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SMART Reports Third Quarter 2011 Financial Results

Non-GAAP financial measures

This release includes the non-GAAP financial measures Adjusted EBITDA and Adjusted Net Income. We define Adjusted EBITDA as net income before interest, income taxes, depreciation and amortization, as well as adjusting for the following items:  foreign exchange gains or losses, net change in deferred revenue, stock-based compensation, acquisition costs and other (income) loss. We define Adjusted Net Income as net income before stock-based compensation, acquisition costs, foreign exchange gains or losses, net change in deferred revenue and amortization of intangible assets, all net of tax.

Adjusted EBITDA and Adjusted Net Income are non-GAAP measures and should not be considered as an alternative to net income or any other measure of financial performance calculated and presented in accordance with GAAP. Adjusted EBITDA, Adjusted Net Income and other non-GAAP measures have inherent limitations, and therefore you should not place undue reliance on them.

We use Adjusted EBITDA as a key measure to assess the core operating performance of our business removing the effects of our leveraged capital structure and the volatility associated with the foreign exchange on our U.S. dollar-denominated debt. We also use Adjusted Net Income to assess the performance of the business removing the after-tax impact of stock-based compensation, acquisition costs, foreign exchange gains and losses, revenue deferral and amortization of intangible assets. We use both of these measures to assess business performance when we evaluate our results in comparison to budgets, forecasts, prior-year financial results and other companies in our industry. Many of these companies use similar non-GAAP measures to supplement their GAAP disclosures but such measures may not be directly comparable. In addition to its use by management in the assessment of business performance, Adjusted EBITDA is used by our Board of Directors and by our lenders in assessing management's performance and is a key metric in the determination of incentive plan payments. In addition, we believe Adjusted EBITDA and Adjusted Net Income may be useful to investors in evaluating our operating performance because securities analysts use metrics similar to Adjusted EBITDA and Adjusted Net Income as supplemental measures to evaluate the overall operating performance of companies.

         
SMART Technologies Inc.        
Unaudited Consolidated Condensed Statements of Operations and Selected Other Data        
(millions of U.S. dollars, except share amounts, per share amounts, percentages, units and average selling prices)        
         
     
  Three months ended Nine months ended
  December 31, December 31,
  2010 2009 2010 2009
Consolidated Statement of Operations        
Revenue $180.9 $156.1 $622.8 $492.4
Cost of sales 94.5 79.5 309.6 250.6
Gross margin 86.4 76.6 313.2 241.8
Operating expenses        
Selling, marketing and administration expenses 45.5 35.7 128.7 97.0
Research and development expenses 13.8 9.0 38.3 23.6
Depreciation and amortization 7.2 3.9 23.9 9.2
Operating income 19.9 28.0 122.3 112.0
Non-operating expenses        
Other (income) loss, net (0.1) (0.2) (0.4) --
Interest expense 5.3 16.2 26.8 47.1
Foreign exchange (gain) loss  (3.2) (8.7) 3.1 (83.6)
Income before income taxes 17.9 20.7 92.8 148.5
Income tax expense  5.4 0.8 31.0 17.0
Net income  $12.5 $19.9 $61.8 $131.5
         
Earnings per share amounts         
Basic and diluted earnings per share $0.10 $0.11 $0.46 $0.75
Weighted average number of shares outstanding 123,772,791 180,508,997 133,067,015 174,867,315
         
Selected Data        
Revenue by geographic location        
North America $115.9 $91.2 $449.0 $353.1
Europe, Middle East and Africa 51.2 43.8 132.3 107.4
Rest of World 13.8 21.1 41.5 31.9
  $180.9 $156.1 $622.8 $492.4
         
As a percent of revenue        
Gross margin 48% 49% 50% 49%
Selling, marketing and administration expenses 25% 23% 21% 20%
Research and development expenses 8% 6% 6% 5%
         
Adjusted EBITDA (1) $34.0 $35.5 $169.4 $135.0
Adjusted EBITDA as a percentage of revenue (1) (2) 19% 22% 27% 27%
         
Adjusted Net Income (3) $15.9 $12.6 $84.7 $53.8
Adjusted Net Income per share (3)(4) $0.13 $0.07 $0.64 $0.31
         
Total number of SMART Board interactive whiteboards sold  89,705 93,958 323,350 287,158
Average selling price of SMART Board interactive whiteboards sold (5) $1,370 $1,261 $1,330 $1,283
         
Period end number of shares outstanding 123,772,791 180,508,997 123,772,791 180,508,997
         
         
(1) Adjusted EBITDA is a non-GAAP measure that is described and reconciled to net income in the next section.        
(2) Adjusted EBITDA as a percentage of revenue is calculated by dividing Adjusted EBITDA by revenue after adding back the net change in deferred revenue.    
(3) Adjusted Net Income is a non-GAAP measure that is described and reconciled to net income in the next section and is not a substitute for the GAAP equivalent.    
(4) Adjusted Net Income per share is calculated by dividing Adjusted Net Income by the average number of basic shares outstanding during the period.    
(5) Average selling price is calculated by dividing the total revenue from the sale of SMART Board interactive whiteboards and SMART Board interactive whiteboards with integrated projectors by the total number of units sold.
     
     
SMART Technologies Inc.    
Unaudited Consolidated Condensed Balance Sheets     
(millions of U.S. dollars)    
  December 31, 2010 March 31, 2010
     
ASSETS    
Current assets    
Cash and cash equivalents $130.1 $230.2
Trade receivables  113.2 81.9
Other current assets 6.5 12.0
Inventory  79.3 58.7
Deferred income taxes  11.5 11.7
  340.6 394.5
     
Property and equipment  113.0 108.0
Goodwill and intangible assets 79.3 0.5
Deferred income taxes  8.5 15.0
Deferred financing fees  9.0 9.6
Other long-term assets  -- 0.5
  $550.4 $528.1
LIABILITIES AND SHAREHOLDERS' DEFICIT    
Current liabilities    
Accounts payable and accrued liabilities $110.3 $120.0
Deferred revenue 30.1 24.7
Income taxes payable  10.0 5.5
Current portion of long-term debt  3.1 94.2
  153.5 244.4
     
Long-term debt  362.0 903.6
Deferred revenue 85.0 74.4
  600.5 1,222.4
Shareholders' deficit    
Share capital  721.9 161.3
Accumulated other comprehensive loss (8.2) (24.4)
Additional paid-in capital 5.6 --
Deficit (769.4) (831.2)
  (50.1) (694.3)
  $550.4 $528.1
     
     
SMART Technologies Inc.    
Unaudited Consolidated Condensed Statements of Cash Flows     
(millions of U.S. dollars)    
     
   
  Nine months ended
  December 31,
  2010 2009
Cash (used in) provided by    
Operations    
Net income  $61.8 $131.5
Adjustments to reconcile net income to net cash provided by operating activities    
Depreciation and amortization  29.3 13.8
Non-cash interest expense on long-term debt 4.7 23.7
Loss (gain) on foreign exchange (0.4) (85.2)
Stock-based compensation 5.6 --
Deferred income tax (recovery) expense (3.1) 3.8
Loss on disposal of property and equipment -- 0.2
Change in non-cash working capital (35.0) 19.4
Cash provided by operating activities 62.9 107.2
Investing    
Business acquisition (74.0) --
Capital expenditures (20.4) (19.5)
Intangible assets (0.5) (0.5)
Cash used in investing activities (94.9) (20.0)
Financing    
Net debt proceeds (repayments) (213.5) 5.6
Proceeds from initial public offering, net 134.3 --
Financing fees paid (1.4) --
Repayment of loans under the Participant Equity Loan Plan 8.2 0.3
Cash (used in) provided by financing activities (72.4) 5.9
     
Effect of exchange rate changes on cash and cash equivalents 4.3 12.0
Net (decrease) increase in cash and cash equivalents (100.1) 105.2
Cash and cash equivalents, beginning of period 230.2 37.1
Cash and cash equivalents, end of period $130.1 $142.2
         
         
SMART Technologies Inc.        
Reconciliation of GAAP and Non-GAAP Results        
(millions of U.S. dollars)        
         
     
  Three months ended Nine months ended
  December 31, December 31,
  2010 2009 2010 2009
Adjusted EBITDA         
Net income $12.5 $19.9 $61.8 $131.5
Income tax expense  5.4 0.8 31.0 17.0
Depreciation in cost of sales 0.9 1.1 3.2 3.0
Depreciation and amortization 7.2 3.9 23.9 9.2
Interest expense 5.3 16.2 26.8 47.1
Foreign exchange (gain) loss  (3.2) (8.7) 3.1 (83.6)
Change in deferred revenue (1) 2.2 2.5 13.3 10.8
Stock-based compensation 3.8 -- 5.6 --
Acquisition costs -- -- 1.1 --
Other (income) loss, net (0.1) (0.2) (0.4) --
Adjusted EBITDA $34.0 $35.5 $169.4 $135.0
         
(1)  Change in deferred revenue is calculated as the difference between deferred revenue and deferred revenue recognized. In accordance with our revenue recognition policy, deferred revenue represents the portion of our sales that we do not recognize in the period. Deferred revenue recognized represents the portion of our revenue deferred in a prior period that we recognized in the current period. We deferred revenue of $7.8 million and $7.6 million in the three months ended December 31, 2010 and 2009, respectively, and we deferred revenue of $28.2 million and $22.0 million in the nine months ended December 31, 2010 and 2009, respectively.
         
     
  Three months ended  Nine months ended 
  December 31, December 31,
  2010 2009 2010 2009
Adjusted Net Income        
Net income $12.5 $19.9 $61.8 $131.5
Adjustments to net income        
Amortization of intangible assets 2.4 -- 6.6 --
Foreign exchange (gain) loss  (3.2) (8.7) 3.1 (83.6)
Change in deferred revenue 2.2 2.5 13.3 10.8
Stock-based compensation 3.8 -- 5.6 --
Acquisition costs -- -- 1.1 --
  5.2 (6.2) 29.7 (72.8)
Tax impact on adjustments (1) 1.8 1.1 6.8 4.9
Adjustments to net income, net of tax 3.4 (7.3) 22.9 (77.7)
Adjusted Net Income $15.9 $12.6 $84.7 $53.8
Adjusted Net Income per share        
Basic and diluted earnings per share $0.10 $0.11 $0.46 $0.75
Adjustments to net income, net of tax, per share 0.03 (0.04) 0.18 (0.44)
Adjusted Net Income per share $0.13 $0.07 $0.64 $0.31
         
(1) Reflects the tax impact on the adjustments to net income. A key driver of our foreign exchange (gain) loss is the conversion of our U.S. dollar-denominated debt that was originally incurred at an average rate of 1.05. When the unrealized foreign exchange amount on U.S. dollar-denominated debt is in a net gain position, the gain is tax-effected at current rates. When the unrealized foreign exchange amount on the U.S. dollar-denominated debt is in a net loss position, a valuation allowance is taken against it and as a result no net tax effect is recorded.

© 2011 SMART Technologies Inc. The SMART Board, SMART logo and smarttech are trademarks or registered trademarks of SMART Technologies in the U.S. and/or other countries.

CONTACT:  Media contact
          Marina Geronazzo
          Manager, Public Relations
          SMART Technologies Inc.
          1.403.407.5088
          MarinaGeronazzo@smarttech.com 

          Investor contact
          Seth Potter
          ICR
          1.877.320.2241
          ir@smarttech.com

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