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SMART Reports Third Quarter 2013 Financial Results

All forward-looking statements address matters that involve risks, uncertainties and assumptions. Accordingly, there are or will be important factors and assumptions that could cause our actual results and other circumstances and events to differ materially from those indicated in these statements. We believe that these factors and assumptions include, but are not limited to, those described under "Risk Factors" in our Annual Information Form and in our management's discussion and analysis for the year ended March 31, 2012, which are included in our Annual Report on Form 40-F.

The forward-looking statements speak only as of the date they are made. Except as may be required by applicable law, we do not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.

Non-GAAP Measures

We define Adjusted EBITDA as net (loss) 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, costs of restructuring, impairment of goodwill and other income. We define Adjusted Net (Loss) Income as net (loss) income before stock-based compensation, costs of restructuring, impairment of goodwill, foreign exchange gains or losses, net change in deferred revenue and amortization of intangible assets, all net of tax.

Adjusted EBITDA and Adjusted Net (Loss) Income are non-GAAP measures and should not be considered as an alternative to net (loss) income or any other measure of financial performance calculated and presented in accordance with GAAP. Adjusted EBITDA, Adjusted Net (Loss) 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 (Loss) Income to assess the performance of the business removing the after-tax impact of stock-based compensation, costs of restructuring, impairment of goodwill, 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. Adjusted Net (Loss) Income is used by our Board of Directors in assessing management's performance and is a key metric in the determination of incentive plan payments. We believe Adjusted EBITDA and Adjusted Net (Loss) Income may be useful to investors in evaluating our operating performance because securities analysts use metrics similar to Adjusted EBITDA and Adjusted Net (Loss) 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 December 31, Nine months ended December 31,
  2012 2011 2012 2011
Consolidated Statements of Operations        
Revenue  $ 138.9  $ 185.1  $ 484.2  $ 597.8
Cost of sales 80.1 105.6 268.1 321.0
Gross margin 58.8 79.5 216.1 276.8
Operating expenses        
Selling, marketing and administration (1) 40.4 44.2 130.8 134.1
Research and development (1) 12.2 12.4 37.4 37.4
Depreciation and amortization 8.0 7.6 23.5 22.9
Restructuring costs 15.2 8.7 18.4 13.2
Impairment of goodwill 34.2 -- 34.2 --
Operating (loss) income (51.2) 6.6 (28.2) 69.2
Non-operating expenses        
Other loss (income), net 0.1 (0.2) 0.3 (0.4)
Interest expense 3.2 2.9 9.8 11.1
Foreign exchange loss (gain) 2.0 (7.3) -- 14.1
(Loss) income before income taxes (56.5) 11.2 (38.3) 44.4
Income tax (recovery) expense (5.6) 0.5 (2.5) 10.5
Net (loss) income (1)  $ (50.9)  $ 10.7  $ (35.8)  $ 33.9
(Loss) earnings per share (1)        
Basic  $ (0.42)  $ 0.09  $ (0.30)  $ 0.27
Diluted  $ (0.42)  $ 0.09  $ (0.30)  $ 0.27
Weighted-average number of shares outstanding        
Basic 120,921,683 122,032,587 121,091,450 123,150,160
Diluted 120,921,683 122,692,587 121,091,450 123,810,160
Period end number of shares outstanding 120,921,683 121,445,305 120,921,683 121,445,305
         
Selected Data        
Revenue by geographic location        
North America  $ 84.6  $ 103.8  $ 305.7  $ 397.0
Europe, Middle East and Africa 45.2 60.8 139.6 145.3
Rest of World 9.1 20.5 38.9 55.5
   $ 138.9  $ 185.1  $ 484.2  $ 597.8
Revenue change (2)  (25.0)%  2.3%  (19.0)%  (4.0)%
As a percent of revenue        
Gross margin  42.3%  42.9%  44.6%  46.3%
Selling, marketing and administration (1)  29.1%  23.9%  27.0%  22.4%
Research and development (1)  8.8%  6.7%  7.7%  6.3%
         
Adjusted EBITDA (3)  $ 5.8  $ 29.1  $ 57.6  $ 125.8
Adjusted EBITDA as a percent of revenue (3) (4)  4.2%  15.5%  11.8%  20.8%
         
Adjusted Net (Loss) Income (5)  $ (2.3)  $ 16.7  $ 23.3  $ 75.7
Adjusted Net (Loss) Income per share (5)(6)        
Basic  $ (0.02)  $ 0.14  $ 0.19  $ 0.61
Diluted  $ (0.02)  $ 0.14  $ 0.19  $ 0.61
         
Total number of interactive displays sold (7)   71,938   100,898   278,490   313,385
Average selling price of interactive displays sold (8)  $ 1,535  $ 1,400  $ 1,373  $ 1,453
         
Total assets  $ 487.1  $ 529.9  $ 487.1  $ 529.9
Total long-term liabilities  $ 391.0  $ 393.7  $ 391.0  $ 393.7
         
Certain reclassifications have been made to prior periods' figures to conform to the current period's presentation.
(1) In the third quarter of fiscal 2013, the Company changed its method of accounting for stock-based compensation expense related to the fair value of options to the graded method from the straight-line method and has applied this change retrospectively. See Notes 1 and 10 in the interim consolidated financial statements for the three and nine months ended December 31, 2012 and 2011 for further discussion of this change in accounting policy.
(2) Revenue change is calculated as a percentage by comparing the change in revenue in the period to revenue during the same period in the immediately preceding fiscal year.
(3) Adjusted EBITDA is a non-GAAP measure that is described and reconciled to net (loss) income in a subsequent section and is not a substitute for the GAAP equivalent.
(4) Adjusted EBITDA as a percentage of revenue is calculated by dividing Adjusted EBITDA by revenue after adding back the net change in deferred revenue.
(5) Adjusted Net (Loss) Income is a non-GAAP measure that is described and reconciled to net (loss) income in a subsequent section and is not a substitute for the GAAP equivalent.
(6) Adjusted Net (Loss) Income per share is calculated by dividing Adjusted Net (Loss) Income by the average number of basic and diluted shares outstanding during the period.
(7) Interactive displays include SMART Board ® interactive whiteboard systems and associated projectors, SMART Board interactive flat panels, LightRaise™ interactive projectors, appliance-based interactive displays, SMART Board interactive overlays, SMART Podium™ interactive pen displays and SMART Table ® interactive learning centers.
(8) Average selling price of interactive displays is calculated by dividing the total revenue from the sale of interactive displays by the total number of units sold.
 
SMART Technologies Inc.
Unaudited Consolidated Condensed Balance Sheets
(millions of U.S. dollars)
 
  December 31, 2012 March 31, 2012
ASSETS    
Current assets    
Cash and cash equivalents  $ 145.9  $  95.5
Trade receivables 78.5 94.3
Other current assets 10.2 13.8
Income taxes recoverable 20.8 10.1
Inventory 62.9 110.8
Deferred income taxes 16.5 14.0
  334.8 338.5
     
Property and equipment 103.6 109.7
Goodwill -- 34.2
Intangible assets 25.4 32.3
Deferred income taxes 19.9 19.9
Deferred financing fees 3.4 5.0
  $ 487.1  $ 539.6
LIABILITIES AND SHAREHOLDERS' DEFICIT    
Current liabilities    
Accounts payable and accrued liabilities $ 101.8  $ 120.5
Deferred revenue  36.7 34.0
Current portion of long-term debt  3.1 3.1
     141.6 157.5
       
  Long-term debt  285.9 288.2
  Other long-term liabilities  5.4 5.7
  Deferred revenue  92.8 90.8
  Deferred income taxes  6.9 8.9
     532.6 551.2
  Shareholders' deficit    
  Share capital  691.1  696.4
  Accumulated other comprehensive loss  (10.6) (10.8)
  Additional paid-in capital  41.1 34.1
  Deficit  (767.1) (731.3)
     (45.5) (11.6)
    $ 487.1  $ 539.6
       
   
SMART Technologies Inc.
Unaudited Consolidated Condensed Statements of Cash Flows
(millions of U.S. dollars)
 
  Nine months ended December 31,
  2012 2011
Cash provided by (used in)    
Operations    
Net (loss) income  $ (35.8)  $ 33.9
Adjustments to reconcile net (loss) income to net cash provided by operating activities    
Depreciation and amortization of property and equipment 26.2 25.7
Non-cash interest expense on long-term debt 2.1 2.1
Non-cash restructuring costs in other long-term liabilities (0.6) 5.7
Stock-based compensation 2.8 8.0
Loss on foreign exchange 0.7 15.9
Deferred income tax recovery (4.3) (7.4)
Loss on disposal of property and equipment 0.6 0.2
Impairment of goodwill 34.2 --
Change in non-cash working capital 41.7 (44.6)
Cash provided by operating activities 67.6 39.3
Investing    
Capital expenditures (13.6) (16.4)
Intangible assets (0.2) --
Cash used in investing activities (13.8) (16.4)
Financing    
Repurchase of common shares (0.7) (9.8)
Repayment of debt (2.3) (47.2)
Participant equity loan plan, net (0.4) 0.2
Cash used in financing activities (3.4) (56.8)
     
Effect of exchange rate changes on cash and cash equivalents -- (1.7)
Net increase (decrease) in cash and cash equivalents 50.4 (35.6)
Cash and cash equivalents, beginning of period 95.5 119.0
Cash and cash equivalents, end of period  $ 145.9  $ 83.4
     
 
SMART Technologies Inc .
Unaudited Reconciliation of GAAP and Non-GAAP Results
(millions of U.S. dollars)
 
  Three months ended December 31, Nine months ended December 31,
   2012  2011  2012   2011
Adjusted EBITDA        
Net (loss) income (1)  $ (50.9)  $ 10.7  $ (35.8)  $ 33.9
Income tax expense (5.6) 0.5 (2.5) 10.5
Depreciation in cost of sales 0.8 1.0 2.8 2.8
Depreciation and amortization 8.0 7.6 23.5 22.9
Interest expense 3.2 2.9 9.8 11.1
Foreign exchange loss (gain) 2.0 (7.3) -- 14.1
Change in deferred revenue (2) (1.2) 2.9 3.9 8.3
Stock-based compensation (1) -- 2.0 2.8 8.0
Costs of restructuring (3) 15.2 9.0 18.6 14.6
Impairment of goodwill 34.2 -- 34.2 --
Other loss (income), net 0.1 (0.2) 0.3 (0.4)
Adjusted EBITDA  $ 5.8  $ 29.1  $ 57.6  $ 125.8
         
(1) In the third quarter of fiscal 2013, the Company changed its method of accounting for stock-based compensation expense related to the fair value of options to the graded method from the straight-line method and has applied this change retrospectively. See Notes 1 and 10 in the interim consolidated financial statements for the three and nine months ended December 31, 2012 and 2011 for further discussion of this change in accounting policy.
(2) 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 $8.6 million and $11.6 million in the three months ended December 31, 2012 and 2011, respectively, and we deferred revenue of $32.1 million and $33.5 million in the nine months ended December 31, 2012 and 2011, respectively.
(3) Includes costs of $15.2 million and $18.4 million recorded in restructuring costs in the Company's consolidated statements of operations for the three and nine months ended December 31, 2012 ($8.7 million and $13.2 million for the three and nine months ended December 31, 2011) and nil and $0.2 million in inventory write-offs recorded in cost of sales for the three and nine months ended December 31, 2012 ($0.3 million and $1.4 million for the three and nine months ended December 31, 2011). 
 
  Three months ended December 31, Nine months ended December 31,
   2012  2011  2012  2011
Adjusted Net (Loss) Income        
Net (loss) income (1)  $ (50.9)  $ 10.7  $ (35.8)  $ 33.9
Adjustments to net (loss) income        
Amortization of intangible assets 2.4 2.4 7.2 7.2
Foreign exchange loss (gain) 2.0 (7.3) -- 14.1
Change in deferred revenue (2) (1.2) 2.9 3.9 8.3
Stock-based compensation (1) -- 2.0 2.8 8.0
Costs of restructuring (3) 15.2 9.0 18.6 14.6
Impairment of goodwill 34.2 -- 34.2 --
  52.6 9.0 66.7 52.2
Tax impact on adjustments (4) 4.0 3.0 7.6 10.4
Adjustments to net (loss) income, net of tax 48.6 6.0 59.1 41.8
Adjusted Net (Loss) Income  $ (2.3)  $ 16.7  $ 23.3  $ 75.7
Adjusted Net (Loss) Income per share (1)        
(Loss) earnings per share – basic  $ (0.42)  $ 0.09  $ (0.30)  $ 0.27
Adjustments to net (loss) income, net of tax, per share  0.40 0.05  0.49  0.34
Adjusted Net (Loss) Income per share – basic  $ (0.02)  $ 0.14  $ 0.19  $ 0.61
         
(Loss) earnings per share – diluted  $ (0.42)  $ 0.09  $ (0.30)  $ 0.27
Adjustments to net (loss) income, net of tax, per share  0.40 0.05  0.49  0.34
Adjusted Net (Loss) Income per share – diluted  $ (0.02)  $ 0.14  $ 0.19  $ 0.61
         
(1) In the third quarter of fiscal 2013, the Company changed its method of accounting for stock-based compensation expense related to the fair value of options to the graded method from the straight-line method and has applied this change retrospectively. See Notes 1 and 10 in the interim consolidated financial statements for the three and nine months ended December 31, 2012 and 2011 for further discussion of this change in accounting policy.
(2) 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.
(3) Includes costs of $15.2 million and $18.4 million recorded in restructuring costs in the Company's consolidated statements of operations for the three and nine months ended December 31, 2012 ($8.7 million and $13.2 million for the three and nine months ended December 31, 2011) and nil and $0.2 million in inventory write-offs recorded in cost of sales for the three and nine months ended December 31, 2012 ($0.3 million and $1.4 million for the three and nine months ended December 31, 2011).
(4) Reflects the tax impact on the adjustments to net (loss) income. A key driver of our foreign exchange loss (gain) is the conversion of our U.S. dollar-denominated debt that was originally incurred at an average exchange rate of 1.05. When the unrealized foreign exchange amount on U.S. dollar-denominated debt is in a net gain position as measured against the original exchange rate, 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 as measured against the original exchange rate, a valuation allowance is taken against it and as a result no net tax effect is recorded.
         

© 2013 SMART Technologies. SMART Notebook, SMART Table, LightRaise, SMART Board, and SMART Podium, the SMART logo, and smarttech are trademarks or registered trademarks of SMART Technologies in the U.S. and/or other countries.

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