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DynaVox Reports Second Quarter Fiscal 2011 Results

Forward-Looking Statements

This press release contains forward-looking statements, including the information presented above under the caption "Fiscal 2011 Guidance" which reflect our current views with respect to, among other things, our operations and financial performance. You can identify these forward-looking statements by the use of words such as "outlook," "believes," "expects," "projects," "potential," "continues," "may," "will," "should," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under "Risk Factors" in our Annual Report on Form 10-K, as such factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC's website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this release and in the Annual Report on Form 10-K and other filings. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. In addition, our expectations with respect to net sales, Adjusted EBITDA and adjusted pro forma net income (loss) per share for fiscal year 2011 reflect an assumption that our revenues will experience a revenue decline in the third and fourth quarters of fiscal year 2011 comparable to what we experienced in the first and second quarters, and that certain expense reduction initiatives initiated during the first and second quarters will result in material benefit to our results in the second half of fiscal year 2011. Our actual results for fiscal year 2011 may differ from current expectations if these assumptions prove inaccurate due to continued deterioration in the funding environment or otherwise. 

About DynaVox Inc.

DynaVox Inc. (Nasdaq:DVOX) is a publicly traded holding Company with its headquarters in Pittsburgh, Pennsylvania, whose primary operating entities are DynaVox Systems LLC and Mayer-Johnson LLC. DynaVox is the leading provider of speech generating devices and symbol-adapted special education software used to assist individuals in overcoming their speech, language and learning challenges. These solutions are designed to help individuals who have complex communication and learning needs participate in the home, classroom and community. Our mission is to enable our customers to realize their full communication and education potential by developing industry-leading devices, software and content and by providing the services to support them. We assist individuals, families, and professionals with an extensive field support organization, as well as centralized technical and reimbursement support. For more information, visit www.dynavoxtech.com .

             
DYNAVOX INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share amounts)            
             
  Successor Predecessor   Successor Predecessor  
  Thirteen Weeks Ended   Twenty-six Weeks Ended  
  December 31, 2010 January 1, 2010   December 31, 2010 January 1, 2010  
             
NET SALES $25,526 $28,608   $47,095 $52,863  
COST OF SALES 7,587 7,085   13,821 13,149  
GROSS PROFIT 17,939 21,523   33,274 39,714  
OPERATING EXPENSES:            
Selling and marketing 8,747 9,022   17,484 17,535  
Research and development 2,358 2,341   4,892 4,582  
General and administrative 4,977 3,901   9,764 6,784  
Amortization of certain intangibles 114 421   222 841  
Total operating expenses 16,196 15,685   32,362 29,742  
INCOME FROM OPERATIONS 1,743 5,838   912 9,972  
OTHER INCOME (EXPENSE):            
Interest income 4 9   13 31  
Interest expense (663) (1,920)   (1,346) (3,930)  
Change in fair value and net loss on interest rate swap agreements (9) (122)   (76) (449)  
Other expense—net 33 (13)   (235) (74)  
Total other expense-net (635) (2,046)   (1,644) (4,422)  
INCOME (LOSS) BEFORE INCOME TAXES 1,108 3,792   (732) 5,550  
INCOME TAX EXPENSE (BENEFIT) 114 68   (7) 166  
NET INCOME (LOSS) ATTRIBUTABLE TO THE CONTROLLING AND NON-CONTROLLING INTERESTS   $994 $3,724   $(725) $5,384  
Less: net income (loss) attributable to the non-controlling interests (842)     373    
NET INCOME (LOSS) ATTRIBUTABLE TO DYNAVOX INC $152     $(352)    
Weighted-average shares of Class A common stock outstanding:            
Basic 9,375,000     9,375,000    
Diluted 9,375,000     9,375,000    
Net income (loss) available to Class A common stock per share:            
Basic $0.02     $(0.04)    
Diluted $0.02     $(0.04)    
DYNAVOX INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands)      
  Successor Successor
  December 31, 2010 July 2, 2010
ASSETS    
CURRENT ASSETS:    
Cash and cash equivalents $12,576 $20,777
Trade receivables—net 15,553 17,741
Inventories—net 6,950 6,808
Other current assets 2,215 2,441
Total current assets 37,294 47,767
PROPERTY AND EQUIPMENT—Net 7,319 7,065
GOODWILL AND INTANGIBLES—Net 91,714 92,177
DEFERRED TAXES 41,644 41,474
OTHER ASSETS 2,570 2,683
TOTAL ASSETS $180,541 $191,166
LIABILITIES AND STOCKHOLDERS' EQUITY    
CURRENT LIABILITIES:    
Current portion of long-term debt $4,541 $3,961
Trade accounts payable 4,566 5,541
Other liabilities 10,008 14,562
Total current liabilities 19,115 24,064
LONG-TERM DEBT 41,600 44,200
OTHER LONG-TERM LIABILITIES 43,197 45,038
Total liabilities 103,912 113,302
     
STOCKHOLDERS' EQUITY 76,629 77,864
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $180,541 $191,166
         
DYNAVOX INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)        
         
      Successor Predecessor
      Twenty-six Weeks Ended
      December 31, 2010 January 1, 2010
         
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net cash (used in) provided by operating activities     $(1,568) $7,437
CASH FLOWS FROM INVESTING ACTIVITIES:        
Cash used in investing activities     (2,325) (3,338)
CASH FLOWS FROM FINANCING ACTIVITIES:        
Net cash used in financing activities     (4,348) (4,119)
EFFECT OF CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS     40 33
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS     (8,201) 13
CASH AND CASH EQUIVALENTS:        
Beginning of period     20,777 12,631
End of period     $12,576 $12,644
  DYNAVOX INC. AND SUBSIDIARIES ADJUSTED EBITDA (Unaudited) (In thousands)

 

       
  Successor Predecessor Successor Predecessor
  Thirteen Weeks Ended Twenty-six Weeks Ended
  December 31, 2010 January 1, 2010 December 31, 2010 January 1, 2010
         
Adjusted EBITDA(1) $3,901 $7,707 $4,693 $13,227
(1)  Adjusted EBITDA represents income (loss) before income taxes, interest income, interest expense depreciation and amortization and the other adjustments noted in the table below.
  Adjusted EBITDA Reconciliation
  Successor Predecessor Successor Predecessor
  Thirteen Weeks Ended Twenty-six Weeks Ended
  December 31, 2010 January 1, 2010 December 31, 2010 January 1, 2010
  (Amounts in thousands)
         
Income (loss) before income taxes $1,108 $3,792 $ (732) $5,550
Depreciation 884 759 1,663 1,423
Amortization 234 475 463 950
Interest income (4) (9) (13) (31)
Interest expense 663 1,920 1,346 3,930
Change in fair value and net loss on interest rate swaps 9 122 76 449
Other (income) expense, net (a) (36) (3) 201 2
Equity-based compensation 514 144 1,059 334
Employee severance and other costs 248 -- 244  --
Acquisition costs (b) 209 274 241 312
Management fees (c) -- 75  -- 150
Other adjustments (d)  72 158 145 158
Adjusted EBITDA $3,901 $7,707 $4,693 $13,227
         
         
(a)  Excludes realized foreign currency gains or losses.
(b)  Legal, accounting and other external costs related to the purchase of certain assets and liabilities of Blink-Twice Inc. and the purchase of Eye Response Technologies, Inc. including certain post-closing expenses which may be reimbursed to the Company at a later date under the terms of the applicable agreements.
(c)  Prior to April 21, 2010 we received advisory services from Vestar and certain pre-IPO owners. These arrangements concluded on April 21, 2010.
(d)  Includes certain amounts related to other taxes, executive recruiting fees, relocation and other costs.
  DYNAVOX INC. AND SUBSIDIARIES ADJUSTED PRO FORMA NET INCOME (LOSS) (Unaudited) (Dollars in thousands, except per share amounts)

 

       
        Thirteen Weeks Ended Twenty-six Weeks Ended
        December 31, 2010 December 31, 2010
           
       
Net income (loss) attributable to DynaVox Inc.   $ 152 $ (352)
 Adjustments:      
Net income (loss) attributable to the non-controlling interest   842 (373)
Income taxes    (307)  271
Total adjustments    535  (102)
       
Adjusted pro forma net income (loss)   $ 687 $ (454)
       
Pro forma fully exchanged shares outstanding   29,834,983 29,834,983
       
Adjusted pro forma net income (loss) per fully exchanged share   $0.02 $(0.02)

Adjusted pro forma net income (loss), as defined by DynaVox, represents net income (loss) before non-controlling interest and after pro forma corporate income tax (expense) benefit 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 Holdings Units into Class A Common Stock as described below. Adjusted pro forma net income (loss) per share consists of adjusted pro forma net income (loss), divided by the aggregate number of the Company's Class A Common Stock outstanding, assuming full exchange of 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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