Ultralife Batteries, Inc.

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Ultralife Batteries, Inc.

2000 Technology Parkway
Newark, New York 14513
U.S.A.
Telephone: (315) 332-7100
Toll Free: (800) 332-5000
Fax: (315) 331-7800
Web site: http://www.ulbi.com

Public Company
Incorporated: 1991
Employees: 550
Sales: $32.5 million (2002)
Stock Exchanges: NASDAQ
Ticker Symbol: ULBI
NAIC: 335912 Primary Battery Manufacturing

Ultralife Batteries, Inc.—a global specialist for diverse battery applications—is a leading developer, manufacturer, and marketer of customized and standard lithium primary (non-rechargeable) batteries, as well as lithium-ion and lithium-polymer rechargeable batteries. The company uses advanced lithium technology to produce primary, lithium-ion, and polymer rechargeable batteries used in a wide variety of military, industrial, and consumer products—including applications for medical devices, wireless and computing devices, aerospace applications, and a large variety of other portable electronic products. With manufacturing facilities in the United States and the United Kingdom, Ultralife also has a supply relationship in Asia through Ultralife Taiwan, Inc. From a broad line of standard batteries, the company seeks to provide customers with “The New Power Generation.” If, however, the company does not have a standard battery that meets a customer’s need, Ultralife engineers can produce custom-designed products. Ultralife’s OEM and retail customers include such leading companies as Energizer, Kidde Safety, Philips Medical Systems, Radio Shack, and the defense departments of the United States, the United Kingdom, and Germany. After more than 12 years of sustained planning, set-backs, and efforts to refocus, Ultralife began reporting a profit in 2003.

1990–96: The Early Years

The history of Ultralife may be traced to the Eastman Kodak Company, which in the 1980s began developing lithium batteries for cameras through a spin-off company called Ultra Technologies Inc. From a manufacturing plant in Newark, New York (just south from Kodak’s Rochester headquarters), Ultra Technologies began producing 9-volt versions of the lithium battery. Competition in the market was stiff, however, with Duracell and Everyready being major players, and Kodak eventually decided to divest itself of the battery business.

In 1991, a group of investors that included engineers Bruce Jagid, Joseph Abeles, and Arthur Lieberman, decided to purchase Ultra Technologies and its Ultralife brand name. They would seek to develop and commercialize new, more advanced lithium battery technologies for use in applications that required high energy, reliability, and long-lasting power sources. The company was renamed Ultralife Batteries Inc., and went public in 1992.

Management realized that for Ultralife to become a leading player in the market it needed to establish a broad research and development base and to expand its manufacturing and marketing expertise through acquisitions and strategic relationships with original equipment manufacturers (OEMs). Thus, during its first year of operation, Ultralife focused on reactivation of the Kodak manufacturing facility and extensive tests on Kodak’s 9-volt battery. These tests indicated a need for design modifications that were then incorporated into Ultralife’s 9-volt battery; the result was a battery with improved performance and shelf life.

Next, the company began forming alliances with OEMs, stepping up its research and development of marketing programs, and recommending Ultralife products for replacement use in their products. The company also hoped that strategic alliances with OEMs would lead to identification and development of new applications for Ultralife batteries.

Since its inception, Ultralife planned on commercial production facilities and concentrated on its proprietary technology and expertise to develop primary and rechargeable batteries in different sizes and voltages for use in existing and future applications. The principal primary battery technologies were based on carbon-zinc, alkaline, and lithium. Rechargeable battery technologies used nickel-cadmium, nickel metal hydride, and lithium. Battery performance was judged principally on energy density (total electrical energy stored in a battery), and relatively flat voltage profiles that provided stable power. Lithium batteries, because of their electrochemical properties provided higher energy density and longer operating time than similar-sized batteries based on other chemistries. They also remained effective in wide temperature ranges. In particular, Ultralife saw a long-term need and a bright future for polymer technology in the manufacture of batteries.

An opportunity soon arose, and, in May 1994, Ultralife acquired certain assets and business relating to polymer technology from Abingdon, England-based Dowty Group plc. The company established a subsidiary, Ultralife Batteries (UK) Ltd., gaining manufacturing facilities for high-rate lithium and seawa-ter-activated batteries, as well as a staff of highly skilled scientists with significant expertise in lithium-battery technology.

Ultralife conducted its research and development activities both in Newark and in Abingdon. In Newark, a production facility for 9-volt lithium batteries manufactured from 100,000 to 400,000 batteries monthly during fiscal 1996. This facility was one of the most automated and efficient lithium battery production facilities of its kind in the world. The company sold this battery to OEMs for smoke alarms, medical instruments, and security devices. The company also manufactured a 9-volt lithium batteries under private label for First Alert; American Sensors, Inc.; Sonnenschien in Germany; and Uniline in Sweden. In 1995 The U.S. Department of Defense awarded Ultralife a $1.5 million contract to produce the BA-5372 lithium battery and in 1996 added another $1.3 million for batteries to be delivered by fiscal 1997. The BA-5372 lithium battery was meant to be used for memory back-up in specialized mobile communication equipment.

In March 1996 Ultralife announced that its agreement to supply advanced solid state rechargeable batteries to one of the world’s leading cellular telephone manufacturers had passed the development phase. The telephone manufacturer agreed to provide additional funding and over $300,000 toward initial shipments of mass-produced batteries scheduled for the first quarter of 1997. Furthermore, the manufacturer placed an order for a minimum of five million batteries and agreed to buy as many batteries as Ultralife could produce prior to December 31, 1998. Ultralife’s then-President Bruce Jagid commented that this order from a leading global telecommunications company “helped to establish the Ultralife Solid State System as the industry standard not only for cellular phones but also for laptop computers and other portable electronic devices that require a safe, reliable, efficient source of power.”

Ultralife entered the broader consumer market by establishing relationships with national and regional retail chains, such as Radio Shack, Target Stores, Servistar, Ace Hardware, True Value Hardware, and a number of catalogers. The company developed many products based on combining technology developed by its own research and development personnel and assets acquired from Kodak, Dowty, and Hoppecke, as well as from various technology licenses. Relationships with other companies, such as Sonnenschein in Germany and Uniline in Sweden, also helped to lay the foundation for realization of the company’s global aspirations.

Ultralife developed prototype lithium primary Thin Cell Batteries which were flat, light-weight, flexible, and could be manufactured to conform to the shape of particular applications. The company marketed these prototypes to OEMs for applications such as security badges, smart cards, computer-access cards and personal-communication devices. The company also produced a 3-volt lithium battery suitable for high-current pulses, such as radio transmitters and receivers, and remote utility meter-reading systems. These batteries were sold to Dayton-Granger, Inc., for emergency beacons for commercial aircraft and to Sclumberger for residential gas meters.

Struggling the Late 1990s

Ultralife UK marketed a wide range of high-rate primary lithium batteries in various size and voltage configurations. These included C- and D-size 3-volt configurations, which were sold separately and packaged into multi-cell battery packs. The company also marketed these batteries under private label in other sizes and voltage configurations in order to offer a more comprehensive line of batteries to its customers, which include OEMs for industrial applications such as Search and Research, the oil industry, down-hole and pipeline-monitoring equipment, utility meters, oceanographic, remote-switching and portable equipment. The main military applications were in manpack radios, night-vision equipment, chemical-agent monitors, and missile power supplies. The Abingdon facility also manufactured a variety of seawater-activated batteries—based on manganese silver-chloride technology—and custom designed for naval and other specialty OEMS.

Since its founding, Ultralife continued to invest significant resources for research and development activities related primarily to its advanced rechargeable battery based on solid-polymer technology. The battery was composed of thin components including a lithiated manganese dioxide cathode, a carbon anode, and a flexible solid-polymer electrolyte that reduced the battery’s overall weight and volume and—among other advantages—provided flexibility for adjustment of the batteries to the varied shapes and sizes required by OEMs. In 1997 Ultralife produced prototypes of its advanced rechargeable batteries in limited quantities and continued to install equipment for a commercial-level production facility.

Company Perspectives

The corporate objectives ofUltralife Batteries are: (1) To be a leading provider of advanced portable power sources for applications requiring high-energy, reliable, long-lasting power sources; (2) To maintain the highest levels of commitment to total quality manufacturing; and (3) To develop new battery technologies that will enable the creation of entirely new applications.

In December 1998, the company announced a venture with PGT Energy Corporation and a group of investors to produce Ultralife’s polymer rechargeable batteries in Taiwan. Ultralife provided the venture, named Ultralife Taiwan, Inc. (UTI), with its proprietary technology and 700,000 shares of Ultralife common stock. PGT and the group of investors funded UTI with $21.25 million in cash.

In April 1999 Ultralife began work on a three-year, $15.3 million cost-sharing project sponsored by the U.S. Department of Commerce. The objective of the project was to develop and produce ultra-high-energy solid polymer rechargeable batteries that would significantly outperform existing batteries in a broad range of portable electronic applications. The company led a team that included Eagle-Picher Technologies, the world’s largest supplier of satellite batteries, and Lockheed-Martin Missiles and Space, a leading supplier of satellites and space vehicles. Moreover, Ultralife began developing two new models of polymer rechargeable replacement batteries for use with the world’s largest-selling line of cellular phones: the Nokia 5100, 6100, and 7100 series. Ultralife’s ultra-slim, ultra-light battery would weigh slightly more than an ounce, have a digital talk time of up to 3.3 hours, and a standby time of up to 6.5 days. Another model would weigh less than three ounces, have a digital talk time of up to 10 hours, and a standby time of up to 22 days.

Revenues continued to rise but so did net losses. Furthermore, according to an August 2, 1999, issue of Electronic Buyer’s News, Ultralife was challenged by a number of setbacks. The company had begun to develop lithium-polymer batteries in 1995 and, after a few years, produced these batteries in low-volume quantities on production lines that included manual operation which in no way allowed the company to cope with competition. Over and above “confronting the same mass-production challenges that most lithium-polymer battery makers faced,” since its founding, Ultralife had to weather a series of fires and lawsuits. The Abingdon facility where custom-designed seawater batteries were manufactured was damaged by fire in July 1994 and in September 1995; in December 1996 still another fire completely destroyed the factory, thereby interrupting production of the batteries sold to naval and other specialty OEMs. At the Newark facility, there were two fires, one in August 1991 and another a year later. Nevertheless, in 1999, after the completed installation of new, fully-automated production lines at its headquarters in Newark, Ultralife was ready to start mass production of the new batteries.

Facing its disappointing financial performance, fueled also by the fact that Ultralife’s laptop and telephone batteries were losing market share to less expensive brands, the company needed a management shake-up. After eight years of service, in February 1999, Bruce Jagid resigned from his position as Ultra-life’s chairman and chief executive officer. He was replaced by John D. Kavazanjian, an executive well versed in high-volume manufacturing activities and high-tech information systems. On July 12, 1999, Kavazanjian accepted leadership of the company, vowing to make Ultralife profitable.

Under Kavazanjian, Ultralife gave up its attempts to compete for consumer business and instead refocused on gaining a significant share in four specific markets: military, automotive, search-and-rescue, and medical. These markets required batteries with specialized capabilities and in unconventional sizes, and thus would put to good use the research and development capabilities of Ultralife. The company also sought to make its manufacturing processes more efficient and cost-effective.

Revitalized in the New Century

The company entered the new millennium with a sharper focus and energized by the prospect of success. Ultralife’s search-and rescue products were developed for use in a wide variety of applications, including emergency locator beacons and transmitters. In the medical sector, Ultralife batteries found a market with manufacturers of medical defibrillators (the “paddles” that apply an electric shock to restore the rhythm of a failing heart).

Ultralife’s most profitable contributions, however, were in the military sector. The company supplied batteries to military personnel for field communications, thermal imaging systems, and radios for survival of pilots. In answer to increased demand from the U.S. Army, the company announced an expansion program expected to create 100 new jobs at Ultralife’s Newark facility by year-end 2002.

For several years, Ultralife had incurred net operating losses. Kavazanjian remained optimistic, however, emphasizing the company’s admirable research and development efforts. Among some 24 new products the company introduced during this time was its lithium-manganese dioxide battery, which would provide 50 percent more operating time than the competing technology and would find an appreciative audience with the military. Indeed, the U.S. Army awarded the company a $12 million order (the largest in Ultralife’s history) and other orders totaling $2.4 million.

Furthermore, Ultralife signed a contract with U.S. Army research laboratories to develop a specific hybrid power source system and smart rapid-on-the-move charger, known as Land Warrior. On the international level, Ultralife UK was a significant supplier to the U.K. Ministry of Defense, and also conducted business with the Spanish and the German militaries. From $6 million in fiscal 1999, Ultralife was able to report sales of $32.5 million in fiscal 2002, but remained in the red due to the fact that net losses ($7 million in 1999 versus $25 million in 2002) had accumulated faster than revenues.

Key Dates

1991:: Eastman Kodak sells its Ultra Technologies assets and Ultralife brand name to a group of investors, who begin improving on the 9-volt lithium battery.
1994:: Renamed Ultralife, the company goes public and establishes a subsidiary in the United Kingdom.
1996:: An improved 9-volt lithium battery is introduced.
1999:: Ultralife begins mass production of lithium-polymer batteries.
2002:: Ultralife diversifies its portfolio and introduces 24 new products.

Eventually, the manufacturing and marketing success that Kavazanjian hoped for began to materialize, substantially bolstered by the U.S. war in Iraq. During this time, the U.S. military increased demand for the company’s HiRate battery products, especially for the batteries used in a wide variety of applications for communications, weapons, and 70 other military applications, including thermal sights for machine guns and in anti-tank systems. Quarterly shipments of 9-volt batteries also peaked, and demand for battery-pack assemblies continued to increase.

In May 2003, to fill a multi-million dollar order from a major consumer-products company, Ultralife began production of a private-label version of its 9-volt lithium battery. Employees worked 13 out of every 14 days to keep up with demand. From December 2002 to May 2003, the once-struggling company hired 200 people and envisioned the possibility of adding 100 more by year’s end.

At the end of the first quarter of 2003, the company reported operating income of $0.6 million and net income of $0.3 million—or $0.02 per share—on revenues of $15.4 million. This represented a gain of 74 percent over the $8.9 million reported for the first three months of 2002. The numbers suggested a new stage of profitability for Ultralife, and Kavazan-jian told investors at the annual meeting: “We’ve shown we can do it, and we’ll continue to do it.” A retired farmer present at the meeting reportedly quipped: “I think they’ve turned the corner on this thing. It seems like they’ve got a good team in place.”

Principal Subsidiaries

Ultralife Batteries (UK) Ltd.; Ultralife Taiwan Inc.

Principal Competitors

Battery Technologies Inc.; Eagle Picher Industries Inc.; Ener-gizer Holdings, Inc.; Friwo Silberkraft GmbH; The Gillette Company (Duracell); Sanyo Corporation; Sony Corporation; Valence Technologies, Inc. (Panasonic); Yuasa Corporation.