DRI Corporation (NASDAQ: TBUS), a digital communications
technology leader in the global surface transportation and transit
security markets, announced today that it posted second quarter
2011 net sales of $20.3 million, up from first quarter’s $19.1
million. Absent a special goodwill impairment charge, the adjusted
net profit to common shareholders would have been $268 thousand, or
2 cents per diluted share. Inclusive of that charge, the Company’s
net loss recorded in accordance with generally accepted accounting
principles in the U.S. (“GAAP”) actually was $9.6 million, or 81
cents per share. For further information and explanation regarding
the charge, please refer to the “Goodwill Impairment Charge and
Reconciliation of Non-GAAP Metric” section herein.
David L. Turney, Chairman of the Board of Directors and Chief
Executive Officer, said: “The second quarter 2011 revenues improved
over the first quarter; however, second quarter revenues were down
from same period of a year ago. Our served market in India -- which
is working through a slow period following a major, federally
funded purchasing era launched in 2007 -- is transitioning to more
normal market conditions, which we expect will emerge in the
future. As a result, declining sales during India’s short-term
market adjustment period was the most significant contributing
factor in the decline of our quarter-over-quarter revenues. Other
operations experienced some revenue reductions in the same period
last year, but those operations were either generally near, at or
above first quarter 2011 results. Our domestic and international
gross margins improved for the quarter ended June 30, 2011; the
increase was approximately 3.7 percentage points over second
quarter 2010 for a consolidated gross margin of 34 percent, as
compared to 32 percent for first quarter 2011 and 30 percent for
second quarter 2010.”
Earlier today, the Company filed with the U.S. Securities and
Exchange Commission a Quarterly Report on Form 10-Q for the period
ended June 30, 2011.
THREE-MONTH PERIOD RESULTS
For the quarter ended June 30, 2011, the Company posted net
sales of $20.3 million and a net loss to common shareholders of
$9.6 million, or 81 cents per diluted share. This compares to net
sales of $25.6 million and a net profit to common shareholders of
$763 thousand, or 6 cents per share, for the same period last year.
Basic weighted-average shares outstanding were 11.9 million, as
compared to 11.8 million a year ago; these results should be viewed
in context of the goodwill impairment charge. Diluted
weighted-average shares outstanding were 11.9 million, as compared
to 14.3 million a year ago.
SIX-MONTH PERIOD RESULTS
For the six-month period ended June 30, 2011, the Company posted
net sales of $39.4 million and a net loss to common shareholders of
$10.3 million, or 87 cents per diluted common share outstanding.
This compares to net sales of $47.7 million and a net loss to
common shareholders of $232 thousand, or 2 cents per diluted common
share outstanding, for the same period last year; these results
should be viewed in context of the goodwill impairment charge.
Basic weighted-average shares outstanding were 11.9 million, as
compared to 11.8 million each a year ago.
GOODWILL IMPAIRMENT CHARGE AND RECONCILIATION OF NON-GAAP
METRIC
Mr. Turney said: “In second quarter 2011, we recorded a goodwill
impairment charge related to our international reporting unit. The
goodwill impairment charge is a non-cash adjustment and has no
effect on cash flows, liquidity, or tangible assets. Further,
management does not expect this non-cash charge to affect the
Company’s ongoing business operations or lender covenants, or for
it to result in future cash expenditures. While the goodwill
impairment charge in second quarter 2011 was determined in
accordance with GAAP to be $9.9 million, management believes
neither the resulting consolidated equity or its market
capitalization reflect the true value of the Company or its
international reporting unit and operations, which are of prime
value and importance to our global strategy and produce noteworthy
cash flow and operating profit.”
In accordance with GAAP, the Company must assess the valuation
of goodwill, an intangible asset, on an annual basis and more
frequently if circumstances suggest that impairment may have
occurred. Since recent NASDAQ Capital Market® closing prices for
the Company’s common stock have been lower than its closing price
on December 31, 2010, management concluded this fact, as well as
the lower revenues driven by the Company’s 51 percent-owned joint
venture in India and the moderate increase in the carrying value of
our international reporting unit, to be the primary contributing
factors leading to the goodwill impairment charge.
Management has presented the Company’s adjusted net profit to
common shareholders for the three months ended June 30, 2011 -- a
non-GAAP financial measure -- because management believes it is
helpful to present the results of the previous quarter both
inclusive and exclusive of this goodwill impairment charge. While
the Company believes that presenting this non-GAAP measurement may
be useful to investors, the information is not a substitute for the
GAAP financial measure of “net income (loss) applicable to common
shareholders of DRI Corporation” for the period. Therefore, the
following table provides a reconciliation of the non-GAAP financial
measure to the GAAP financial measure of “net income (loss)
applicable to common shareholders of DRI Corporation.”
RECONCILIATION OF NON-GAAP METRIC
Three Months Ended June 30,
2011
2010
Net income (loss) applicable to common shareholders of DRI
Corporation $ (9,643 ) $ 763 Goodwill impairment 9,911 -
Adjusted net profit applicable to common shareholders of DRI
Corporation (non-GAAP) $ 268 763 Net income (loss)
per share applicable to common shareholders of DRI Corporation
Basic $ (0.81 ) $ 0.06 Diluted $ (0.81 ) $ 0.06 Adjusted net
profit per share applicable to common shareholders of DRI
Corporation (non-GAAP) Basic $ 0.02 $ 0.06 Diluted $ 0.02
$ 0.06 Weighted average number of common shares
outstanding (GAAP and non-GAAP) Basic 11,880,838 11,797,095
Diluted 11,880,838 14,322,759
U.S. TRANSIT FUNDING
Mr. Turney said: “Although federal legislators have extended the
now expired Safe, Accountable, Flexible, Efficient Transportation
Equity Act: A Legacy for Users (“SAFETEA-LU”) funding through the
end of September 2011, DRI Corporation management continues to
believe the lack of passage of a well-funded, six-year, multi-modal
surface transportation authorization bill continues to depress the
U.S. transit market. However, we believe that the impact of the
stalled new funding legislation appears to have lessened in terms
of our present domestic order flow. Congress is presently
contemplating several specific legislative proposals, including
some with potentially significant program cuts. However, it is too
early to point to any one proposal as being the most likely front
runner. We continue to believe that long-term federal funding
legislation to replace SAFETEA-LU is not likely to occur until 2012
-- and possibly not until 2013.”
FISCAL YEAR 2011 OUTLOOK
Mr. Turney said: “We continue to expect to see market recovery
as we proceed through fiscal year 2011 although the full impact, if
any, of the recent legislative actions related to debt ceilings in
the U.S. and sovereign debt issues abroad is not clear. However,
unless that impact is more pronounced than presently anticipated,
we expect revenues for the last half of fiscal year 2011 to improve
over the revenues of the same period in 2010. We also project the
balance of fiscal year 2011 gross margin ratios to compare
favorably to those of the same period of 2010 as we continue with
ongoing cost reduction initiatives, lower revenues in market
sectors with low gross margins, and reduction of component pricing
resulting from leveraging on volume purchasing.”
CONFERENCE CALL
Management will discuss second quarter 2011 results during an
investors’ conference call tomorrow, Aug. 16, 2011, at 11 a.m.
(Eastern).
- To participate in the live conference
call, dial one of the following telephone numbers approximately
five minutes prior to the start time: domestic, (800) 853-3895; or
international, (334) 323-7224. The confirmation code is “DRI.”
- Telephone replay will be available
through Nov. 14, 2011 via the following telephone numbers:
domestic, (877) 870-5176; or international, (858) 384-5517. The
replay code is 13034.
- To participate via webcast, go to
http://viavid.net/dce.aspx?sid=00008BAD. The webcast will be
archived until Nov. 14, 2011.
MARK YOUR CALENDAR
- On or about Nov. 14, 2011, the Company
plans to file with the SEC a Form 10-Q for the period ending Sept.
30, 2011.
- On or about Nov. 15, 2011, management
plans to discuss third quarter 2011 results during an investors’
conference call.
ABOUT THE COMPANY
DRI Corporation is a digital communications technology
leader in the global surface transportation and transit security
markets. We manufacture, sell and service Mobitec® and
TwinVision® electronic information display systems and
Digital Recorders® engineered systems. These proprietary
systems and other related products and services help increase the
mobility, flow, safety and security of public transportation
agencies and their passengers. From our inception in 1983
through our fiscal year-end on Dec. 31, 2010, we’ve grown our
product installations to include public transit fleets in more than
50 countries, our annual sales revenues to $87.3 million, and our
global workforce to 275 people. We presently have operations
and/or sales offices in Australia, Brazil, Germany, Singapore,
Sweden and the United States, a joint venture in India, and
corporate administrative offices in Dallas, Texas. We also are
expanding into Russia. The next time you see a bus, think of
us.SM For more information, visit www.digrec.com.
FORWARD-LOOKING STATEMENTS
This press release contains “forward-looking statements” within
the meaning of the Private Securities Litigation Reform Act of
1995. In particular, statements concerning the Company’s and/or
management’s expectations for: the timing or amount of future
revenues; profitability; business and revenue growth trends; impact
of cost reduction initiatives; impact of the global economic
slowdown on served markets and operations; status of U.S. federal
funding legislation for public transportation; fiscal year 2011
outlook; assessment of strategic alternatives; increasing
shareholder value; plans regarding the Company’s Strategic Business
Plan; as well as any statement, express or implied, concerning
future events or expectations or which use words such as “suggest,”
“expect,” “fully expect,” “expected,” “appears,” “believe,” “plan,”
“anticipate,” “would,” “goal,” “potential,” “potentially,” “range,”
“pursuit,” “run rate,” “stronger,” “preliminarily,” “guidance,”
“may,” etc., is a forward-looking statement. These forward-looking
statements are subject to risks and uncertainties, including risks
and uncertainties that the Company’s and/or management’s
expectations may not prove accurate over time for: the timing or
amount of future revenues; profitability; business and revenue
growth trends; impact of cost reduction initiatives; impact of the
global economic slowdown on served markets and operations; status
of U.S. federal funding legislation for public transportation;
fiscal year 2011 outlook; assessment of strategic alternatives;
increasing shareholder value; plans regarding the Company’s
Strategic Business Plan; as well as other risks and uncertainties
set forth in the Company’s Annual Report on Form 10-K as filed
April 15, 2011 and Quarterly Report on Form 10-Q as filed May 16,
2011 and Aug. 15, 2011, particularly those identified in Risk
Factors Affecting Our Business. There can be no assurance that any
expectation, express or implied, in a forward-looking statement
will prove correct or that the contemplated event or result will
occur as anticipated.
DRI CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In
thousands, except shares and per share amounts)
June 30, 2011 (Unaudited) December 31, 2010 ASSETS Current
Assets Cash and cash equivalents $ 1,162 $ 1,391 Trade accounts
receivable, net 18,526 15,678 Current portion of note receivable 86
86 Other receivables 39 300 Inventories, net 14,416 15,134 Prepaids
and other current assets 1,627 1,389 Deferred tax assets, net 758
613 Total current assets 36,614 34,591
Property and equipment, net 1,394 1,388 Software, net 6,610
5,757 Goodwill 1,177 10,398 Intangible assets, net 631 651 Other
assets 544 1,045 Total assets $ 46,970 $
53,830 LIABILITIES AND SHAREHOLDERS' EQUITY Current
Liabilities Lines of credit $ 9,973 $ 8,454 Loans payable 149 442
Current portion of long-term debt 6,467 944 Foreign tax settlement
418 550 Accounts payable 9,639 8,703 Accrued expenses and other
current liabilities 5,874 6,354 Preferred stock dividends payable
305 19 Total current liabilities 32,825 25,466
Long-term debt and capital leases, net 551
6,239 Deferred tax liabilities, net 94 84
Liability for uncertain tax positions 944 723
Commitments and contingencies Shareholders'
Equity Series K redeemable, convertible preferred stock, $0.10 par
value, liquidation preference of $5,000 per share; 475 shares
authorized; 439 shares issued and outstanding at June 30, 2011 and
December 31, 2010; redeemable at the discretion of the Company at
any time. 1,957 1,957 Series E redeemable, nonvoting, convertible
preferred stock, $0.10 par value, liquidation preference of $5,000
per share; 80 shares authorized; 80 shares issued and outstanding
at June 30, 2011 and December 31, 2010; redeemable at the
discretion of the Company at any time. 337 337 Series G redeemable,
convertible preferred stock, $0.10 par value, liquidation
preference of $5,000 per share; 725 shares authorized; 536 shares
issued and outstanding at June 30, 2011 and December 31, 2010;
redeemable at the discretion of the Company at any time. 2,398
2,398 Series H redeemable, convertible preferred stock, $0.10 par
value, liquidation preference of $5,000 per share; 125 shares
authorized; 76 shares issued and outstanding at June 30, 2011 and
December 31, 2010; redeemable at the discretion of the Company at
any time. 332 332 Series AAA redeemable, nonvoting, convertible
preferred stock, $0.10 par value, liquidation preference of $5,000
per share; 166 shares authorized; 166 shares issued and outstanding
at June 30, 2011 and December 31, 2010; redeemable at the
discretion of the Company at any time. 830 830 Common stock, $0.10
par value, 25,000,000 shares authorized; 11,907,867 and 11,838,873
shares issued and outstanding at June 30, 2011 and December 31,
2010, respectively. 1,191 1,184 Additional paid-in capital 30,288
30,374 Accumulated other comprehensive income - foreign currency
translation 4,546 3,180 Accumulated deficit (30,089 ) (20,121 )
Total DRI shareholders' equity 11,790 20,471 Noncontrolling
interest - Castmaster Mobitec India Private Limited 766 847
Total shareholders' equity 12,556 21,318 Total
liabilities and shareholders' equity $ 46,970 $ 53,830
DRI CORPORATION AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE
30, 2011 AND 2010
(In thousands, except share and per share amounts)
(Unaudited) Three Months Ended June 30, Six Months Ended
June 30, 2011 2010 2011 2010 Net sales $ 20,302 $ 25,559 $
39,391 $ 47,688 Cost of sales 13,389 17,789 26,346
34,594 Gross profit 6,913 7,770 13,045
13,094 Operating expenses Selling, general and
administrative 5,832 5,834 11,859 11,815 Research and development
55 158 211 266 Goodwill impairment 9,911 - 9,911
- Total operating expenses 15,798 5,992
21,981 12,081 Operating income (loss) (8,885 )
1,778 (8,936 ) 1,013 Other income 51 15 53 14
Foreign currency gain (loss) 146 55 (143 ) 144 Interest expense
(555 ) (362 ) (936 ) (722 ) Total other income and expense (358 )
(292 ) (1,026 ) (564 ) Income (loss) before income tax
expense (9,243 ) 1,486 (9,962 ) 449 Income tax expense (234
) (383 ) (87 ) (131 ) Net income (loss) (9,477 ) 1,103
(10,049 ) 318 Less: Net (income) loss attributable to
noncontrolling interest, net of tax 15 (223 ) 81 (325
) Net income (loss) attributable to DRI Corporation (9,462 )
880 (9,968 ) (7 ) Provision for preferred stock dividends
(181 ) (117 ) (355 ) (225 ) Net income (loss) applicable to
common shareholders of DRI Corporation $ (9,643 ) $ 763 $
(10,323 ) $ (232 ) Net income (loss) per share applicable to
common shareholders of DRI Corporation Basic $ (0.81 ) $ 0.06
$ (0.87 ) $ (0.02 ) Diluted $ (0.81 ) $ 0.06 $ (0.87
) $ (0.02 ) Weighted average number of common shares
outstanding Basic 11,880,838 11,797,095 11,866,401
11,775,348 Diluted 11,880,838 14,322,759
11,866,401 11,775,348
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