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DynaVox Reports Fourth Quarter And Fiscal Year 2010 Results

Unaudited Condensed Consolidated Statements of Income for the Aggregated Fifty-Two Weeks Ended July 2, 2010, the Period from April 28, 2010 to July 2, 2010 (Successor), the Period from July 4, 2009 to April 27, 2010 and the Fifty-Three Weeks Ended July 3, 2009 (Predecessor)

Reconciliation of Net Income to Adjusted EBITDA for the Aggregated Thirteen Weeks Ended July 2, 2010; the Fourteen Weeks Ended July 3, 2009 (Predecessor), the Aggregated Fifty-Two Weeks Ended July 2, 2010 and the Fifty-Three Weeks Ended July 3, 2009 (Predecessor)  

Reconciliation of Net Income to Adjusted Pro Forma Net Income and Adjusted Pro Forma Net Income per Share for the Thirteen Weeks Ended July 2, 2010 and the Fifty-Two Weeks Ended July 2, 2010.

DYNAVOX INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share amounts)
         
  Aggregated Successor Predecessor
         
  Thirteen Weeks Ended July 2, 2010 Period from April 28, 2010 to July 2, 2010 Period from April 3, 2010 to April 27, 2010 Fourteen Weeks Ended July 3, 2009
         
Net sales  $ 33,054  $ 25,803  $ 7,251  $ 30,406
Cost of sales  7,903  6,178  1,725  7,736
         
 Gross profit  25,151  19,625  5,526  22,670
         
Selling and marketing  7,638  5,342  2,296  7,555
Research and development  2,883  2,194  689  2,023
General and administrative  6,530  5,542  988  3,795
Amortization of certain intangibles  115  87  28  120
         
 Income from operations  7,985  6,460  1,525  9,177
         
Interest income  18  12  6  31
Interest expense  (964)  (440)  (524)  (2,426)
Change in fair value and net (loss) gain on interest rate swap agreement  (81)  (87)  6  (194)
Loss on extinguishment of debt  (2,441)  --   (2,441)  -- 
Other (expense) income — net  (11)  (10)  (1)  203
         
Income before income taxes  $ 4,506  5,935  (1,429)  6,791
Income taxes    875  (312)  105
         
Net income attributable to the controlling and the non-controlling interest    5,060  $ (1,117)  $ 6,686
         
Less: Net income attributable to the non-controlling interest    (4,071)    
         
Net income attributable to DynaVox Inc.    $ 989    
         
Weighted-average shares of Class A common stock outstanding:        
 Basic    9,375,000    
 Diluted    9,687,366    
Net income available to Class A common stock per share:        
 Basic    $ 0.11    
 Diluted    $ 0.10    
 
 
DYNAVOX INC.
         
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share amounts)
         
  Aggregated Successor Predecessor
         
  Fifty-Two Weeks Ended July 2, 2010 Period from April 28, 2010 to July 2, 2010 Period from July 4, 2009 to April 27, 2010 Fifty-Three Weeks Ended July 3, 2009
         
Net sales  $ 114,299  $ 25,803  $ 88,496  $ 91,160
Cost of sales  27,933  6,178  21,755  24,366
         
 Gross profit  86,366  19,625  66,741  66,794
         
Selling and marketing  34,127  5,342  28,785  28,152
Research and development  10,106  2,194  7,912  6,886
General and administrative  17,841  5,542  12,299  11,854
Amortization of certain intangibles  1,078  87  991  468
         
 Income from operations  23,214  6,460  16,754  19,434
         
Interest income  55  12  43  111
Interest expense  (6,801)  (440)  (6,361)  (9,235)
Change in fair value and net loss on interest rate swap agreement  (746)  (87)  (659)  (1,588)
Loss on extinguishment of debt  (2,441)  --   (2,441)  -- 
Other (expense) income — net  (95)  (10)  (85)  296
         
Income before income taxes  $ 13,186  5,935  7,251  9,018
Income taxes    875  102  181
         
Net income attributable to the controlling and the non-controlling interest    $ 5,060  $ 7,149  $ 8,837
         
Less: Net income attributable to the non-controlling interest    (4,071)    
         
Net income attributable to DynaVox Inc.    $ 989    
         
Weighted-average shares of Class A common stock outstanding:        
 Basic    9,375,000    
 Diluted    9,687,366    
Net income available to Class A common stock per share:        
 Basic    $ 0.11    
 Diluted    $ 0.10    
 
 
DYNAVOX INC.
         
Adjusted EBITDA
(Unaudited)
(Dollars in thousands)
  Aggregated   Aggregated  
         
         
  Thirteen Weeks Ended July 2, 2010 (Unaudited) Fourteen Weeks Ended July 3, 2009 (Unaudited) Fifty-Two Weeks Ended July 2, 2010 (Unaudited) Fifty-Three Weeks Ended July 3, 2009 (Unaudited)
Other Financial Data        
         
Adjusted EBITDA (1)  $ 12,126  $ 11,365  $ 32,929  $ 24,472
         
(1) The Adjusted EBITDA presented consists of earnings before interest, income taxes, depreciation, amortization, and other adjustments noted in the table below.
         
  Adjusted EBITDA Reconciliation
  Aggregated   Aggregated  
         
         
  Thirteen Weeks Ended July 2, 2010 (Unaudited) Fourteen Weeks Ended July 3, 2009 (Unaudited) Fifty-Two Weeks Ended July 2, 2010 (Unaudited) Fifty-Three Weeks Ended July 3, 2009 (Unaudited)
  (Amounts in thousands)
         
Income before income taxes  4,506  6,791  13,186  9,018
Depreciation  724  645  2,871  2,189
Amortization  236  120  1,428  468
Interest income  (17)  (31)  (55)  (111)
Interest expense  963  2,426  6,801  9,235
Change in fair value and net loss on interest rate swap agreement  81  194  746  1,588
Loss on extinguishment of debt (a)  2,441  --   2,441  -- 
Other (income) expense, net (b)  (84)  47  (84)  47
Equity-based compensation  2,194  257  2,767  764
Employee severance and other costs  734  346  1,355  501
Acquisition costs (c)  139  430  484  430
Management fee (d)  75  75  300  300
Other adjustments (e)  134  65  689  43
Adjusted EBITDA  $ 12,126  $ 11,365  $ 32,929  $ 24,472
         
(a) Early repayment penalty and related expenses resulting from $31,000 aggregate principal amount of senior subordinated notes repaid with proceeds from IPO.    
(b) Excludes realized foreign currency gains or losses.    
(c) Legal, accounting and other external costs related to the purchases of Blink-Twice Inc. and Eye Response Technologies, Inc.    
(d) Prior to April 21, 2010 we received advisory services from Vestar Capital Partners and certain pre-IPO owners. These arrangements concluded on April 21, 2010.    
(e) Includes certain amounts related to professional fees on debt financing, non-recurring equity valuation cash compensation expense, recoveries from property insurance claims and other taxes.     
   

Adjusted EBITDA represents net income before non-controlling interest and income taxes, interest income, interest expense, and depreciation and amortization and the other adjustments noted in the table above. We present Adjusted EBITDA because:

  • Adjusted EBITDA is used by management in managing our business as an indicator of our operating performance;
  • Our compliance with certain covenants in our credit agreement is measured based on Adjusted EBITDA; and
  • Targets for Adjusted EBITDA are among the measures we use to evaluate our management's performance for purposes of determining their compensation under our management incentive bonus plan. 

Our management uses Adjusted EBITDA principally as a measure of our operating performance and believes that Adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies in industries similar to ours. We also believe Adjusted EBITDA is useful to our management and investors as a measure of comparative operating performance from period to period. Our management also uses Adjusted EBITDA for planning purposes, including the preparation of our annual operating budget and financial projections. Adjusted EBITDA, however, does not represent and should not be considered as an alternative to net income or cash flow from operating activities, as determined in accordance with GAAP, and our calculations thereof may not be comparable to similarly entitled measures reported by other companies. Although we use Adjusted EBITDA as a measure to assess the operating performance of our business, Adjusted EBITDA has significant limitations as an analytical tool because it excludes certain material costs. For example, it does not include interest expense or the change in fair value on our related interest rate swap agreements, which have been necessary elements of our costs. Because we use capital assets, depreciation expense is a necessary element of our costs and ability to generate revenue. In addition, the omission of the substantial amortization expense associated with our intangible assets further limits the usefulness of this measure. Adjusted EBITDA also does not include the payment of income taxes, which is also a necessary element of our operations. Adjusted EBITDA also does not include expenses incurred in connection with equity-based compensation to our employees, certain costs relating to restructuring and acquisitions, debt refinancing fees, an insurance recovery and management fees that we have paid to Vestar and certain other existing owners pursuant to a management agreement. Because Adjusted EBITDA does not account for these expenses, its utility as a measure of our operating performance has material limitations. Because of these limitations management does not view Adjusted EBITDA in isolation or as a primary performance measure and also uses other measures, such as net income, net sales, gross profit and income from operations, to measure operating performance.

DYNAVOX INC.
     
Adjusted Pro Forma Net Income
(Unaudited)
(Dollars in thousands, except per share amounts)
     
     
  Thirteen Weeks Fifty-Two
  Ended Weeks Ended
  July 2,  July 2, 
  2010 2010
     
Net income attributable to DynaVox Inc.  $ 989  $ 989
     
Adjustments:    
 Predecesor net (loss) income  (1,117)  7,149
 Net income attributable to the non-controlling interest  4,071  4,071
 Income taxes  (1,149)  (4,034)
Total adjustments  1,805  7,187
     
Adjusted pro forma net income  $ 2,794  $ 8,175
     
Pro forma fully exchanged, diluted shares outstanding  30,144,887  30,144,887
     
Adjusted pro forma net income per fully exchanged, diluted shares  $ 0.09  $ 0.27

Adjusted pro forma net income, as defined by DynaVox, represents net income for the successor and predecessor entities before non-controlling interest and after pro forma corporate income tax expense applied at an assumed 38.0% rate, which includes a provision for U.S. federal income taxes, assumes the highest statutory rates apportioned to each state, local and/or foreign jurisdiction and assumes the full exchange of New Holdings Units into Class A Common Stock as described below. Adjusted pro forma net income per share consists of adjusted proforma net income, divided by the aggregate number of the Company's Class A Common Stock outstanding, assuming full exchange of New Holdings Units of DynaVox Holdings into Class A Common Stock of DynaVox Inc. and giving effect to the dilutive impact, if any, of stock options and restricted stock awards.

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