VTEK Vodavi Technology

Vodavi Technology Inc. (Nasdaq: VTEK), a provider of business telecommunications solutions, today announced results for its fourth quarter and year ended Dec. 31, 2005. For the fourth quarter of 2005, the company reported revenue of $11.0 million compared with revenue of $11.1 million in the fourth quarter of 2004. Net income totaled $20,000, or $0.00 per share, in the most recent quarter compared with net income of $504,000, or $0.12 per share, in the comparable period of 2004. During the fourth quarter of 2005, the company determined that the carrying amount of goodwill was impaired and took a non-cash charge of $725,000, or $450,000 after taxes. Excluding this impairment charge, the company would have reported net income of $470,000, or $0.12 per share, for the 2005 fourth quarter. For the year, the company reported revenue of $43.7 million in 2005 compared with $43.8 million in 2004. Net income for the year totaled $1.3 million, or $0.31 per share, compared with $1.8 million, or $0.44 per share, in 2004. Excluding the effect of the non-cash charge, the company would have reported net income of $1.7 million, or $0.42 per share, in 2005. The company ended 2005 with a record high cash balance of $6.5 million and working capital of $12.2 million compared with a cash balance of $4.0 million and working capital of $10.2 million a year ago. The company generated cash flows from operations of $2.9 million in 2005 compared with $2.2 million in 2004. Gregory K. Roeper, chief executive officer, stated, "2005 was another very strong year for our core business. We continued to increase market share and generated strong cash flows. During 2005 and particularly in the later half of the year, we began focusing our direct sales office efforts toward more beta testing of products and on developing vertical marketing sales tools. Our first venture into vertical markets is the residential and commercial real estate markets. As a result of this effort, we are beginning to see very positive results both locally and nationally as our dealers begin using these products and tools. We anticipate these investments will provide new revenue opportunities in 2006. "Primarily as a result of the shift in focus of this business unit, we determined that the goodwill associated with the historical basis of this entity should be written off. Despite this non-cash charge, we feel very strong about the direction of this business and its outlook not only locally, but also in helping us bring winning products and sales tools to our dealers." Teleconference Information The company has scheduled a teleconference to discuss its results on Tuesday, Feb. 14, 2006, at 5 p.m. Eastern time. To participate in the teleconference, please dial 800-834-7251 at least 10 minutes prior to the start of the call. International participants should dial 706-645-9262. Please refer to Conference ID: "VODAVI." A replay of the teleconference will be available beginning Feb. 14, 2006, at approximately 7 p.m. Eastern time through March 14, 2006. To listen to the replay by phone, dial 800-642-1687. If calling internationally, please call 706-645-9291. About Vodavi Vodavi Technology Inc. is an advanced telephony solutions provider delivering innovative business communications solutions that help small to large enterprises increase productivity and reduce costs. Vodavi's full range of telephony solutions include traditional telephone systems, Voice-over-IP (VoIP) technology and converged telephony solutions that allow enterprises to deploy traditional digital or VoIP communications simultaneously, providing a flexible and cost-effective migration path to new technology. The company is headquartered in Phoenix. For more information on Vodavi, visit www.vodavi.com. Use of Non-GAAP Financial Information In addition to the results reported in accordance with U.S. generally accepted accounting principles ("GAAP") included throughout this news release, the company has provided information regarding net income excluding the effects of the goodwill impairment charge recorded during the fourth quarter of 2005. The company believes that this non-GAAP financial measure is useful to both management and investors in their analysis of the company's financial performance when comparing 2005 results to prior periods. Set forth, as required by Regulation G, is a reconciliation of this non-GAAP financial measure to the most directly comparable financial measure calculated and presented in accordance with GAAP. -0- *T (in thousands except per share amounts) Three Months Ended Year Ended Dec. 31, 2005 Dec. 31, 2005 ----------------- ------------- GAAP Net Income $20 $1,253 Reconciling Items: Goodwill Impairment Charge 725 725 Income Tax Effect of Impairment Charge (275) (275) ----------------- ------------- Non-GAAP Net Income $470 $1,703 ================= ============= Non-GAAP Earnings Per Share - Diluted $0.12 $0.42 ================= ============= Weighted Average Shares - Diluted 4,050 4,090 ================= ============= *T This press release contains forward-looking statements, including statements regarding the company's business strategies, the company's business, and the industry in which the company operates as well as expectations regarding revenue and income levels, and the market acceptance of new product introductions. These forward-looking statements are based primarily on the company's current expectations and are subject to a number of risks and uncertainties, some of which are out of the company's control. Actual results could differ materially from the forward-looking statements as a result of numerous factors, including those set forth in the company's Form 10-K filed with the Securities and Exchange Commission. -0- *T VODAVI TECHNOLOGY INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS In thousands except per share amounts Three Months Ended Year Ended Dec. 31, Dec. 31, ------------------ ----------------- 2005 2004 2005 2004 --------- -------- -------- -------- REVENUE, net $10,954 $11,074 $43,675 $43,791 COST OF GOODS SOLD 7,031 7,128 27,887 28,360 --------- -------- -------- -------- GROSS MARGIN 3,923 3,946 15,788 15,431 --------- -------- -------- -------- OPERATING EXPENSES: Engineering and product development 466 429 1,969 1,889 Selling, general and administrative 2,745 2,701 11,185 10,562 Goodwill impairment 725 - 725 - --------- -------- -------- -------- 3,936 3,130 13,879 12,451 --------- -------- -------- -------- OPERATING INCOME (13) 816 1,909 2,980 INTEREST (INCOME) EXPENSE (44) (4) (108) 6 --------- -------- -------- -------- INCOME BEFORE INCOME TAXES 31 820 2,017 2,974 INCOME TAX PROVISION 11 316 764 1,144 --------- -------- -------- -------- NET INCOME $20 $504 $1,253 $1,830 ========= ======== ======== ======== EARNINGS PER COMMON SHARE: Diluted $0.00 $0.12 $0.31 $0.44 ========= ======== ======== ======== WEIGHTED AVERAGE SHARES OUTSTANDING: Diluted 4,050 4,087 4,090 4,120 ========= ======== ======== ======== *T -0- *T VODAVI TECHNOLOGY INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS In thousands Dec. 31, Dec. 31, 2005 2004 ----------- ----------- CURRENT ASSETS: Cash $6,538 $4,000 Accounts receivable, net 7,126 7,145 Inventory 3,543 4,569 Deferred income taxes 446 454 Prepaids and other current assets 508 519 ----------- ----------- Total current assets 18,161 16,687 PROPERTY AND EQUIPMENT, net 1,228 1,363 GOODWILL - 725 DEFERRED INCOME TAXES 168 - OTHER LONG-TERM ASSETS 45 50 ----------- ----------- $19,602 $18,825 =========== =========== CURRENT LIABILITIES: Trade accounts payable $451 $497 Accrued liabilities 944 1,352 Accrued rebates 453 641 Trade accounts payable to stockholder 4,097 3,990 ----------- ----------- Total current liabilities 5,945 6,480 DEFERRED INCOME TAXES - 24 STOCKHOLDERS' EQUITY Preferred Stock - - Common Stock, $.001 par, 3,774,233 & 3,747,464 shares outstanding, respectively 4 4 Additional paid-in capital 11,814 11,495 Retained Earnings 2,227 974 Treasury stock, 76,741 and 32,402 shares at cost, respectively (388) (152) ----------- ----------- 13,657 12,321 ----------- ----------- $19,602 $18,825 =========== =========== *T