consumer applications, which it believes is one of the most comprehensive
lines of lithium manganese dioxide primary batteries commercially available. The
Company also supplies rechargeable lithium ion and lithium polymer batteries for
use in portable electronic applications.
Effective December 31, 2002, the Company changed its fiscal year-end from
June 30 to December 31.
For several years, the Company had incurred net operating losses primarily
as a result of funding research and development activities and, to a lesser
extent, incurring manufacturing and selling, general and administrative costs.
During the twelve month period ended June 30, 2002, the Company realigned its
resources to bring costs more in line with revenues, moving the Company closer
to achieving operating cash breakeven and profitability. In addition, the
Company refined its rechargeable strategy to allow it to be more effective in
the marketplace. As a result of the Company's focus on its key financial goals,
the Company successfully achieved operating profitability for the first time in
its history in the quarter ended March 29, 2003.
16
The Company reports its results in four operating segments: Primary
Batteries, Rechargeable Batteries, Technology Contracts and Corporate. The
Primary Batteries segment includes 9-volt, cylindrical and various other
non-rechargeable specialty batteries. The Rechargeable Batteries segment
includes the Company's lithium polymer and lithium ion rechargeable batteries.
The Technology Contracts segment includes revenues and related costs associated
with various government and military development contracts. The Corporate
segment consists of all other items that do not specifically relate to the three
other segments and are not considered in the performance of the other segments.
Results of Operations (in whole dollars)
Three months ended September 27, 2003 and September 28, 2002
Revenues. Consolidated revenues for the three-month period ended September
27, 2003 amounted to $19,874,000, an increase of $13,027,000, or 190%, from the
$6,847,000 reported in the same quarter in the prior year. Primary battery sales
increased $12,772,000, or 191%, from $6,678,000 last year to $19,450,000 this
year, mainly as a result of strong shipments of HiRate(R) battery products,
including sales of BA-5390 batteries used mainly in various communications and
weapons applications in the military, as well as higher 9-volt battery sales.
Rechargeable revenues rose $124,000 to $293,000 as the Company's broadened
strategy to include battery assemblies resulted in new customers. Technology
Contract revenues were $131,000 in the third quarter of 2003 as certain
milestones were met on a development contract with the U.S. Army. There were no
Technology Contract revenues reflected during the comparable three-month period
in 2002.
Cost of Products Sold. Cost of products sold totaled $15,981,000 for the
quarter ended September 27, 2003, an increase of $9,263,000, or 138% over the
same three-month period a year ago. The gross margin on consolidated revenues
for the quarter was $3,893,000, or 20% of revenues, an improvement of $3,764,000
over the $129,000, or 2% of revenues, reported in the same quarter in the prior
year. Gross margins in the Company's primary battery operations improved
$3,704,000, from $421,000 in 2002 to $4,125,000 in 2003. As a percentage of
revenues, primary battery margins amounted to 21% in the third quarter of 2003
compared with 6% in 2002. This improvement resulted mainly from higher sales and
production volumes that spread manufacturing overhead costs over a broader base,
as well as improvements in manufacturing efficiencies. In the Company's
rechargeable operations, the gross margin loss amounted to $318,000 in the third
quarter of 2003, relatively consistent with the same period in 2002. Gross
margins in the Technology Contract segment were $86,000 in the September quarter
of 2003.
During the third quarter of 2003, the Company's production volumes
continued to be limited by equipment capacity, with the workforce generally
working 13 out of 14 days in order to keep pace with product demand. As of
September 2003, the Company had more than doubled its direct labor force since
December 2002, adding more than 350 people to manufacturing operations. As a
result of this rapid growth, certain inefficiencies were inherent in the
production operations, including the need to work significant amounts of
overtime to meet customer delivery requirements and significant training and
learning curve issues. As the Company installs additional equipment to alleviate
the capacity constraints during the next several months, manufacturing
efficiencies are expected to improve as the direct labor force stabilizes and
benefits of automation are realized. In addition to labor efficiencies, the
Company expects to realize further direct material cost reductions as production
volumes increase.
Operating Expenses. Operating expenses for the three months ended
September 27, 2003 totaled $2,750,000, a $704,000 increase over the prior year's
amount of $2,046,000. Research and development charges increased $175,000 to
$652,000 in 2003 due to an increased focus in the development of military
batteries, as well as the development of opportunities for new rechargeable
batteries. Selling, general, and administrative expenses increased $529,000 to
$2,098,000 due to higher
17
compensation costs and professional fees. Overall, operating expenses as a
percentage of sales improved significantly, from 30% in the September 2002
quarter to 14% in the September 2003 quarter, as the revenue base increased.
Other Income (Expense). Interest expense, net, for the third quarter of
2003 was $143,000, an increase of $61,000 from the comparable period in 2002,
mainly as a result of higher revolving loan balances. Equity loss in Ultralife
Taiwan, Inc., (UTI) was $959,000 in the third quarter of 2002 compared with zero
in the third quarter of 2003. This change resulted from an October 2002 change
in the method of accounting for the Company's investment in UTI, from the equity
method of accounting to the cost method of accounting. In October 2002, the
Company sold a portion of its equity investment in UTI, reducing its ownership
interest from approximately 30% to approximately 10.6%. Subsequent to the
completion of this transaction, UTI has raised additional equity capital and the
Company's ownership interest in UTI has declined to approximately 9.2% as of
September 27, 2003. A $781,000 gain from the forgiveness of debt/grant was
recorded during the third quarter of 2003 as the Company fulfilled its
obligation to increase employment levels under a government-sponsored loan.
Miscellaneous income / expense changed from income of $221,000 in 2002 to an
expense of $4,000 in 2003 due to smaller gains on foreign currency translations,
primarily related to dealings with the Company's affiliate in the U.K. In July
2003, the Company reevaluated the amount of the intercompany loan and determined
that a significant portion of the loan owed by the U.K. subsidiary to the U.S.
parent company is unlikely to be repaid within the foreseeable future. As a
result, the impact of the foreign currency translations on the Consolidated
Statement of Income related to this intercompany loan balance has been
significantly diminished.
Net Income. Net income and diluted earnings per share were $1,777,000 and
$0.12, respectively, for the three months ended September 27, 2003, compared to
a net loss and loss per share of $2,737,000 and $0.21, respectively, for the
same quarter last year, primarily as a result of the reasons described above.
Average common shares outstanding used to compute basic earnings per share
increased mainly due to the Company's private equity offering in April 2002,
stock option exercises in 2003, and the conversion of a short-term note in June
2003, offset in part by the reacquisition of shares from UTI that resulted from
the Company's sale of a portion of its interest in UTI in October 2002. The
increase in the Company's stock price during 2003 and the related impact on
stock options and warrants "in the money" resulted in an additional 1,132,000
shares for the average diluted shares outstanding computation.
Nine months ended September 27, 2003 and September 28, 2002
Revenues. Consolidated revenues totaled $55,412,000 for the nine-month
period ended September 27, 2003, an increase of $31,125,000, or 128%, from the
$24,287,000 reported for the same nine months in 2002. Primary battery sales
increased $29,935,000, or 126%, from $23,717,000 last year to $53,652,000 this
year, mainly as a result of strong shipments of HiRate(R) battery products,
including sales of BA-5390 batteries used mainly in various communications and
weapons applications in the military, as well as higher 9-volt sales.
Rechargeable revenues rose $604,000 to $931,000 as the Company's broadened
strategy including battery assemblies began to develop new customers. Technology
Contract revenues increased $586,000 to $829,000 in the first nine months of
2003 as certain milestones were met on a development contract with the U.S.
Army.
Cost of Products Sold. Cost of products sold totaled $43,629,000 for the
nine months ended September 27, 2003, an increase of $21,478,000, or 97% over
the same nine-month period a year ago. The gross margin on consolidated revenues
for the nine-month period of 2003 was $11,783,000, or 21% of revenues, an
improvement of $9,647,000 over the $2,136,000, or 9% of revenues, in the same
period in the prior year. Gross margins in the Company's primary battery
operations improved $8,873,000, from $3,424,000 in 2002 to $12,297,000 in 2003.
As a percentage of revenues, primary battery margins amounted to 23% in the
first three quarters of 2003 compared with 14% in 2002. This improvement
resulted mainly from higher sales and production volumes, in addition to
manufacturing efficiencies. In
18
the Company's rechargeable operations, the gross margin loss amounted to
$914,000 in the first nine months of 2003 compared with a loss of $1,310,000 in
the same period in 2002. This improvement in the rechargeable area was the
result of higher sales volumes and the favorable impact from cost savings
initiatives that were implemented during the first quarter in 2002, as well as
lower depreciation charges. Gross margins in the Technology Contract segment
increased from $22,000 in 2002 to $400,000 in 2003 as a result of higher sales
and contracts with higher margins.
During the first nine months of 2003, the Company's production volumes
increased in order to keep pace with product demand. As a result, the Company
has more than doubled its direct labor force since December 2002, adding more
than 350 people to manufacturing operations. Certain inefficiencies in the
production operation resulting from the rapid manufacturing ramp-up, including
the need to work significant amounts of overtime to meet customer delivery
requirements, are expected to improve as the direct labor force stabilizes and
additional production equipment is installed to alleviate various manual
processes. In addition, the Company expects to realize further direct material
cost reductions over the levels achieved in the first half of 2003 as production
volumes increase.
Operating Expenses. Operating expenses for the nine months ended September
27, 2003 totaled $8,130,000, an increase of $211,000 from the prior year,
excluding the $14,318,000 impairment charge related to rechargeable assets. This
increase was primarily attributable to higher selling, general and
administrative costs, which increased $942,000, mainly as a result of higher
compensation expenses and higher professional fees. As a percentage of sales,
total operating expenses (excluding impairment charges) declined noticeably from
33% in the first nine months of 2002 to 15% in the same period in 2003, mostly
due to the higher revenue base.
Other Income (Expense). Interest expense, net, for the first nine months
of 2003 rose $97,000 to $380,000 due to interest expense associated with the
$500,000 short-term convertible note that was issued in March 2003 and higher
revolving loan balances. Equity loss in Ultralife Taiwan, Inc., (UTI) was
$2,138,000 in the first nine months of 2002 compared with zero in the same
period of 2003. This change resulted mainly from an October 2002 change in the
method of accounting for the Company's investment in UTI, from the equity method
of accounting to the cost method of accounting. In October 2002, the Company
sold a portion of its equity investment in UTI, reducing its ownership interest
from approximately 30% to approximately 10.6%. Subsequent to the completion of
this transaction, UTI has raised additional equity capital and the Company's
ownership interest in UTI has declined to approximately 9.2% as of September 27,
2003. A $781,000 gain from the forgiveness of debt/grant was recorded during the
third quarter of 2003 as the Company fulfilled its obligation to increase
employment levels under a government-sponsored loan. Miscellaneous income
decreased from $486,000 in 2002 to $183,000 in 2003 due to smaller gains on
foreign currency translations, primarily related to dealings with the Company's
affiliate in the U.K. In July 2003, the Company reevaluated the amount of the
intercompany loan and determined that a significant portion of the loan owed by
the U.K. subsidiary to the U.S. parent company is unlikely to be repaid within
the foreseeable future. As a result, the impact of the foreign currency
translations on the Consolidated Statement of Income related to this
intercompany loan balance has been significantly diminished.
Net Income. Net income and diluted earnings per share were $4,237,000 and
$0.31, respectively, for the nine month period ended September 27, 2003,
compared to a net loss and loss per share of $22,036,000 and $1.72,
respectively, for the same nine-month period last year, primarily as a result of
the reasons described above. Average common shares outstanding changed due to
the Company's private equity offering in April 2002, stock option exercises
during 2003, and the conversion of a short-term note in June 2003, offset in
part by the reacquisition of shares from UTI that resulted from the Company's
sale of a portion of its interest in UTI in October 2002. The increase in the
Company's stock price during 2003 and the related impact on stock options and
warrants "in the money" resulted in an additional 697,000 shares for the average
diluted shares outstanding computation.
19
Liquidity and Capital Resources (in whole dollars)
As of September 27, 2003, cash equivalents and available for sale
securities totaled $879,000, excluding restricted cash of $50,000. During the
nine months ended September 27, 2003, the Company used $3,104,000 of cash in
operating activities as compared to $4,033,000 for the nine months ended
September 28, 2002. During the first three quarters of 2003, the Company's net
income plus depreciation and amortization were more than offset by an increase
in working capital usage, particularly a $9,642,000 increase in accounts
receivable related to the significant rise in sales during the period. In the
nine months ended September 27, 2003, the Company used $4,542,000 to purchase
plant, property and equipment, an increase of $3,649,000 from the prior year's
capital expenditures, mainly as a result of the need to increase production
capacity for cylindrical cells as demand from military customers grew
significantly. During the nine month period ended September 27, 2003, the
Company generated $7,185,000 in funds from financing activities. The financing
activities included inflows from issuance of stock, mainly as stock options were
exercised during the period, a $500,000 90-day note converted into shares of
common stock in June 2003, and the final payment of $117,000 that was received
on a $750,000 government grant/loan, offset in part by payments on debt
obligations. In addition, the Company had accessed $4,908,000 of its revolving
credit facilities as of September 27, 2003 to finance working capital needs.
Months cost of sales in inventory at September 27, 2003 was 1.7 months
based on a rolling three-month average, compared with 2.0 months at December 31,
2002. This metric is indicative of the rapid turnaround of product to the
military and the high volume of sales during the first nine months of 2003, as
well as the Company's continuing focus to improve purchasing procedures and
inventory controls. The Company's Days Sales Outstanding (DSOs) was an average
of 50 days for the first nine months of 2003, compared with an average of 60
days for the same nine-month period in 2002. This improvement in DSOs mainly
reflects the significant increase in sales to the U.S. military and the
associated favorable impact from the timely payments made by them.
At September 27, 2003, the Company had a capital lease obligation
outstanding of $103,000 for the Company's Newark, New York offices and
manufacturing facilities.
As of September 27, 2003, the Company had open capital commitments to
purchase approximately $2,584,000 of production machinery and equipment, of
which $1,416,000 is expected to be reimbursed to the Company and owned by the
U.S. Army / CECOM in conjunction with the agreement announced in September 2003.
Pursuant to that agreement, the U.S. Army will pay approximately $3,100,000 for
the installation of machinery and equipment through the end of the first quarter
of 2004, increasing the production capacity for military batteries.
On March 25, 2003, the Company's primary lending bank and the Company
agreed to amend the Company's $15,000,000 credit facility. Among other things,
the amendment extended the maturity date to June 30, 2004, allowed for the
collateral release of accounts receivable related to the Company's subsidiary in
the U.K. affording it the ability to enter into a separate revolving credit
facility, and also revised certain limitations on customer concentration to
account for the increased sales activity with the U.S. military. The Company has
classified the portion of this debt that is due and payable as of September 27,
2003 as a short-term liability on the Consolidated Balance Sheet because the
credit facility expires in less than one year. As of September 27, 2003, the
Company had $1,467,000 outstanding under the term loan component of the credit
facility, and had $4,568,000 of borrowings outstanding under the revolver
component of the credit facility. The Company's additional borrowing capacity
under the revolver component of the credit facility as of September 27, 2003 was
approximately $4,400,000, net of outstanding letters of credit of $3,800,000. At
September 27, 2003, the Company's net worth was $29,763,000, compared to the
debt covenant requiring a minimum net worth of approximately $19,200,000.
20
On April 29, 2003, Ultralife Batteries (UK) Ltd., the Company's
wholly-owned U.K. subsidiary, completed an agreement for a revolving credit
facility with a commercial bank in the U.K. Any borrowings against this credit
facility are collateralized with that company's outstanding accounts receivable
balances. The maximum credit available to that company under the facility is
approximately $700,000. This credit facility provides the Company's U.K.
operation with additional financing flexibility for its working capital needs.
At September 27, 2003, the outstanding borrowings under this revolver were
$340,000.
In November 2001, the Company received approval for a $750,000 grant/loan
from a federally sponsored small cities program. The grant/loan has assisted in
funding capital expansion plans that the Company expected would lead to job
creation. The Company has been reimbursed for approved capital as it incurred
the cost. In August 2002, the $750,000 small cities grant/loan documentation was
finalized and the Company was reimbursed approximately $400,000 for costs it had
incurred to date for equipment purchases applicable under this grant/loan.
During the first quarter of 2003, $117,000 under this grant/loan was reimbursed
as the Company incurred additional expenses and submitted requests for
reimbursement. By the end of March 2003, all $750,000 had been advanced to the
Company. If the Company were to meet its employment quota requirements by April
1, 2005, the loan and all associated accrued interest would be forgiven. If the
Company did not meet its employment quota requirements, then the funds advanced
and the associated interest would be converted into a loan that will be repaid
over a seven-year period. The Company had initially recorded the proceeds from
this grant/loan as a long-term liability. In September 2003, the Company
fulfilled its obligations and had met its employment quota requirements, and the
loan has been forgiven. As a result, the Company reclassified this liability and
associated accrued interest from the Consolidated Balance Sheet and has recorded
miscellaneous income of $781,000 in the September 2003 quarter. Interest had
been accrued at a rate of 5% per year.
On March 4, 2003, the Company completed a short-term financing to help it
meet certain working capital needs as the Company was growing rapidly. Pursuant
to the terms of the note, the three-month, $500,000 note, which accrued interest
at 7.5% per annum, was converted into 125,000 shares of common stock at $4.00
per share on June 4, 2003. Accrued interest was paid to the note holder on the
maturity date.
During the first nine months of 2003, the Company issued 345,483 shares of
common stock as a result of exercises of stock options and warrants. The Company
received approximately $2,260,000 in cash proceeds as a result of these
transactions.
The Company is optimistic about its future prospects and growth potential.
However, the recent rapid growth of the business has created a near-term need
for certain machinery, equipment and working capital in order to increase
capacity and build product to meet demand. In certain areas of manufacturing,
the Company has been producing at or near capacity. In order to increase its
capacity in these areas, the Company has added a significant number of people
and is adding machinery and equipment to enhance its ability to continue to
fulfill this demand. The Company continues to explore other sources of capital,
including utilizing its unleveraged assets as collateral for additional
borrowing capacity, issuing debt and raising equity through a private or public
offering. Although it is evaluating these alternatives, the Company believes it
has the ability over the next 12 months to finance its operations primarily
through internally generated funds, or through the use of additional financing
that currently is available to the Company.
As described in Part II, Item 1, "Legal Proceedings", the Company is
involved in certain environmental matters with respect to its facility in
Newark, New York. Although the Company has reserved for expenses related to
this, there can be no assurance that this will be the maximum amount. The
ultimate resolution of this matter may have a significant adverse impact on the
results of operations in the period in which it is resolved.
21
The Company typically offers warranties against any defects due to product
malfunction or workmanship for a period up to one year from the date of
purchase. The Company also offers a 10-year warranty on its 9-volt batteries
that are used in ionization-type smoke detector applications. The Company
provides for a reserve for this potential warranty expense, which is based on an
analysis of historical warranty issues. There is no assurance that future
warranty claims will be consistent with past history, and in the event the
Company's experiences a significant increase in warranty claims, there is no
assurance that the Company's reserves are sufficient. This could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Outlook (in whole dollars)
Compared to the guidance last provided by management of $2,100,000 in
Operating Income for the third quarter of 2003, the Company actually reported
Operating Income of $1,143,000. This $957,000 shortfall resulted from (a) lower
margins per unit than originally expected under the $18,600,000 contract with
the U.S. Army / CECOM to produce BA-5390 batteries (a $547,000 impact), (b)
production disruptions due to unusually high temperatures during the summer in
the Company's U.K. facility, making it difficult to operate the humidity
controlled dry rooms effectively, and (c) equipment operating failures in the
U.S. operations due to running at levels above normal capacity. The Company does
not expect these production inefficiencies to recur in the fourth quarter of
2004, as it has added additional equipment to enhance overall production
capacity.
The Company expects revenues in its fourth quarter of calendar 2003 to
reach approximately $23,000,000, as new equipment is commissioned and overall
capacity increases. This would result in total revenues for 2003 of
approximately $78,000,000 (up from the previous guidance of approximately
$75,000,000), compared with $33,039,000 in 2002, an increase of more than 135%.
Demand for the BA-5390 battery remains very strong, and the Company continues to
respond as quickly as possible to the orders on hand. The Company's current
outlook incorporates the margin adjustments that were recently made to the
$18,600,000 BA-5390 "exigent" contract with the U.S. Army / CECOM, as well as
other possible margin adjustments on other "exigent" contracts that the Company
has, or expects to have, with them.
The Company has a fairly substantial fixed cost infrastructure to support
its overall operations. The Company believes that incremental sales volumes can
generate added gross margins in the range of 30%, based on recent results and
subject to product mix and the ability to maintain consistent levels of pricing.
Conversely, decreasing sales volumes will result in the opposite effect. During
the December 2001 and March 2002 quarters, the Company was able to significantly
reduce costs through various cost savings actions, moving it toward cash
generation and profitability. As the Company continues to grow and leverage this
infrastructure, it believes that sustainable profitability can be achieved.
The Company continues to monitor its operating costs very tightly. In the
fourth quarter of 2003, the Company is projecting operating expenses to be
relatively consistent with the first three quarters of 2003, in the range of
approximately $2,800,000.
The Company expects that operating income in the December 2003 quarter
will be approximately $2,000,000 and net income will be approximately
$1,850,000, based on the Company's projected revenues and the assumptions that
other income and expense consists only of net interest expense of approximately
$150,000 and there are no applicable income taxes. While management expects to
realize general improvements in manufacturing efficiencies during the quarter,
the holiday season is expected to result in fewer productive workdays, and
margins on the BA-5390 batteries produced for the U.S. Army / CECOM are expected
to decline due to the significantly higher contract volumes and pressure on unit
margins. This compares to an operating loss of $1,738,000 and a net loss of
$375,000 in the December 2002 quarter. For the full year of 2003, this will
result in a total operating income of approximately $5,700,000 and net income
(before applicable income taxes) of approximately $6,100,000, compared with an
operating loss of $21,839,000 and a net loss of $22,411,000, including a
$14,318,000 asset impairment charge, for the full calendar year of 2002. The
guidance previously provided called operating income in the range of $7,000,000
for the
22
year. The Company's current guidance for operating income for the full year is
less than the previous guidance due to lower margins than expected on BA-5390
contracts with the U.S. Army / CECOM, as well as capacity constraints that have
resulted in the Company being less efficient than expected during this phase of
its production ramp up.
At December 31, 2002, the Company had approximately $78,800,000 of net
operating loss carryforwards applicable to income taxes. Due to the consistent
losses reported in prior years, the Company has not reported a deferred tax
asset on its Consolidated Balance Sheet due to the uncertainty of its ability to
utilize the benefits of these tax losses in the future. As a result of the
positive earnings trend during 2003, the Company needs to reevaluate these
income tax benefits. During the fourth quarter of 2003, the Company will assess
the likelihood of being able to utilize these benefits against taxable earnings,
which may result in the recognition of a deferred tax asset on the Consolidated
Balance Sheet when this assessment is made, along with an ongoing income tax
expense on the Consolidated Statement of Income into the future. The Company is
unable to adequately quantify the amount of these impacts on the financial
statements at this time. In addition, if it is determined that a change in
ownership as defined under Internal Revenue Code Section 382 has occurred, the
net operating loss carry forwards will be subject to an annual limitation. Such
a limitation could result in the possibility of a cash outlay for income taxes
for the year ended December 31, 2003.
Looking ahead to 2004, the Company believes that total revenues will
exceed $100,000,000 for the year, a nearly 30% increase over 2003. This growth
is expected to be generated from all areas of the business. The Company has
solid order coverage from the military booked into the first half of 2004, and
the commitment by the U.S. Army to purchase approximately $3,100,000 of
machinery and equipment on the Company's behalf is an indicator that demand from
the military will continue to be strong into next year. Quarterly, revenues are
expected to be fairly consistent throughout the year at this time.
The Company's basic financial model is to drive gross margins to exceed
25% of revenues, and to drive operating expenses as a percentage of sales down
below 12%, resulting in a pre-tax operating profit margin in the range of 15%.
The Company believes that these targets can be realized by continuing to grow
the revenue base while improving manufacturing efficiencies, in addition to
monitoring operating expenses closely.
At this time, operating income for 2004 is expected to be in the range of
$11,000,000. Gross margins are expected to improve as manufacturing efficiencies
are realized with a more experienced workforce, and operating expenses as a
percentage of revenues are expected to decline.
In order to meet the significant demand from the military, the Company is
continuing to make prudent investments in capital equipment that have a very
short payback. At this time, the Company believes that expenditures for capital
projects in 2003 will be approximately $5,500,000 to $6,000,000, based on the
recent volume of orders and the expectation that demand will continue to
increase across all product lines. In addition, the Company received a contract
from the U.S. Army / CECOM whereby they will provide funding for approximately
$3,100,000 of machinery and equipment related to the production of BA-5390
batteries, to ensure that there is adequate capacity to produce at increased
volumes, if necessary. The Company will act as the intermediary to ensure proper
installation and setup, receiving reimbursement for expenditures made throughout
the process. This specific equipment will be installed on the Company's
premises, but the title to the equipment will reside with the U.S. Army. As of
September 27, 2003, the Company had incurred expenditures of approximately
$1,400,000 on behalf of the U.S. Army / CECOM, which was included in other
current assets on the Consolidated Balance Sheet because the Company will
invoice the U.S. Army / CECOM for reimbursement of these funds. Since the lead
time, in general, for ordering certain production equipment can range from six
to twelve months, the Company has had to make some up front investments in
capital in order to increase its capacity to meet anticipated demand. The recent
success and the continued outlook for growth has required the Company to make
some such investments in new equipment during 2003. The Company carefully
evaluates such projects and will only make capital investments when necessary
and when there is typically a favorable payback period.
23
As the Company's volume grows, it expects that working capital needs
related to increasing sales volumes and inventory levels will be able to be
financed by its revolving credit facility. The Company continually explores its
financing alternatives, including utilizing its unleveraged assets as collateral
for additional borrowing capacity, refinancing current debt or issuing new debt,
and raising equity through a private or public offering. Although it is
evaluating these alternatives, the Company believes it has the ability over the
next 12 months to finance its operations primarily through internally generated
funds, or through the use of additional financing that currently is available to
the Company. While the Company is confident that it will be successful in
continuing to arrange adequate financing to support its growth, there can be no
assurance that the Company will be able to do so. Therefore, this could have a
material adverse effect on the Company's business, financial position and
results of operations.
New Accounting Pronouncements
In November 2002, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Others Indebtedness." This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. This Interpretation also
incorporates, without change, the guidance in FASB Interpretation No. 34,
"Disclosure of Indirect Guarantees of Indebtedness of Others." The initial
recognition and measurement provisions of this Interpretation are applicable on
a prospective basis to guarantees issued or modified after December 31, 2002,
irrespective of the guarantor's fiscal year-end. The disclosure requirements in
this Interpretation are effective for financial statements of interim or annual
periods ending after December 15, 2002. The only material guarantees that the
Company has in accordance with FASB Interpretation No. 45 are product
warranties. All such guarantees have been appropriately recorded in the
financial statements.
In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure-an amendment of FASB
Statement No. 123." This statement amends SFAS No. 123, "Accounting for
Stock-Based Compensation," to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.
SFAS No. 148 does not permit the use of the original SFAS No. 123 prospective
method of transition for changes to the fair value based method made in fiscal
years after December 15, 2003. The Company currently applies the intrinsic value
method and has no plans to convert to the fair value method.
In December 2002, the FASB issued Interpretation No. 46 "Consolidation of
Variable Interest Entities." This Interpretation requires companies to
reevaluate their accounting for certain investments in "variable interest
entities." A variable interest entity is a corporation, partnership, trust, or
any other legal structure used for business purposes that either (a) does not
have equity investors with voting rights or (b) has equity investors that do not
provide sufficient financial resources for the entity to support its activities.
A variable interest entity often holds financial assets, including loans or
receivables, real estate or other property. A variable interest entity may be
essentially passive or it may engage in research and development or other
activities on behalf of another company. Variable interest entities are to be
consolidated if the Company is subject to a majority of the risk of loss from
the variable interest entity's activities or entitled to receive a majority of
the entity's residual returns or both. The disclosure requirements of this
Interpretation are effective for all financial statements issued after January
31, 2003. The consolidation requirements of this Interpretation have been
deferred and are effective for all periods ending after December 15, 2003. The
Company has no investments in variable interest entities.
24
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." The standard amends and
clarifies financial reporting for derivative instruments and for hedging
activities accounted for under SFAS No. 133 and is effective for contracts
entered into or modified, and for hedges designated, after June 30, 2003. The
Company has no derivative instruments and adoption of the standard is not
expected to have a material impact on the Company's consolidated financial
position, results of operations or cash flows.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Instruments with Characteristics of Both Liabilities and Equity." The standard
establishes how an issuer classifies and measures certain freestanding financial
instruments with characteristics of liabilities and equity and requires that
such instruments be classified as liabilities. The standard is effective for
financial instruments entered into or modified after May 31, 2003 and is
otherwise effective at the beginning of the first interim period beginning after
June 15, 2003. Adoption of the standard has not had a material impact on the
Company's consolidated financial position, results of operations or cash flows.
In May 2003, the Emerging Issues Task Force (EITF) issued Issue No. 00-21,
"Accounting for Revenue Arrangements with Multiple Deliverables". EITF Issue No.
00-21 provides guidance on how to determine when an arrangement that involves
multiple revenue-generating activities or deliverables should be divided into
separate units of accounting for revenue recognition purposes, and if this
division is required, how the arrangement consideration should be allocated
among the separate units of accounting. The guidance in this Issue is effective
for revenue arrangements entered into in fiscal periods beginning after June 15,
2003. Adoption of this Issue has not had a material impact on the Company's
consolidated financial position, results of operations or cash flows.
In May 2003, the EITF issued Issue No. 01-08, "Determining Whether an
Arrangement Contains a Lease". EITF Issue No. 01-08 provides guidance on how to
determine whether an arrangement contains a lease that is within the scope of
SFAS No.13, "Accounting for leases". The guidance in this Issue is effective for
arrangements agreed or committed to, or modified after July 1, 2003. Adoption of
the standard has not had a material impact on the Company's consolidated
financial position, results of operations or cash flows.
25
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company is exposed to various market risks in the normal course of
business, primarily interest rate risk and changes in market value of its
investments and believes its exposure to these risks is minimal. The Company's
investments are made in accordance with the Company's investment policy and
primarily consist of commercial paper and U.S. corporate bonds. The Company does
not currently invest in derivative financial instruments.
Item 4. CONTROLS AND PROCEDURES
Evaluation Of Disclosure Controls And Procedures - The Company's president
and chief executive officer (principal executive officer) and its vice
president- finance and chief financial officer (principal financial officer)
have evaluated the disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this
quarterly report. Based on this evaluation, the president and chief executive
officer and vice president - finance and chief financial officer concluded that
the Company's disclosure controls and procedures were effective as of such date.
Changes In Internal Controls Over Financial Reporting - There has been
no change in the internal controls over financial reporting that occurred during
the fiscal quarter covered by this quarterly report that has materially
affected, or is reasonably likely to materially affect, the internal controls
over financial reporting.
26
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to legal proceedings and claims which arise in the
normal course of business. The Company believes that the final disposition of
such matters will not have a material adverse effect on the financial position
or results of operations of the Company.
In conjunction with the Company's purchase/lease of its Newark, New York
facility in 1998, the Company entered into a payment-in-lieu of tax agreement
which provides the Company with real estate tax concessions upon meeting certain
conditions. In connection with this agreement, a consulting firm performed a
Phase I and II Environmental Site Assessment which revealed the existence of
contaminated soil and ground water around one of the buildings. The Company
retained an engineering firm which estimated that the cost of remediation should
be in the range of $230,000. This cost, however, is merely an estimate and the
cost may in fact be much higher. In February, 1998, the Company entered into an
agreement with a third party which provides that the Company and this third
party will retain an environmental consulting firm to conduct a supplemental
Phase II investigation to verify the existence of the contaminants and further
delineate the nature of the environmental concern. The third party agreed to
reimburse the Company for fifty percent (50%) of the cost of correcting the
environmental concern on the Newark property. The Company has fully reserved for
its portion of the estimated liability. Test sampling was completed in the
spring of 2001, and the engineering report was submitted to the New York State
Department of Environmental Conservation (NYSDEC) for review. NYSDEC reviewed
the report and, in January 2002, recommended additional testing. The Company
responded by submitting a work plan to NYSDEC, which was approved in April 2002.
The Company has sought proposals from environmental remediation firms to
complete the remedial work contained in the work plan, but it is unknown at this
time whether the final cost to remediate will be in the range of the original
estimate, given the passage of time. Because this is a voluntary remediation,
the Company does not have a specified time frame in which to complete the
project. The ultimate resolution of this matter may have a significant adverse
impact on the results of operations in the period in which it is resolved.
Furthermore, the Company may face claims resulting in substantial liability
which could have a material adverse effect on the Company's business, financial
condition and the results of operations in the period in which such claims are
resolved.
A retail end-user of a product manufactured by one of Ultralife's
customers (the "Customer"), has made a claim against the Customer wherein it is
asserted that the Customer's product, which is powered by an Ultralife battery,
does not operate according to the Customer's product specification. No claim has
been filed against Ultralife. However, in the interest of fostering good
customer relations, in September 2002, Ultralife agreed to lend technical
support to the Customer in defense of its claim. The claim between the end-user
and the Customer has now been settled. Ultralife has renewed its commitment to
the Customer to honor its warranty by replacing any batteries that may be
determined to be defective. In the event a claim is filed against Ultralife and
it is ultimately determined that Ultralife's product was defective, replacement
of batteries to this Customer or end-user may have a material adverse effect on
the Company's financial position and results of operations.
27
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Form of Stock Purchase Agreement Dated October 7, 2003 (Three
separate but identical (other than subscription amount) stock
purchase agreements for Corsair Capital Partners, LP, Corsair
Long Short International Ltd., and Neptune Partners, LP for an
aggregate 200,000 shares for an aggregate purchase price of
$2,500,000)
10.2 Form of Registration Rights Agreement Dated October 7, 2003
(Three separate but identical registration rights agreements
for Corsair Capital Partners, LP, Corsair Long Short
International Ltd., and Neptune Partners, LP)
10.3 Loan and Subscription Agreement with Ultralife Taiwan, Inc.
Dated October 7, 2003
31.1 Section 302 Certification - CEO
31.2 Section 302 Certification - CFO
32 Section 906 Certifications
(b) Reports on Form 8-K
On July 28, 2003, the Company filed a Form 8-K with the
Securities and Exchange Commission announcing the receipt of a
multi-million dollar order and annual contract renewal to continue
supplying its advanced 9-volt lithium battery under private label
for an existing major consumer battery-brand customer.
On July 29, 2003, the Company announced that it would report
its second quarter 2003 results for the period ended June 28, 2003
on August 7, 2003.
On July 30, 2003, the Company filed a Form 8-K with the
Securities and Exchange Commission announcing receipt of an order
valued at $545,000 for its HiRate D-size lithium cells from one of
its U.S. battery assembly customers.
On August 5, 2003, the Company filed a Form 8-K with the
Securities and Exchange Commission announcing a contract, valued at
$28 Million, awarded by the U.S. Army Communications Electronic
Command for its BA-5390/U battery. Shipments will begin in November
2003 and continue into the first quarter of 2004.
On August 7, 2003, the Company filed a Form 8-K with the
Securities and Exchange Commission announcing its second quarter
2003 earnings.
On August 13, 2003, the Company filed a Form 8-K with the
Securities and Exchange Commission announcing the receipt of a $2.9
million order for its lithium Thin Cell (R) batteries from an
undisclosed U.S. medical device maker. Cell deliveries began in
September and extend into 2004.
On August 19, 2003, the Company filed a Form 8-K with the
Securities and Exchange Commission announcing the receipt of a $1.4
million order for its HiRate(TM) D-size lithium cells from one of
its U.S. battery assembly customers. Deliveries have begun and are
expected to continue through the first quarter of 2004.
On August 27, 2003, the Company filed a Form 8-K with the
Securities and Exchange Commission announcing that it received
orders valued at approximately $2.6 million from the U.S. Army
Communications and Electronics Command for its BA-
28
5372/U military batteries. Deliveries against the new releases under
the NextGen II contract are expected to begin in 2004 with
deliveries into the 2nd half of the year.
On September 24, 2003, the Company filed a Form 8-K with the
Securities and Exchange Commission announcing that it signed a
contract with the U.S. Department of the Army - Communications and
Electronics Command (CECOM) whereby the Company will receive $3.1
million to purchase, on behalf of CECOM, manufacturing equipment to
expand its BA-5390 lithium-manganese dioxide battery manufacturing
capability.
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ULTRALIFE BATTERIES, INC.
-------------------------
(Registrant)
Date: November 6, 2003 By: /s/ John D. Kavazanjian
---------------- ------------------------
John D. Kavazanjian
President and Chief Executive Officer
Date: November 6, 2003 By: /s/ Robert W. Fishback
---------------- ----------------------
Robert W. Fishback
Vice President - Finance and Chief
Financial Officer
30