Ultralife Batteries, Inc. announced that, based on a preliminary review of results for the third quarter ended September 30, the company expects to report revenue of approximately $24.4 million and an operating loss in the range of $1.5 million. These results compare to the guidance management provided in its second quarter report that called for revenue of between $25 million and $29 million and operating profit in the range of $1.2 million to $2.4 million.
The difference between management's operating income guidance and the preliminary results reflects expenses associated with integrating McDowell Research and ABLE New Energy, the two companies Ultralife recently acquired, unanticipated reserves and operational expenses, and a less favorable than expected revenue mix. Details of the variance include: approximately $0.3 million in intangible amortization expense associated with the acquisitions of McDowell and ABLE determined through asset appraisals initiated during the quarter to support the valuation of the acquired assets. Management did not contemplate this recurring amortization expense in its guidance for the third quarter; approximately $0.7 million in lower than expected operating income from both McDowell and ABLE; approximately $0.5 million in charges consisting of a reserve related to a workers compensation trust in which the company previously participated, together with a write-down of certain fixed assets; and, approximately $1.2 million related to compressed gross margins arising from lower than expected revenue, a lower-margin product mix, some unplanned scrap costs in the company's Newark operations and higher than anticipated energy costs.
"During the third quarter we incurred a number of unanticipated operational expenses that were not factored into the guidance we provided on August 3rd," said John D. Kavazanjian, Ultralife's President and CEO. "In particular, we underestimated the expenses associated with integrating McDowell and ABLE, and the effect of the transition on our top and bottom line performance. Having devoted considerable time and attention to gaining a deeper understanding of the operations at both of these companies and implementing integration measures, we are certain that these businesses will deliver value and incremental profits to Ultralife by broadening our product portfolio and sales coverage, diversifying our military business and expanding our target markets. Underscoring our firm belief is the $10.9 million contract we announced on October 9th for the production and delivery of Ultralife batteries and McDowell chargers.
