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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1996
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 29, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER: 0-13616
INTERVOICE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 75-1927578
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
17811 WATERVIEW PARKWAY
DALLAS, TEXAS 75252
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(214) 454-8000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
COMMON STOCK, NO PAR VALUE
PREFERRED SHARE PURCHASE RIGHTS
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
------ ------
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [________]
AGGREGATE MARKET VALUE OF COMMON STOCK HELD BY NONAFFILIATES AS OF MAY
17, 1996: $483,670,890
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF MAY 17, 1996:
16,122,363
DOCUMENTS INCORPORATED BY REFERENCE
LISTED BELOW ARE DOCUMENTS PARTS OF WHICH ARE INCORPORATED HEREIN BY
REFERENCE AND THE PART OF THIS REPORT INTO WHICH THE DOCUMENT IS INCORPORATED:
(1) PROXY STATEMENT FOR THE 1996 ANNUAL MEETING OF SHAREHOLDERS - PART III.
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TABLE OF CONTENTS
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PART I
ITEM 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Call Automation Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Product Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Products and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Relationship With IBM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Proprietary Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Manufacturing and Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ITEM 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ITEM 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ITEM 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . 8
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . 9
ITEM 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ITEM 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
PART III
ITEM 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . 28
ITEM 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ITEM 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . 28
ITEM 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . 28
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . . . . 29
</TABLE>
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PART I
ITEM 1. BUSINESS
InterVoice, Inc. (together with its subsidiaries, collectively
referred to as "InterVoice" or the "Company") develops, sells and services call
automation systems with a traditional emphasis on interactive voice response
("IVR") applications, which allow individuals a self help facility using the
keys on their touch-tone telephones, the dials on their rotary telephones, the
keyboards of their personal computers, credit card terminals or their voices to
access and/or provide information to computer data bases utilized by businesses
and telecommunications companies. The Company's systems are sold under the
trade names "OneVoice" and "InterDial". OneVoice Systems are used by a
variety of enterprises to disseminate and receive information efficiently,
allowing multiple callers simultaneous access to computer data bases without
the expense of maintaining an agent and workstation for each telephone line.
InterDial systems improve call center efficiency by automatically dialing phone
numbers and only transferring a call to an agent if the call is answered and
the called party remains on the phone. The Company's products include software
development tools designed to support a number of diverse product applications
and to simplify system customization. Applications currently function in a
wide range of industries including insurance, banking and financial services,
telecommunications, higher education, help desk, government, utilities,
healthcare, insurance, cable TV, retail and wholesale distribution,
transportation and manufacturing.
OneVoice Systems sell at list prices ranging from approximately
twenty-five thousand to millions of dollars and support from four to thousands
of voice and data channels. Scalability is a key differentiator for all OneVoice
Systems, which incorporate multiple modules of up to 96 voice and data channels
per module which, in turn, can be connected by local area networks for a single
system appearance, management control and redundancy. InterDial Systems sell at
list prices ranging from approximately $50,000 to $500,000 or more and support
from four to 24 agent positions on a single module. Multiple InterDial Systems
can be connected via a node adapter to support up to a total of 120 agents.
OneVoice/UNIX Systems, formerly known as VoicePlex Systems, sell at list prices
ranging from approximately $30,000 to $200,000 and support from 12 to 96 ports
per system.
The Company sells its products directly to end-users and through
more than 130 domestic and international distributors. Since the Company's
inception in 1984, the number of worldwide installations of the Company's
systems has grown to almost 6,900 in 46 countries. The end-users to which the
Company has sold systems include Aetna, USAA, Sprint, Merrill Lynch, Martin
Marietta, Sears Roebuck and Co., J.C. Penney, Microsoft, MCI Telecommunications,
National Data Corporation, National Westminster Bank U.K., the Social Security
Administration, TU Electric, Bell Canada, Fidelity Investments, NationsBank,
First Chicago, The New England, Bank of America, Wachovia Bank, CitiBank, First
Union Corporation, British Telecom, LCI International and GTE. With the
exception of MCI Telecommunications, which accounted for 11.2% and 11.7% of
total sales in fiscal 1996 and fiscal 1995, respectively, no customer
represented 10 percent or more of the Company's aggregate sales during fiscal
1996 or fiscal 1995.
CALL AUTOMATION INDUSTRY
The number of telephone calls requesting information or requiring
operator services that must be handled by businesses, telecommunications
service providers and other organizations has increased dramatically in recent
years. Traditionally, consumers obtained data or services from organizations
such as banks, insurance companies, or telephone companies, by phoning a
customer service representative or agent who used a terminal linked to a
computer to process the data or service request. The major disadvantage of
this procedure is the high cost of providing a large number of agents to answer
calls and provide service, which imposes practical limits on access frequency
and the amount of information and level of service that can be given to each
caller. Another disadvantage is that, if the volume of calls increases or
substantially varies with the time of day or other factors, the potential for
service delays and agent error may increase. As a result of these high costs
and inefficiencies, organizations have increasingly turned to various methods
of automation to process such calls. With IVR systems, callers receive
accurate responses to routine service requests so customer agents are free to
work on other important tasks requiring their personal expertise. The Company
believes that such systems provide more service to more customers without
additional staff, improve customer and employee retention and can result in
significant cost savings to the Company's customers. The call automation
industry has matured to the point that, in certain system applications such as
credit limit requests, callers may prefer dealing with an IVR system rather
than a human in order to preserve privacy and confidentiality.
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The Company believes that the industry can be divided into five
primary system markets:
Interactive voice response is the use of a wide variety of
devices, such as telephones, facsimile or personal computers in conjunction
with public and private telecommunication networks and/or the Internet to
input or retrieve information or request services from a computer data
base. Applications include checking account balances, credit card
authorizations, insurance claims and automating telephone calls formerly
requiring operator assistance. The Company believes the industry will
also embrace applications utilizing recently introduced multi-media
capabilities (e.g. the use of voice, graphics and images) such as those
offered by the Company in its VisualConnect and MediaConnect products. The
Company participates in this market with its OneVoice System which
comprised more than 90% of its system sales in fiscal 1996.
Outbound call processing involves the automatic dialing of
telephone numbers and the use of computerized voice messages and live
agents to communicate with customers and prospects. Applications include
customer notifications, delinquent bill collecting and the telemarketing of
goods and services. The Company addresses this market with its InterDial
System which comprised 7% of its system sales in fiscal 1996.
Automated call directing serves the functions typically performed
by a receptionist and involves the use of a computerized announcer which
asks callers to select an extension or department.
Voice mail enables callers to leave, exchange and retrieve
electronic voice messages 24-hours a day, seven days a week.
Audiotex is the use of a telephone to access and to listen to a
wide variety of current information, such as sports scores, weather, stock
quotes, business news, classified ads or other similar information.
The general public has become increasingly receptive to IVR
systems, having become familiar with them from early adopters in the financial
services industry, and such systems are becoming more pervasive in a wide
variety of industries and applications as indicated below:
<TABLE>
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INDUSTRY APPLICATION
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Financial Services Banking/Credit Union
Bill Payment
Health Care Benefits Coverage
Test Results
Claims Status
Cable TV Service Requests
Event Ordering
Education Enrollment
Grade Reporting
Financial Aid
Housing
Electronic Benefits Transfer Child Support
Welfare Payments
Food Stamps
Telecommunications Automated Operator Services
Service Requests
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MARKETS
The Company continues to evaluate a wide variety of potential
industry specific or "vertical" markets and has carefully selected key markets
based upon the Company's evaluation of their potential for rapid acceptance of
IVR technology. The Company has traditionally focused on the financial services
industry and, more recently, has enjoyed success in the telecommunications
industry. The Company also has expanded its focus to include, among others,
the insurance, retail, education, utilities, help desk, cable TV and
401(k)/employee benefits industries.
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PRODUCT STRATEGY
The Company's products are designed to assist its customers in
achieving the following objectives:
# Increase revenues
# Reduce costs
# Improve customer and/or employee service
# Provide differentiation in their markets
The Company believes that its OneVoice System enables the
Company's customers to handle more calls with fewer delays and errors at a
lower cost than through use of agents while preserving callers' privacy and
confidentiality, which is important in some applications. InterDial allows the
Company's customers to contact a large number of people in applications such as
collections and telemarketing while improving the productivity of agents. Both
the OneVoice and InterDial Systems operate on the OneVoice MultiApplication
Platform which can play simultaneous host to both systems, each of which, in
turn, can play simultaneous host to multiple applications, allowing the
Company's customers to leverage their investments in the Company's systems.
The OneVoice/UNIX System provides network based voicemail applications for
telecommunications companies and addresses the growing Intelligent Peripheral
market within the telecommunications industry. Intelligent Peripherals are the
building blocks for the provisioning of advanced telecommunications features,
such as voice dialing, to be offered in the Advanced Intelligent Networks
currently being contemplated by both wireline and wireless local exchange and
inter-exchange carriers.
The Company's product strategy emphasizes leveraging industry
standard computer platforms and operating systems to allow the Company to take
advantage of hardware and software technology offered by third parties. This
allows the Company to focus its development efforts on call automation
technology. The Company has developed a robust suite of call processing
functions and features characterized by the following factors:
Flexible Programming: The Company offers its customers a wide
variety of software features that can be included in the OneVoice and
InterDial Systems. The Company's software is designed to support a number
of diverse product applications and to simplify system customization.
System Expandability/Networking: The OneVoice System can be
expanded from four up to 96 lines per module by adding expansion cards
without software changes. Multiple modules can be interconnected via a
local area network to provide simultaneous access for thousands of callers
while maintaining control from a single workstation on the network.
InterDial Systems are expandable from 4 to 24 lines per system and multiple
InterDial Systems can be connected via a node adapter to support up to a
total of 120 agents.
Voice and Data Connectivity: Systems can be connected to most
digital and analog PBX's and/or central office switches and to a wide
variety of host computers.
The Company believes that its products are designed and
manufactured to be highly reliable and to require minimum maintenance, most of
which can be handled from its headquarters using on-line remote diagnostic and
test capabilities. Domestically, when on-site repair is required, the Company
electronically dispatches local service technicians. International distributors
provide service for the systems they sell.
PRODUCTS AND SERVICES
OneVoice Systems
OneVoice Systems are primarily focused on the IVR market and
comprised more than 90% of the Company's system sales in fiscal 1996. These
systems combine standard computer platforms, standard operating systems, the
Company's proprietary software, and Company developed and third party developed
expansion boards to perform IVR functions. Each OneVoice System module utilizes
the same proprietary core software, which allows the Company's customers to
expand their OneVoice Systems via the addition of expansion cards or via the
linkage of multiple modules through a local area network, as capacity and other
requirements grow. OneVoice Systems are configured using a variety of computer
platform models depending on the customer's voice storage, system memory and
processing requirements.
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The Company's core software, known as InterSoft, offers customers
a variety of features that can be included in OneVoice Systems' functions,
including:
VisualConnect ~: A feature which allows OneVoice Systems to
communicate with multi-media personal computers via the Internet. Data can
be transmitted in any combination of voice, graphic and image formats.
MediaConnect ~: A feature allowing customers to communicate with
OneVoice Systems with multi-media personal computers via telecommunications
networks. Data can be transmitted in any combination of voice, graphic and
image formats.
VoiceDial ~: A voice recognition feature, available in several
languages, allowing a telephone caller to issue oral commands to OneVoice
Systems, in both numeric and alpha format, including continuous speech.
YourVoice ~: A feature allowing customers to customize and change
recorded messages from any telephone.
VirtualVoice ~: A voice storage and playback feature allowing
OneVoice Systems to store and retrieve large quantities of verbal
information received from many telephone lines.
DataConnect ~: A feature allowing OneVoice Systems to communicate
with personal computers, data terminals and hearing impaired devices using
the same telephone lines as voice callers.
MultiFrequency Decoding ~: A feature allowing OneVoice Systems to
emulate central office signaling.
PulseDial Decoding ~: A feature which allows rotary phones to
communicate with OneVoice Systems.
Digital Interface ~: A feature which makes possible 24 channel
capacity with fully integrated T1 Direct Connectivity or 30 channel
capacity with fully integrated E1 Direct Connectivity in the European
marketplace.
InVision is the Company's proprietary, next-generation software
tool which aids in the development and testing of custom IVR applications.
InVision is based on a graphical user interface and allows developers to
visualize and hear the interaction between users and OneVoice Systems while
developing custom applications. The Company believes its customers will expand
the scope and use of its systems by virtue of this user-friendly development
tool. InterForm is the Company's proprietary, forms based software program
which also can be used by developers to generate and maintain custom
applications.
VocalCard, a proprietary voice automation board, allows OneVoice
Systems to perform many functions in software which many other suppliers must
perform using discrete hardware. Extensive use of software enables the Company
to add features or enhance OneVoice Systems without redesigning hardware.
The Company has developed the FoneTower, an expansion chassis
which enables users to insert up to 18 additional cards into a OneVoice module
because some computer platforms contain a limited number of expansion slots.
Capacity expansion and the provisioning of additional features and functions
often require additional voice automation cards such as VocalCard.
The Company integrates compatible programmable add-in cards with
proprietary software to interface OneVoice Systems with IBM, Unisys, NCR, DEC
and other host computers using standard communications protocols and native
terminal emulation via the Internet; local area networks, including the IBM
Token Ring, Ethernet and Arcnet; advanced wide area networks, including
ISDN-PRI and X.25; and customer private networks.
InterDial
The Company's InterDial system provides outbound call processing.
A typical application of an InterDial system permits the Company's customers to
improve the productivity of their telemarketing operations by automatically
dialing phone numbers and only transferring a call to a telemarketing agent if
the call is answered
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and the called party remains on the phone. InterDial's patented advanced call
processing monitoring and automatic call pacing algorithms also improve
productivity by transferring a caller to a telemarketing agent immediately upon
completion of the agent's previous call.
OneVoice CallCenter
The OneVoice CallCenter is targeted for regional or branch offices
of large businesses, providing them integrated inbound and/or outbound call
automation systems without replacing their existing telecommunications
equipment. The OneVoice CallCenter adds call switching capabilities to the
OneVoice Multi Application Platform and supports both OneVoice Systems and
InterDial systems. These systems serve to combine PBX functionalities with ISDN
PRI capabilities to enable the transmission of both voice and data on a single
line to support agent query.
OneVoice/Unix
The OneVoice/UNIX historically has been marketed primarily to
telecommunications companies to provision their networks with central office
based voice mail. This product has been enhanced and positioned to address the
Intelligent Peripheral (or service node) market within the telecommunications
industry. The Company is actively marketing OneVoice/Unix systems for the
provisioning of automated operator services and advanced telecommunication
features such as voice navigated voice mail, voice activated dialing and short
message delivery services.
RealCare
The Company offers its customers a system maintenance program,
known as RealCare, which combines on-line remote diagnostic and test
capabilities with nationwide on-site repair performed, in part, by the IBM
National Service Division. RealCare enables customers to access the Company's
Help Desk, to receive on-line tests, and, if necessary, to receive software
modifications. When on-site repair is required, the Company may electronically
dispatch a local IBM service technician while monitoring and directing repair
activities.
COMPETITION
The call automation industry is fragmented and highly competitive.
Based on industry surveys, the Company believes no company participating in
this industry has more than a 17% market share. Technological advances are
critical to industry leadership. The Company competes primarily on the basis of
a broad range of product capabilities and features, professional services (such
as system customization), and customer support services. The principal
competitors for the Company's OneVoice Systems include Lucent Technologies
(formerly AT&T), Brite Voice, and Periphonics. The principal competitors for
the Company's InterDial System include Davox, EIS and Digital Systems. The
principal competitors for the Company's OneVoice/UNIX System include Boston
Technology, Octel and Comverse Technology. The Company anticipates that
competition from existing competitors will continue to intensify. The Company
may also face market entry from non-traditional competitors, including telephone
switching equipment manufacturers and independent IVR service bureaus. Some of
these competitors have greater financial, technological and marketing resources
than the Company.
DISTRIBUTION
The Company markets its product through both direct and indirect
sales channels. During fiscal 1996, approximately 60% and 40% of the Company's
total sales were attributable to direct sales to end-users and to sales to
distributors, respectively. The Company provides discounts to volume end-user
purchasers and its distributors reflecting decreased costs associated with such
sales. During fiscal 1996, sales to existing customers, as a percentage of the
Company's total sales, increased to 67% compared to 63% in fiscal year 1995, as
customers continued to expand their systems, and to add new and/or enhanced
applications. The Company anticipates that sales to existing customers, as a
percentage of the Company's total sales, will continue to increase as the
Company focuses additional marketing efforts on current users of InterVoice's
systems. One customer, MCI Telecommunications, accounted for 11.2%, 11.7% and
14.4% of the Company's sales in fiscal 1996, fiscal 1995 and fiscal 1994,
respectively.
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United States Distribution
The Company sells its products directly to end-users and more than
85 distributors in the United States which allows it to leverage an indirect
sales force numbering in excess of 1,700 in addition to its domestic direct
sales force of approximately 75. During fiscal 1996, approximately 78% and 22%
of the Company's domestic sales were attributable to end-users and
distributors, respectively. The Company's end-users include, among others,
Aetna, USAA, Sprint, Merrill Lynch, Martin Marietta, Sears Roebuck and Co.,
J.C. Penney, Microsoft, MCI Telecommunications, National Data Corporation,
National Westminster Bank U.K., the Social Security Administration, TU
Electric, Bell Canada, Fidelity Investments, NationsBank, First Chicago, The
New England, Bank of America, Wachovia Bank, CitiBank, First Union Corporation,
LCI International and GTE. Marketing efforts by the Company include
advertising, trade shows, direct mail campaigns and telemarketing, implemented
by a field sales force.
The Company enters into arrangements with distributors to broaden
distribution channels, to increase its sales penetration to specific markets
and industries and to provide customer services relating to the Company's
products on behalf of the Company. Distributors are selected based on their
access to markets, industries and customers that are candidates for the
Company's products. The Company's major distributors include Siemens Rolm,
Wiltel, Sprint, Fujitsu, Norstan, GTE, Executone Information Systems, Mitel,
InteCom, Early Cloud & Co., Ameritech Information Systems, Rockwell
International, Teknekron Infoswitch, EDS (a subsidiary of General Motors),
Symitar Systems, Ultradata and U.S. Order.
International Distribution
The Company offers its products outside the United States through
a network of more than 45 distributors which allows it to leverage an indirect
sales force numbering in excess of 300 in addition to its international direct
sales force of approximately 15. International distributors include Siemens,
Loxbit, Phonetix, DataPoint, Advanced Network Management, Voice Data Systems,
Telecom Equipment Singapore, and IVRS (International) Ltd. The Company
maintains an office in London to support sales by distributors throughout the
European Community, the Middle East and Africa and a Representative Office in
Singapore to support sales by distributors throughout the Pacific Rim. The
Company's products are currently sold in 46 countries, including the United
Kingdom, Denmark, Sweden, Spain, Canada, the United Arab Emirates, Taiwan,
France, Turkey, Holland, Argentina, Belgium, Italy, Australia, Singapore,
Thailand, India, Malaysia, Japan and New Zealand. Most countries lag the United
States in the development of their IVR markets. Government regulation of
telecommunications equipment and services, and the low penetration of digital
switches and touch-tone telephones, have limited sales of IVR systems in many
countries. Subject to differences in culture and business practices, the
Company anticipates that the international market for IVR systems will grow as
foreign countries overcome regulatory, technological and other barriers which
limit the use of such systems. The Company believes that international buyers
are attracted to its products for a number of reasons including: its digital
technology; the ease with which buyers can customize applications in foreign
languages; OneVoice Systems' ability to support multiple languages
concurrently, to interact with rotary telephones, and to support voice
recognition when touchtone telephones are unavailable; and the Company's
efforts in obtaining the required approvals for connectivity to the telephone
networks in numerous international markets. In previous fiscal years, the
Company had many large sales to the European audiotex market, however, such
sales slowed to less than 5% of the Company's European sales during fiscal
1996. The Company expects only minimal sales to the European audiotex market
in future years as the Company believes demand in that market will remain flat
or continue to decline. During fiscal 1996, the Company continued its focus on
building its European distribution channels by strengthening existing
distributor relationships and by adding new distributors. The Company also
continued to expand distribution in the Pacific Rim and Latin America to
increase the Company's presence in these rapidly growing markets.
International sales in fiscal 1996, 1995 and 1994 grew 64%, 6% and
4% respectively, and, as a percentage of total sales, were 19% in fiscal 1996,
14% in fiscal 1995 and 17% in fiscal 1994. Sales to the Americas (excluding the
United States) constituted 61%, 33% and 26% of international sales in fiscal
1996, 1995 and 1994, respectively. Sales to the Pacific Rim constituted 19%, 22%
and 11% of international sales in fiscal 1996, 1995 and 1994, respectively.
Sales to Europe constituted 20%, 45% and 63% of international sales in fiscal
1996, 1995 and 1994, respectively. The large increase in sales to the Americas
(excluding the United States) as a percent of international sales in fiscal 1996
was primarily attributable to several large sales to Central and South American
telecommunications companies. The decline in sales to Europe as a percent of
international sales in fiscal 1996 and fiscal 1995 was primarily attributable to
the slowing of sales to the European audiotex market, as mentioned above. A
discussion of the Company's export sales by geographical area for fiscal 1996,
1995 and
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1994 is found in Note H to the Consolidated Financial Statements located in
Item 8 of this report which is incorporated herein by reference.
RELATIONSHIP WITH IBM
A large percentage of the Company's shipments have been OneVoice
Systems utilizing IBM Personal System/2 computers with OS/2 system operating
software. The Company's products also have the capability to operate in
conjunction with similar computers from other manufacturers using OS/2 system
operating software. This product strategy increases the Company's ability to
take advantage of the software technology developed by third parties and
enables the Company to focus its research and development efforts on call
automation technology, rather than adapting its OneVoice Systems to a wide
variety of less commonly used computer platforms. Nevertheless, there is no
commitment on the part of IBM or other computer manufacturers or software
companies to continue to release platforms and system operating software
compatible with the Company's products. Any failure by IBM or other computer
manufacturers or software companies to supply suitable platforms and system
operating software could cause the Company to make significant expenditures to
adapt its products for future IBM or other computer platforms and system
operating software, and could have a temporary adverse effect on the Company's
operating results. In order to offer its customers a variety of computing
platform options, the Company has taken steps to make its OneVoice Systems
compatible with the internal data bus architecture utilized by many
manufacturers of computing platforms other than IBM. Additionally, the Company
has announced plans to release versions of its InterSoft core software which
are compatible with popular operating systems other than OS/2, such as UNIX
and Windows NT, in line with a strategy to achieve operating system and
computer platform independence.
IBM service technicians perform on-site repairs for the Company's
system under its RealCare system maintenance program. Additionally, IBM is one
of the Company's international distributors, primarily in Europe.
BACKLOG
The Company's backlog at February 29, 1996, February 28, 1995 and
February 28, 1994 was approximately $21.3 million, $11.7 million and $9.6
million, respectively. The Company expects all existing backlog to be delivered
within the next fiscal year. Due to customer demand, many of the Company's
sales are completed in the same fiscal quarter as ordered. Thus, the Company's
backlog at any particular date may not be indicative of actual sales for any
future period.
PROPRIETARY RIGHTS
The Company believes that its existing patent, copyright, license
and other proprietary rights in its products and technologies are material to
the conduct of its business. To protect these proprietary rights, the Company
relies on a combination of patent, trademark, trade secret, copyright and other
proprietary rights laws, nondisclosure safeguards and license agreements. As
of February 29, 1996, the Company owned 11 patents. In addition, the Company
has registered "InterVoice" as a trademark in the United States and in certain
foreign countries. The Company has also registered 20 trademarks and
servicemarks in the United States for other product and service names and has
registrations pending in the United States for various product names. The
Company's software and other products are generally licensed to customers
pursuant to a nontransferable license agreement that restricts the use of the
software and other products to the customer's internal purposes. Although the
Company's license agreements prohibit a customer from disclosing proprietary
information contained in the Company's products to any other person, it is
technologically possible for competitors of the Company to copy aspects of the
Company's products in violation of the Company's rights. Furthermore, even in
cases where patents are granted, the detection and policing of their
unauthorized use is difficult. Moreover, judicial enforcement of copyrights
may be uncertain, particularly in foreign countries. The occurrence of the
unauthorized use of the Company's proprietary information by the Company's
competitors could have a material adverse effect on the Company's business,
operating results and financial condition. See "Item 3. Legal Proceedings."
MANUFACTURING AND FACILITIES
The Company's manufacturing operations consist primarily of the
final assembly and extensive testing and quality control of materials,
components, subassemblies and systems. The Company currently uses third parties
to perform printed circuit board assembly and sheet metal fabrication. Although
the Company generally uses standard parts and components for its products, some
components, including certain semiconductors, and more specifically, digital
signal processors and static random access memories, are presently available
only from limited suppliers. To date, the Company has been able to obtain
adequate supplies of such components in a timely
7
<PAGE> 10
manner. However, the Company's operating results could be adversely affected if
the Company were unable to obtain such components from such sources in the
future.
EMPLOYEES
As of May 23, 1996, the Company had 610 employees.
ITEM 2. PROPERTIES
The Company owns and occupies a 225,000 square foot manufacturing
and office facility in Dallas, Texas. The Company also leases approximately
5,000 square feet of office space in London and approximately 1,000 square feet
of office space in Singapore.
The Company has suitable properties and productive capacity for
its near-term requirements. The Company owns land adjacent to its Dallas
facility should additional office and/or manufacturing capacity be required.
ITEM 3. LEGAL PROCEEDINGS
The Company recently entered into a settlement agreement with Next
Generation Information, Inc. which will result in the dismissal, with
prejudice, of the lawsuit pending between the two companies in the United States
District Court for the District of New Jersey, Newark Division, Civil Action
No. 94-1504(AJL). In the settlement, the Company acquired a non-exclusive
license under U.S. Patent No. 5,214,689 and certain copyrights and copyright
registrations.
In the suit which is now pending before the Commercial Court of
Nanterre in France against the Company and its French subsidiary, InterVoice
S.A. Realizzazione Investmenti per lo Sviluppo delle Communicazioni s.r.l.,
("RISC"), an Italian registered limited company, asserted claims based on
alleged breaches by the Company and its subsidiary of a contract to develop and
supply InterVoice Systems to RISC. RISC has asserted direct and consequential
damages of approximately $16 million. On December 8, 1995, the Commercial
Court issued a judgment deciding many of the issues presented in the case. The
Commercial Court, in its decision, cited certain findings and opinions
concerning technical matters related to the proceeding contained in a report
prepared by an expert appointed by the Commercial Court. The Commercial Court
held that the contract between the Company's French subsidiary and RISC had
been terminated as a result of the fault of the Company and its subsidiary.
The Commercial Court further held that the Company and its subsidiary had
breached certain obligations under the contract and were liable for damages.
However, the Commercial Court determined that RISC was also at fault and
should, therefore, bear a share of any loss which might be established. The
Commercial Court appointed a new expert to conduct a proceeding and issue an
opinion as to the amount of damages. The Commercial Court reserved judgment
concerning the share of any loss to be borne by RISC. The Commercial Court
also held that a limitation of liability provision in the contract was not
applicable. The Commercial Court rejected RISC's demand that it be allowed to
return the systems purchased under the contract to the Company and receive a
refund of the purchase price. The Company and its subsidiary have appealed the
Commercial Court's decision, and, pursuant to French procedure, such appeal
will result in a trial de novo. In the trial de novo, the Appellate Court will
not be obligated to follow any factual or legal determination by the Commercial
Court. The Appellate Court is not likely to conduct new expertal proceedings
and will have access to the expert's report which was prepared for the
Commercial Court proceeding. The Company intends to vigorously contest the
Commercial Court's determination and all claims asserted by RISC in the
proceeding before the expert to determine damages, and believes it has
meritorious defenses to such claims and the determination by the Commercial
Court, in addition to meritorious counterclaims which it intends to assert. As
with any legal proceeding, there is no guarantee that the Company will prevail
in its current proceedings with RISC.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
8
<PAGE> 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
COMMON STOCK
The Company's outstanding shares of common stock are quoted in the
Nasdaq National Market under the symbol INTV. The Company has not paid any cash
dividends since its incorporation and does not anticipate paying cash dividends
in the foreseeable future. The Company is not bound by any contractual terms
that either prohibit or restrict the payment of dividends.
High and low prices for the shares as reported in the Nasdaq
National Market are shown below for the Company's fiscal quarters during fiscal
1996 and 1995.
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1995
----------- -----------
Quarter High Low Quarter High Low
------- ---- --- ------- ---- ---
<S> <C> <C> <C> <C> <C>
1st $ 16 1/2 $ 14 1/8 1st $14 $9 1/2
2nd 22 3/4 14 5/8 2nd 11 11/16 5 7/8
3rd 26 3/8 17 7/8 3rd 16 11 11/16
4th 24 1/2 16 5/8 4th 17 12 1/4
</TABLE>
There were approximately 1,000 shareholders of record and
approximately 12,500 beneficial shareholders of the Company at May 17, 1996.
On May 17, 1996 the closing price of the Common Stock was $30.00.
During fiscal 1995, the Board of Directors authorized the
repurchase of up to 3,000,000 shares of the Company's common stock as the Board
believed market conditions made such shares of value to the Company's
shareholders. During July, 1994, 3,000,000 shares were repurchased at an
average price of $8.00.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read
in conjunction with the Company's consolidated financial statements and related
notes included elsewhere herein and with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" set forth below. The selected
consolidated financial data presented below for each of the years in the
five-year period ended February 29, 1996 are derived from the consolidated
financial statements of InterVoice, Inc., which financial statements have been
audited by Ernst & Young LLP, independent certified public accountants. The
consolidated financial statements as of February 29, 1996 and February 28,
1995, and for each of the years in the three-year period ended February 29,
1996 and the report of Ernst & Young LLP thereon, are included elsewhere
herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 29/28
--------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales $97,103,054 $ 76,265,228 $ 60,933,903 $44,566,352 $30,230,923
Income from Operations 25,054,742 9,304,113** 16,988,225 10,950,223 3,504,295
Net Income 17,259,358 2,533,580** 11,705,501 7,824,309 2,926,583
Total Assets 90,163,087 62,718,565 74,218,417 52,633,577 49,478,591
Long Term Debt -- -- -- -- --
Per Common Share
Net Income 1.05 .15** .64 .45 .16
Cash Dividend -- -- -- -- --
Weighted average number of common
and common equivalent shares* 16,397,924 16,755,289 18,419,088 17,461,876 18,626,460
</TABLE>
*The number of weighted average common and common equivalent shares in fiscal
years prior to 1994 have been restated to reflect 2 for 1 stock splits in the
form of 100% stock dividends paid August 16, 1993 and October 16, 1992.
**Fiscal 1995 income from operations and net income were impacted by charges
totaling approximately $10.5 million, or $0.65 per share, associated with a
non-recurring charge resulting from a significant portion of the
9
<PAGE> 12
purchase price of VoicePlex Corporation having been attributed to in-process
research and development. Without this charge, earnings for fiscal 1995 would
have been $0.80 per share.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-K includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements other than statements of historical facts included in this Form
10-K, including, without limitation, statements contained in this "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
under "Business - Product Strategy," "Business - Distribution," and "Notes to
Consolidated Financial Statements" located elsewhere herein regarding the
Company's financial position, business strategy, plans and objectives of
management of the Company for future operations, and industry conditions, are
forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to be correct. In
addition to important factors described elsewhere in this report, the following
significant factors, among others, sometimes have affected, and in the future
could affect, the Company's actual results and could cause such results during
fiscal 1997, and beyond, to differ materially from those expressed in any
forward-looking statements made by or on behalf of the Company:
# The Company faces ever-increasing demands from its actual and
prospective customers for its products to be compatible with a
variety of rapidly proliferating computing, telephony and computer
networking technologies and standards and to provide greater
functionality. Since the Company does not have the resources to
cause its products to be compatible with each new technology or
standard and to provide all requested functionality, the ultimate
success of the Company's products is dependent, to a large degree,
on the Company allocating its resources to developing and improving
products compatible with those technologies, standards and
functionalities that ultimately become widely accepted by the
Company's actual and prospective customers. The Company's success
is also dependent, to a large degree, on the Company's ability to
implement arrangements with other vendors with complementary
product offerings to provide actual and prospective customers
greater functionality and to ensure that the Company's products are
compatible with the increased variety of technologies and
standards.
# Intense competition in the voice automation industry. See
"Business - Competition."
# Ability of the Company to continue to introduce new features and
products as the Company's markets evolve, as new technologies and
standards become available, and customers demand additional
functionality, requiring a continued high level of expenditures by
the Company for research and development.
# Ability of the Company to properly estimate costs under fixed price
contracts in developing application software and otherwise
tailoring its systems to customer-specific requests.
# Continued availability of suitable non-proprietary computing
platforms and system operating software that are compatible with
the Company's products.
# The ability of the Company to retain its customer base and, in
particular, its more significant customers (such as MCI
Telecommunications, which accounted for over ten percent of the
Company's total sales in the last three fiscal years) since such
customers generally are not contractually obligated to place
further orders with the Company.
# Certain of the components for the Company's products are available
from limited suppliers. The Company's operating results could be
adversely affected if the Company were unable to obtain such
components in the future. See "Business - Manufacturing" and
"Relationship with IBM."
# Risks involved in the Company's international distribution and
sales of its products, including unexpected changes in regulatory
requirements, unexpected changes in exchange rates, the difficulty
and expense of maintaining foreign offices and distribution
channels, tariffs and other barriers to trade, difficulty in
protecting intellectual property rights, foreign governmental
regulations that may limit or restrict the sales of
10
<PAGE> 13
call automation systems. Additionally, changes in foreign credit
markets and currency exchange rates may result in requests by many
international customers for extended payment terms and may have an
adverse impact on the Company's cash flow and its level of accounts
receivable.
# Legislative and administrative changes and, in particular, changes
affecting the telecommunications industry, such as the recently
enacted Telecommunications Act of 1996. While many industry
analysts expect the Telecommunications Act of 1996 to result in at
least a temporary surge in the procurement of telecommunications
equipment and related software and other products, there is no
assurance that the Company can estimate with sufficient accuracy
those products which will ultimately be purchased, the timing of
any such purchases or the quantities to be purchased.
# The Company's ability to hire and retain, within the Company's
compensation parameters, qualified technical talent and outside
contractors in highly competitive markets for the services of such
personnel.
# Extreme price and volume trading volatility in the U.S. stock
market, which has had a substantial effect on the market prices of
securities of many high technology companies frequently for reasons
other than the operating performance of such companies. These
broad market fluctuations could adversely affect the market price
of the Company's common stock.
# Increasing litigation with respect to the enforcement of patents,
copyrights and other intellectual property.
All subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the cautionary statements disclosed in this paragraph and otherwise
in this report.
RESULTS OF OPERATIONS
The following table presents certain items as a percentage of
sales for the Company's last three fiscal years.
<TABLE>
<CAPTION>
Year ended February 29/28
-------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Sales 100% 100% 100%
Cost of goods sold 35.5 36.6 36.2
Gross Margin 64.5 63.4 63.8
Research and development expenses 10.0 9.6 8.6
Selling, general and administrative expenses 28.7 27.8 27.3
Purchased research and development -- 13.8* --
Operating income 25.8 12.2* 27.9
Other income - net .5 .6 1.2
Income before taxes 26.3 12.8* 29.1
Income taxes 8.6 9.5 9.9
Net Income 17.7% 3.3%* 19.2%
</TABLE>
*Impacted by charges totaling approximately $10.5 million associated with a
non-recurring charge resulting from a significant portion of the purchase price
of VoicePlex Corporation having been attributed to in-process research and
development. Without this charge, net income for fiscal 1995 would have been
17% of sales.
11
<PAGE> 14
SALES
Sales are derived primarily from the shipment of voice automation
systems to both new and existing customers. Due to customer demand, many of the
Company's sales transactions are completed in the same fiscal quarter as
ordered. The size and timing of some transactions have historically resulted in
sales fluctuations from quarter to quarter. However, the impact of these
fluctuations is mitigated to some extent by vertical markets and by the
geographic location of the Company's existing and prospective customers.
Total sales in fiscal 1996, 1995 and 1994 increased 27%, 25% and
37%, respectively, from the immediately preceding years as a result of the
Company's continued investment in the addition of new distributors worldwide,
and in the hiring and training of new and existing sales, service and support
personnel and in expanding its marketing and advertising programs. Domestic
sales in fiscal 1996, 1995 and 1994 increased 21%, 29% and 46% from the
immediately preceding years, respectively, while international sales in fiscal
1996, 1995 and 1994 increased 64%, 6% and 4% from the immediately preceding
years, respectively. Sales to the telecommunications market during fiscal 1996
were approximately equal to fiscal 1995 and represented 12% and 36% of the
Company's domestic sales growth in fiscal 1995 and 1994, respectively. Sales
to the Company's other domestic markets as well as sales to new domestic
distributors who entered into marketing arrangements with the Company during
fiscal 1996, 1995 and 1994, constituted all of the Company's domestic sales
growth in fiscal 1996 and 88% and 64% of domestic sales growth in fiscal 1995
and 1994, respectively. Sales to domestic distributors as a percentage of
total sales were 24%, 22% and 23% in fiscal 1996, 1995 and 1994, respectively.
Sales of system maintenance programs during fiscal 1996 resulted in the Company
having contracts with over 3,000 end-users and comprised 10% of the Company's
total sales in fiscal 1996 and 1995 and 8% in fiscal 1994.
International sales were 19% of the Company's total sales in
fiscal 1996 compared with 14% in fiscal 1995 and 17% in fiscal 1994. The
Company's sales to Europe, the Pacific Rim and to Latin America all grew during
fiscal 1996, particularly in Latin America due to several large sales
transactions with telecommunications companies. The Company's growth in sales
to the Pacific Rim and Latin America in fiscal 1995 and fiscal 1994 was offset
by a decline in sales to Europe, primarily due to a lower demand for audiotex
applications. The Company intends to continue its focus on building its
international distribution channels, including the addition of sales personnel
in Europe, the Pacific Rim and Latin America. The Company's exposure to
foreign currency fluctuations is minimal as less than 3% of total sales are
denominated in foreign currencies.
Prices for the Company's products have remained stable, as
measured by price per line shipped, during fiscal 1996, 1995 and 1994 although
the features and functions per line shipped have become more robust.
Accordingly, the Company's sales increases are largely the result of increased
unit shipments.
COST OF GOODS SOLD
In the past, cost of goods sold has been affected by the mix of
business between end-users and distributors. Since fiscal 1993, the mix of
sales has become less a factor as the reduced costs associated with the lower
customized software content of products sold to distributors has been offset by
reductions in the cost of customizing software for end-users. The Company
anticipates that in fiscal 1997 its cost of goods sold will remain at a
percentage of anticipated sales similar to fiscal 1996.
RESEARCH AND DEVELOPMENT
Fiscal 1996, 1995 and 1994 research and development expenses were
approximately $9.8 million, $7.3 million and $5.2 million, respectively. Fiscal
1996 expenses included porting the Company's InterSoft core software to the UNIX
and Windows NT operating systems, and the development of VisualConnect (the
ability to communicate with OneVoice Systems via the Internet), MediaConnect
(the multi-media implementation of IVR), and InVision (the Company's next
generation custom application development tool), and the enhancement of products
acquired in the VoicePlex Corporation transaction. Additionally, expenditures
were made in fiscal 1996, 1995 and 1994 for the ongoing development of the
Company's OneVoice Multi-application Platform including OneVoice (the Company's
IVR system), InterDial (the Company's outbound predictive dialer system),
OneLink (a digital interface for analog switches), and continued development of
InterForm (a custom applications generation, or script building, user tool) and
digital VocalCard software and hardware functionality. Research and development
expenses in these years also reflect the development of a voice mail system,
speech recognition in both alpha and numeric format (including continuous
speech), voice verification, a facsimile server, the OneVoice CallCenter,
vertical industry application packages (including
12
<PAGE> 15
applications targeted for the telecommunications industry) and international
homologations (the approvals required for connectivity to the telephone network
in numerous international markets). The Company has not capitalized internal
hardware or software development expenses. The Company expects that in fiscal
1997 it will maintain its strong commitment to research and development at a
targeted percentage of anticipated sales similar to fiscal 1996. The Company
believes that this level of commitment should enable it to stay in the
forefront of technology development in its business segment, which is essential
to improving the Company's position in the industry.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased to
approximately $27.8 million in fiscal 1996 from approximately $21.2 million in
fiscal 1995 and approximately $16.6 million in fiscal 1994 as the Company
continued to hire and train new and existing sales, service and support
personnel and expand its marketing and advertising programs worldwide. The
Company expects that in fiscal 1997 it will invest in selling, general and
administrative resources at a targeted percentage of anticipated sales similar
to fiscal 1996.
OTHER INCOME
Other income is primarily interest income on cash and short term
investments. The increase in other income in fiscal 1996 versus fiscal 1995
reflected the Company's increased average cash balances resulting from the
Company's positive net cash flow. The decrease in other income in fiscal 1995
versus fiscal 1994 reflected the Company's decreased average cash balances
resulting from a stock repurchase program, the purchase of VoicePlex
Corporation and the expansion of the Company's Dallas facilities.
INCOME FROM OPERATIONS
In order to understand the Company's operating and net income over
the last three fiscal years, it must be noted that the Company purchased
VoicePlex Corporation on August 31, 1994 for approximately $8.0 million in cash
and approximately 255,000 shares of the Company's common stock. The
acquisition was effected by the merger of a wholly owned subsidiary of the
Company into VoicePlex Corporation. Substantially all the purchase price was
allocated to in- process research and development which resulted in a $10.5
million charge to expense, with no related tax benefit, in fiscal 1995.
Adjusting for this write-off, the Company generated operating income of
approximately $19.8 million and net income of approximately $13.1 million
during fiscal 1995.
Operating income in fiscal 1996 increased 26% versus fiscal 1995
adjusted operating income as a result of a 27% increase in the Company's total
sales, improved gross margins due to an increased software content in the
Company's systems and productivity improvements from the Company's sales,
marketing and administrative staffs. Adjusted operating income in fiscal 1995
increased 17% versus fiscal 1994 resulting from a 25% increase in sales. The
increase in adjusted operating income during fiscal 1995 was at a lesser rate
than the increase in sales due to the Company's hiring and training of sales,
service and support, and research and development personnel and the expansion of
worldwide marketing and advertising programs. Operating income increased 55% in
fiscal 1994 versus the prior year. This increase resulted primarily from a 37%
increase in sales and improved gross margins resulting from an increased
software content in the Company's systems, productivity improvements in the
Company's marketing and sales efforts, and the leveraging of the Company's
administrative overhead to support increased sales.
Net income in fiscal 1996 increased 32% versus fiscal 1995
adjusted net income. Fiscal 1996 net income grew at a slightly faster rate
than operating income due to a favorable tax rate versus fiscal 1995 as a
result of increased sales through the Company's foreign sales corporation.
Adjusted net income increased 12% in fiscal 1995 from fiscal 1994. Net income
for fiscal 1995 grew at a lesser rate than operating income due to less tax
free interest income as a result of the Company's use of cash to repurchase
stock, to acquire VoicePlex Corporation and to complete the expansion of its
Dallas facilities. Any anticipated increases in operating income and net
income are expected to be at a rate generally commensurate with the percentage
increase in anticipated sales.
LIQUIDITY AND CAPITAL RESOURCES
The Company had approximately $23.6 million in cash and cash
equivalents at February 29, 1996, up from $10.3 million at February 28, 1995.
This increase is entirely attributable to the Company's internally generated
cash flow. The Company believes that its cash reserves and internally generated
cash flow will be
13
<PAGE> 16
sufficient to meet its operating cash requirements for the foreseeable future.
In addition, the Company has a $15 million unsecured revolving line of credit
with NationsBank, which expires July 29, 1996, which is available in its
entirety. The Company reviews share repurchase and acquisition opportunities
from time to time and repurchased 3,000,000 shares of its common stock during
fiscal 1995 as market conditions made such shares of value to the Company's
shareholders. The Company believes it has or has access to the financial
resources necessary to pursue attractive opportunities as they arise.
Impact of Inflation
The Company does not expect any significant short term impact of
inflation on its financial condition. Technological advances should continue
to reduce costs in the computer and communications industries. Further, the
Company presently is not bound by long term fixed price sales contracts and has
no long term debt obligations, which should reduce the Company's exposure to
inflationary effects.
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
FISCAL 1996 31-May-95 31-Aug-95 30-Nov-95 29-Feb-96
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales $22,016,697 $23,683,721 $25,145,270 $26,257,366
Income from
Operations 5,989,157 6,321,086 6,612,046 6,132,453
Net Income 3,990,260 4,237,924 4,411,047 4,620,127
Net Income per Common Share .25 .26 .27 .28
THREE MONTHS ENDED
------------------
FISCAL 1995 31-May-94 31-Aug-94 30-Nov-94 28-Feb-95
--------- --------- --------- ---------
Sales $16,604,732 18,005,943 $20,058,871 $21,595,682
Income (loss) from Operations 4,134,068 (6,126,218)* 5,321,501 5,974,762
Net income (loss) 2,869,252 (7,693,492)* 3,459,947 3,897,873
Net income (loss) per Common
Share .16 (.47)* .22 .24
</TABLE>
*Includes a charge of $10,541,918, or $0.65 per share, for the write-off of
purchased research and development acquired through the purchase of VoicePlex
Corporation. Without this charge, earnings for the quarter ended August 31,
1994 would have been $0.18 per share.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Independent Auditors Report of Ernst & Young LLP and the
Consolidated Financial Statements of the Company as of February 29, 1996 and
February 28, 1995, and for each of the three years in the period ended February
29, 1996 follow:
14
<PAGE> 17
REPORT OF INDEPENDENT AUDITORS
The Stockholders and Board of Directors of
InterVoice, Inc.
We have audited the accompanying consolidated balance sheets of InterVoice,
Inc. and subsidiaries as of February 29, 1996 and February 28, 1995, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the three years in the period ended February 29, 1996.
Our audits also included the financial statement schedule listed in the index
at item 14(a). These financial statements and schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
InterVoice, Inc. and subsidiaries at February 29, 1996 and February 28, 1995,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended February 29, 1996, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
Ernst & Young LLP
Dallas, Texas
April 2, 1996
15
<PAGE> 18
InterVoice, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
February 29, February 28,
ASSETS 1996 1995
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $23,573,976 $10,276,952
Accounts and notes receivable, net of allowance
for doubtful accounts of $746,027 in 1996 and
$585,439 in 1995 24,704,425 17,760,544
Inventory 12,586,640 9,803,534
Prepaid expenses 1,240,709 516,091
Deferred taxes 1,714,246 1,168,076
----------- -----------
63,819,996 39,525,197
PROPERTY AND EQUIPMENT
Building 15,865,605 14,545,054
Computer equipment 8,193,562 5,379,320
Furniture, fixtures and other 4,737,625 4,300,907
Service equipment 2,025,558 1,903,632
----------- -----------
30,822,350 26,128,913
Less allowance for depreciation 9,540,886 6,465,385
----------- -----------
21,281,464 19,663,528
OTHER ASSETS
Intangible assets, net of amortization
of $1,893,619 in 1996 and
$2,001,509 in 1995 4,712,495 2,458,972
Other assets 349,132 958,464
----------- -----------
$90,163,087 $62,606,161
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $11,796,125 $9,538,117
Customer deposits 2,527,514 1,131,764
Deferred income 4,075,099 3,364,848
Income taxes payable 1,053,519 1,724,334
----------- -----------
19,452,257 15,759,063
DEFERRED TAXES 713,074 - -
CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred Stock, $100 par value--2,000,000
shares authorized: none issued
Common Stock, no par value, at nominal
assigned value--62,000,000 shares
authorized: 18,984,206 issued,
15,984,206 outstanding in 1996
and 18,381,503 issued, 15,381,503
outstanding in 1995 9,460 9,167
Additional paid-in capital 39,103,070 33,212,063
Treasury stock - at cost (24,003,245) (24,003,245)
Retained earnings 54,888,471 37,629,113
----------- -----------
69,997,756 46,847,098
----------- -----------
$90,163,087 $62,606,161
=========== ===========
</TABLE>
See notes to consolidated financial statements.
16
<PAGE> 19
InterVoice, Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year Ended February 29/28
------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
SALES $97,103,054 $76,265,228 $60,933,903
COST OF GOODS SOLD 34,468,112 27,882,870 22,082,005
----------- ----------- -----------
GROSS MARGIN 62,634,942 48,382,358 38,851,898
Research and development expenses 9,757,972 7,313,780 5,236,050
Selling, general and
administrative expenses 27,822,228 21,222,547 16,617,623
Purchased research and development - - 10,541,918 - -
----------- ----------- -----------
INCOME FROM OPERATIONS 25,054,742 9,304,113 16,998,225
Other income - net 532,065 438,586 731,027
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 25,586,807 9,742,699 17,729,252
INCOME TAXES
Current 8,371,856 7,328,307 6,164,112
Deferred (44,407) (119,188) (140,361)
----------- ----------- -----------
INCOME TAXES 8,327,449 7,209,119 6,023,751
----------- ----------- -----------
NET INCOME $17,259,358 $ 2,533,580 $11,705,501
=========== =========== ===========
Net income per common and
common equivalent share $ 1.05 $ .15 $ .64
=========== =========== ===========
Weighted average number of common
and common equivalent shares 16,397,924 16,755,289 18,419,088
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
17
<PAGE> 20
InterVoice, Inc.
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock Additional
------------------------------ Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at February 28, 1993 7,952,842 3,965 20,666,893 23,394,387 - - 44,065,245
Stock Split in
form of 100%
Stock Dividend 8,730,306 4,355 - - (4,355) - - - -
Exercise of stock
options 1,077,657 537 4,845,518 - - - - 4,846,055
Tax benefit from
exercise of
stock options - - - - 2,535,039 - - - - 2,535,039
Net Income - - - - - - 11,705,501 - - 11,705,501
----------------------------------------------------------------------------------------------------
Balance at February 28, 1994 17,760,805 8,857 28,047,450 35,095,533 - - 63,151,840
Exercise of stock
options 365,690 183 1,606,960 - - - - 1,607,143
Acquisition of
business 255,008 127 2,980,279 - - - - 2,980,406
Purchase of
treasury stock (3,000,000) - - - - - - ($24,003,245) (24,003,245)
Tax benefit from
exercise of
stock options - - - - 577,374 - - - - 577,374
Net Income - - - - - - 2,533,580 - - 2,533,580
----------------------------------------------------------------------------------------------------
Balance at February 28, 1995 15,381,503 $9,167 $33,212,063 $37,629,113 ($24,003,245) $46,847,098
----------------------------------------------------------------------------------------------------
Exercise of stock
options 571,942 278 3,763,469 - - - - 3,763,747
Tax benefit from
exercise of
stock options - - - - 1,545,825 - - - - 1,545,825
Issuance of
restricted stock 30,761 15 581,713 - - - - 581,728
Net Income - - - - - - 17,259,358 - - 17,259,358
----------------------------------------------------------------------------------------------------
Balance at February 29, 1996 15,984,206 $9,460 $39,103,070 $54,888,471 ($24,003,245) $69,997,756
====================================================================================================
</TABLE>
See notes to consolidated financial statements.
18
<PAGE> 21
InterVoice, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended February 29/28
---------------------------------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income $17,259,358 $ 2,533,580 $11,705,501
Adjustments to reconcile net income
to net cash provided by
operating activities:
Purchased research and
development - - 10,541,918 - -
Depreciation and amortization 4,393,988 3,522,925 2,537,907
Benefit for deferred income taxes (44,407) (119,188) (140,361)
Provision for doubtful accounts 173,928 481,938 73,606
Provision for slow moving inventories 752,090 660,000 80,774
Disposal of equipment 11,669 37,014 - -
Changes in operating assets and
liabilities net of effects of acquisition:
Increase in accounts receivable (7,279,317) (3,396,102) (4,274,913)
Increase in inventories (3,657,122) (3,499,289) (2,976,486)
(Increase) decrease in prepaid expenses (142,892) 124,669 (332,885)
Increase in accounts payable
and accrued expenses 2,258,010 2,273,304 2,680,369
Increase (decrease) in customer deposits 1,395,750 (84,607) 344,971
Increase in deferred income 710,251 1,088,334 528,068
Increase (decrease) in income taxes payable (459,505) 1,027,768 (1,055,163)
----------- ----------- -----------
15,371,801 15,192,264 9,171,388
INVESTING ACTIVITIES
Acquisition of business, net of
cash acquired - - (9,130,574) - -
Purchases of property and equipment (4,601,288) (9,197,365) (5,584,017)
Increase in other assets (2,944,569) (819,401) (163,753)
(Increase) decrease in notes receivable 161,508 (151,462) 629,498
----------- ----------- -----------
(7,384,349) (19,298,802) (5,118,272)
FINANCING ACTIVITIES
Purchase of treasury stock - - (24,003,245) - -
Exercise of stock options 5,309,572 2,184,517 7,381,094
----------- ----------- -----------
5,309,572 (21,818,728) 7,381,094
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 13,297,024 (25,925,266) 11,434,210
Cash and cash equivalents, beginning of year 10,276,952 36,202,218 24,768,008
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $23,573,976 $10,276,952 $36,202,218
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - DESCRIPTION OF BUSINESS
The Company develops, sells and services call automation systems with a
traditional emphasis on interactive voice response allowing individuals to
interact with computer data bases using the keys on their touch-tone
telephones, the dials on their rotary telephones, the keyboards of their
personal computers, credit card terminals or their voices. The Company's
systems, which are sold under the trade names "OneVoice" and "InterDial", are
used by a variety of enterprises to disseminate and receive information
efficiently, allowing multiple callers simultaneous access to computer data
bases without the expense of maintaining a manned workstation for each
telephone line, or by automatically dialing phone numbers and only transferring
a call to an operator if the call is answered and the called party remains on
the phone. The Company's products include software designed to simplify system
customization while permitting a number of diverse product applications. The
Company sells its products directly to end-users and through more than 130
domestic and international distributors.
NOTE B-SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of InterVoice and its subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
INVENTORIES: Inventories, primarily system components, are valued at the lower
of cost or net realizable value with cost determined on a first-in, first-out
basis. Amounts presented are net of inventory valuation allowances totaling
$1,350,000 and $1,110,267 at February 29, 1996 and February 28, 1995,
respectively.
PROPERTY AND EQUIPMENT: Property and Equipment is stated on the basis of cost.
Depreciation is provided by the straight-line method over each asset's
estimated useful life. Depreciation expense totaled $2,834,613, $2,305,263 and
$1,766,684 in fiscal 1996, 1995 and 1994, respectively.
INTANGIBLE ASSETS: Intangible assets, which include patent licenses, purchased
software and license fees for technologies such as text to speech and speech
recognition, are being amortized by the straight-line method based on the
Company's assessment of each asset's useful life. Useful lives range from five
to thirteen years. Amortization expense for these items totaled $647,261,
$912,996 and $771,223 in fiscal 1996, 1995 and 1994, respectively.
CASH AND CASH EQUIVALENTS: Cash equivalents include investments in highly
liquid securities with a maturity of three months or less at the time of
acquisition. The carrying amount of these securities approximate fair market
value.
REVENUE RECOGNITION: The Company recognizes revenue from sales of systems and
services at the time a contract is signed, custom system specifications, where
applicable, are defined and agreed upon, and the system has been shipped or
services rendered. In the event the Company anticipates more than a normal time
period between shipment and completion of other obligations (installation and
system testing), revenue recognition is deferred until all remaining
obligations are insignificant. Revenues from system maintenance agreements are
deferred and recognized over the term of the agreement.
NET INCOME PER SHARE: Net income per share is based on 16,397,924, 16,755,289
and 18,419,088 average common and common equivalent shares outstanding during
fiscal 1996, 1995, and 1994, respectively. Common equivalent shares assume the
exercise of all dilutive stock options, including restricted stock, using the
treasury stock method. Primary and fully diluted earnings per share are not
materially different for the years presented.
20
<PAGE> 23
RECLASSIFICATIONS: Certain prior year balances have been reclassified to
conform to current year presentation.
NOTE C-ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Accounts payable $ 7,923,169 $6,061,631
Accrued compensation 2,356,379 1,985,896
Other 1,516,577 1,490.590
----------- ----------
$11,796,125 $9,538,117
=========== ==========
</TABLE>
NOTE D-INCOME TAXES
Deferred income taxes are recognized using the liability method and reflect the
tax impact of temporary differences between the amounts of assets and
liabilities for financial reporting purposes and such amounts as measured by
tax laws and regulations. Significant components of the Company's deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for slow moving inventories $ 511,988 $ 421,068
Deferred revenue 942,181 586,087
Accrued expenses 267,615 170,640
Allowance for doubtful accounts 102,777 56,887
Other 44,795 18,741
---------- ----------
Total deferred tax assets 1,869,356 1,253,423
---------- ----------
Deferred tax liabilities:
Capitalized Software 639,835 --
Tax over book depreciation 110,884 91,026
Prepaid assets 107,049 69,872
Other 10,416 14,447
---------- ----------
Total deferred tax liabilities 868,184 175,345
---------- ----------
Net deferred tax assets $1,001,172 $1,078,078
========== ==========
</TABLE>
21
<PAGE> 24
Domestic and foreign income before taxes, and details of the income tax
provision are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income (loss) before taxes:
Domestic $26,671,904 $ 10,969,945 $ 18,746,943
Foreign (1,085,097) (1,227,246) (1,017,691)
----------- ------------- -------------
$25,586,807 $ 9,742,699 $ 17,729,252
=========== ============= =============
Income tax provision (benefit):
Current:
Federal $ 8,050,856 $ 6,349,864 $5,905,127
Foreign -- 146,147 (346,015)
State 321,000 832,296 605,000
----------- ------------- -------------
Total current 8,371,856 7,328,307 6,164,112
Deferred:
Federal (40,982) (109,996) (93,512)
State (3,425) (9,192) (46,849)
----------- ------------- -------------
Total deferred (44,407) (119,188) (140,361)
----------- ------------- -------------
Total $ 8,327,449 $ 7,209,119 $ 6,023,751
=========== ============= =============
</TABLE>
A reconciliation of the United States Federal statutory rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
$ % $ % $ %
- - - - - -
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes at statutory rates 8,955,382 35 3,409,945 35 6,105,238 34.4
Research and development tax credit (388,000) (1.5) -- -- ---- ----
Tax exempt interest -- -- (151,139) (1.6) (222,229) (1.3)
Purchased research & development -- -- 3,689,671 37.9 -- --
State taxes, net of federal benefit 259,000 1.0 540,992 5.6 399,300 2.3
Foreign loss not benefited 380,576 1.5 383,777 3.9 -- --
Foreign sales corp. benefit (521,208) (2.0) (284,327) (2.9) (273,763) (1.5)
Other (358,301) (1.5) (379,800) (3.9) 15,205 0.1
---------- ---- ---------- ---- ---------- ----
$8,327,449 32.5 7,209,119 74.0 6,023,751 34.0
========== ==== ========== ==== ========== ====
</TABLE>
Income taxes (net of refunds) of $7,240,945, $5,818,651 and $4,897,627 were
paid in fiscal 1996, 1995 and 1994, respectively.
NOTE E-CONTINGENCIES
In a suit which is now pending before the Commercial Court of Nanterre
in France against the Company and its French subsidiary, InterVoice
S.A. Realizzazione Investmenti per lo Sviluppo delle Communicazioni s.r.l.,
("RISC"), an Italian registered limited company, asserted claims based on
alleged breaches by the Company and its subsidiary of a contract to develop and
supply InterVoice Systems to RISC. RISC has asserted direct and consequential
damages of approximately $16 million. On December 8, 1995, the Commercial
Court issued a judgment deciding many of the issues presented in the case. The
Commercial Court, in its decision, cited certain findings and opinions
concerning technical matters related to the proceeding contained in a report
prepared by an expert appointed by the Commercial Court. The Commercial Court
held that the contract between the Company's French subsidiary and RISC had
been terminated as a result of the fault of the Company and its subsidiary.
The Commercial Court further held that the Company and its subsidiary had
breached certain obligations under the contract and were liable for damages.
However, the Commercial Court determined that RISC was also at fault and
should, therefore, bear a share of any loss which might be established. The
Commercial Court appointed a new expert to conduct a proceeding and issue an
opinion as to the amount of damages. The Commercial Court reserved judgment
concerning the share of any loss to be borne by RISC. The Commercial Court
also held that a limitation of liability provision in the contract was not
applicable. The Commercial Court rejected RISC's demand that it be allowed to
return the systems purchased under the contract to the Company and receive a
refund of the purchase price. The Company and its subsidiary have appealed the
Commercial Court's decision, and, pursuant to French procedure, such appeal
will result in a trial de novo. In the trial de novo, the Appellate Court will
not be obligated to follow any factual or legal determination by the Commercial
Court. The Appellate Court is not likely to conduct new expertal proceedings
and will have access to the expert's report which was prepared for the
Commercial Court proceeding. The Company intends to vigorously contest the
Commercial Court's determination and all claims asserted by RISC in the
proceeding before the expert to determine damages, and believes it has
meritorious defenses to such claims and the determination by the Commercial
Court, in addition to meritorious counterclaims which it intends to assert. As
with any legal proceeding, there is no guarantee that the Company will prevail
in its current proceedings with RISC. In addition to the suit mentioned above,
the Company is subject to certain legal proceedings and claims that arise in the
ordinary course of its business. In the opinion of management, based on
discussions with and advice of legal counsel, the amount of ultimate liability
with respect to these actions and the suit mentioned above will not materially
affect the consolidated results of operations or financial condition of the
Company.
NOTE F-REVOLVING CREDIT AGREEMENT
The Company has an unsecured revolving credit agreement with NationsBank in the
amount of $15,000,000, which expires July 29, 1996. Borrowings under the
agreement accrue interest at the bank's prime rate. Through February 29, 1996,
there have been no borrowings under this facility.
22
<PAGE> 25
NOTE G-STOCKHOLDERS' EQUITY
On July 15, 1993 the Company announced a 100% stock dividend on shares of its
common stock payable in shares of common stock to shareholders of record at the
close of business on July 30, 1993. The stock dividend was accounted for as a
2 for 1 stock split and resulted in the proportional adjustment of the
aggregate number of shares of common stock available for issuance under each of
the Company's stock option plans, the number of shares covered by each of the
outstanding stock options, the price per share under each such option, and the
terms of the Company's Rights Agreement as described below. All average number
of shares outstanding and earnings per share amounts have been restated to
reflect the stock dividends. The stock dividend was accomplished by issuing
previously unissued shares.
Stock option plans are in effect under which shares of common stock may be
authorized for issuance by the Compensation Committee of the Board of Directors
as incentive stock options to key employees. Option prices per share are the
fair market value per share of stock on the date of grant and have been based
on the closing price on the date of grant. Generally, the options become
exercisable at the rate of 33% per year and are exercisable for six years from
the date of grant.
<TABLE>
<CAPTION>
1984 and 1990 Employee Option Plans: Shares Option Prices
------------------------------------ ------ -------------
<S> <C> <C>
Balance at February 28, 1993 2,878,832
Granted 592,200 $8.00 to $18.75
Exercised (1,821,722) $0.63 to $ 6.75
Forfeited (114,216) $2.06 to $18.75
-----------
Balance at February 28, 1994 1,535,094
Granted 676,050 $7.63 to $14.50
Exercised (325,640) $1.06 to $12.63
Forfeited (64,841) $4.13 to $18.75
-----------
Balance at February 28, 1995 1,820,663
Granted 506,200 $14.75 to $22.00
Exercised (514,177) $2.06 to $18.75
Forfeited (164,912) $4.31 to $21.38
-----------
Balance at February 29, 1996 1,647,774
===========
</TABLE>
At February 29, 1996, a total of 635,033 employee options were exercisable at
an average price of $9.66.
A stock option plan is in effect under which shares of common stock may be
issued by the Board of Directors as nonqualified stock options to
non-employees. Options are issued to non-employee directors in accordance with
a formula prescribed by the plan. Option prices per share are the fair market
value per share of stock on the date of grant and have been based on the
closing price on the date of grant. Each option becomes exercisable within the
period specified in the optionee's agreement and are exercisable for 10 years
from the date of grant.
<TABLE>
<CAPTION>
1990 Non-Employee Option Plan Shares Option Price
----------------------------- ------- ------------
<S> <C> <C>
Balance at February 28, 1993 46,000
Granted 12,000 $15.13
Exercised (33,400) $2.06 to $6.13
--------
Balance at February 28, 1994 24,600
--------
Granted 26,000 $8.50
Exercised (6,600) $3.00 to $6.13
--------
Balance at February 28, 1995 44,000
--------
Granted 12,000 $22.13
Exercised (2,000) $3.09
--------
Balance at February 29, 1996 54,000
========
</TABLE>
23
<PAGE> 26
At February 29, 1996, a total of 42,000 non-employee options were exercisable
at an average price of $10.17.
For all option plans at February 29, 1996, options for 324,195 shares of common
stock were available for future grant.
The Company has adopted an Employee Stock Purchase Plan under which an
aggregate of 200,000 shares of common stock may be issued. Options are issued
to eligible employees in accordance with a formula prescribed by the plan and
are exercised automatically at the end of a one year payroll deduction period.
Option prices are determined as 85% of the lower of the closing price per share
of the Company's common stock on the option grant date or the option exercise
date. At February 29, 1996, options for 48,061 shares of common stock were
outstanding under the plan.
<TABLE>
<CAPTION>
Employee Stock Purchase Plan Shares
---------------------------- -------
<S> <C>
Balance at February 28, 1994 58,916
Granted 68,763
Exercised (33,436)
Forfeited (25,480)
--------
Balance at February 28, 1995 68,763
--------
Granted 48,061
Exercised (55,765)
Forfeited (12,998)
--------
Balance at February 29, 1996 48,061
========
Grant price per option outstanding $13,49 to $18.70
</TABLE>
During fiscal 1996, the Company adopted a Restricted Stock Plan under which an
aggregate of 500,000 shares may be issued. The Plan provides for the awarding
of the Company's common stock, subject to certain restrictions, to key
employees in accordance with formulas by a committee of the Board of Directors
which administers the Plan. As of February 29, 1996, 30,761 shares had been
issued under the Plan and the performance requirements necessary for the
issuance of an additional 4,787 shares had been met.
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," was issued. The disclosure
requirements of this statement are effective for the Company's financial
statements beginning in fiscal 1997. The Company intends to elect the option
allowing it to continue to apply the accounting provisions of APB Opinion 25,
"Accounting for Stock Issued to Employees." With the Company's plan of
adoption, the impact will be limited to additional footnote disclosure.
One Preferred Share Purchase Right is attached to each outstanding share of the
Company's Common Stock. If a person or group acquires beneficial ownership of
20 percent or more, or announces a tender offer that would result in beneficial
ownership of 20 percent or more of the Company's outstanding common stock, the
rights become exercisable and each right will entitle its holder to purchase one
four-hundredth of a share of Series A Preferred Stock for $75, subject to
adjustment. If the Company is acquired in a business combination transaction
while the rights are outstanding, each right will entitle its holder to
purchase, for $75, common shares of the acquiring company having a market value
of $150. In addition, if a person or group acquires beneficial ownership of 20
percent or more of the Company's outstanding common stock, each right will
entitle its holder (other than such person or members of such group) to
purchase, for $75, a number of shares of the Company's common stock having a
market value of $150. Furthermore, at any time after a person or group acquires
beneficial ownership of 20 percent or more (but less than 50 percent) of the
Company's outstanding common stock, the Board of Directors may, at its option,
exchange part or all of the rights (other than rights held by the acquiring
person or group) for shares of the Company's common stock on a one-for-one
basis. At any time prior to the acquisition of such a 20 percent position, the
Company can redeem each right for .25 cents. The Board of Directors is also
authorized to reduce the 20 percent thresholds referred to above to not less
than 10 percent. The rights expire in the year 2001.
24
<PAGE> 27
NOTE H-GEOGRAPHIC OPERATIONS AND MAJOR CUSTOMERS
The Company's operations involve a single industry segment: the development,
sale and service of call automation systems.
During fiscal 1994, the Company changed the nature of its relationship with its
French subsidiary InterVoice,S.A. Prior to December 1993 (fiscal 1994),
InterVoice, S.A. received shipments from the United States for re-sale into its
sales territories of Europe, the Middle East and Africa. Subsequent to
December 1993 (fiscal 1994), sales into InterVoice, S.A.'s sales territory were
exported from the United States. Accordingly, all sales during fiscal 1995 and
fiscal 1996 have been reported as United States export sales. Financial
information, summarized by geographic area, is as follows:
<TABLE>
<CAPTION>
United
(In Thousands) States France Eliminations Consolidation
- -------------- ------ ------ ------------ -------------
<S> <C> <C> <C> <C>
YEAR ENDED FEBRUARY 28, 1994
Total Sales:
Unaffiliated Customers $ 54,467 $ 6,467 $ --- $ 60,934
InterArea Transfers 3,312 --- (3,312) ---
-------- -------- --------- --------
Total $ 57,779 $ 6,467 $ (3,312) $ 60,934
======== ======== ========= ========
Income (loss) from Operations $ 17,465 $ (467) $ --- $ 16,998
======== ======== ========= ========
Identifiable Assets $ 72,846 $ 3,740 $ (2,368) $ 74,218
======== ======== ========= ========
</TABLE>
Sales and transfers between geographic areas were generally priced to recover
cost plus an appropriate mark-up for profit. These interarea transfers were
eliminated from consolidated sales.
Export sales, summarized by geographic area, are as follows:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995 1994
-------------- ---- ---- ----
<S> <C> <C> <C>
The Americas (Excluding
the United States) $ 11,126 $ 6,606 $ 3,134
Pacific Rim 3,507 2,461 848
Europe, The Middle East
and Africa 3,620 1,978 --
-------- -------- --------
TOTAL $ 18,253 $ 11,045 $ 3,982
======== ======== ========
</TABLE>
One customer accounted for 11.2%, 11.7% and 14.4% of the Company's total sales
during fiscal 1996, 1995 and 1994, respectively.
NOTE I-TREASURY STOCK
Pursuant to an authorization by the Company's Board of Directors during fiscal
1995, in July, 1994, the Company repurchased 3,000,000 shares of its common
stock at an average price of $8.00 per share.
NOTE J-CONCENTRATIONS OF CREDIT RISK
The Company sells systems directly to end-users and distributors primarily in
the banking and financial, insurance, retail, telecommunications, education,
utilities, help desk, cable TV, and 401(k)/employee benefits industries
worldwide. Credit is extended based on an evaluation of a customer's financial
condition and a deposit is generally required. The Company has made a
provision for credit losses in these financial statements, which have been less
than 1% of sales in the periods reported.
25
<PAGE> 28
NOTE K-EMPLOYEE BENEFIT PLAN
The Company sponsors an employee savings plan which qualifies under section
401(k) of the Internal Revenue Code. All full time employees who have completed
three months of service are eligible to participate in the plan. The Company
matches 50% of employee contributions up to 6% of the employee's eligible
compensation. Company contributions totaled $524,000, $405,000 and $312,000 in
fiscal 1996, 1995 and 1994, respectively.
NOTE L - ACQUISITION
The Company acquired VoicePlex Corporation on August 31, 1994. The acquisition
was accounted for by the purchase method of accounting. This purchase price of
$12,277,992 was comprised of $7,954,749 in cash, Company common stock valued at
$2,980,406 and other direct acquisition costs totaling $1,342,837. The
allocation of the purchase price among the identifiable tangible and intangible
assets was based on the fair market value of those assets using a risk adjusted
income approach.
Based on appraised value, a portion of the purchase price was allocated to
purchased research and development which had not reached technological
feasibility and had no alternative future use. This allocation resulted in a
$10,541,918 charge, net of taxes, to the Company's operations in fiscal year
1995. The remaining purchase price was allocated, based on appraisals, to
software ($746,121), net tangible assets ($470,619), deferred taxes ($351,457),
and assembled workforce ($167,877).
26
<PAGE> 29
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
INTERVOICE, INC.
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------- ------------- -------------------------------- ---------------- --------------
Additions
--------------------------------
(1) (2)
Balance at Charged to Charged to Balance at
Beginning Cost and Other Accounts Deductions - End of
Description of Peiod Expenses - Describe Describe Period
- ---------------------------------- ------------- -------------- --------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Year ended February 29,1996
Deducted from asset accounts:
Allowance for doubtful accounts $ 585,439 $ 173,930 ($ 13,342)(A) $ 746,027
Allowance for slow moving inventories 1,110,267 752,090 (512,357)(B) 1,350,000
---------- ---------- ---------- -----------
Total $1,695,706 $ 926,020 ($ 525,699) $ 2,096,027
========== ========== ========== ===========
Year ended February 28,1995
Deducted from asset accounts:
Allowance for doubtful accounts $ 192,000 $ 481,938 ($ 88,499)(A) $ 585,439
Allowance for slow moving inventories 677,256 660,000 (226,989)(B) 1,110,267
---------- ---------- ---------- -----------
Total $ 869,256 $1,141,938 ($ 315,488) $ 1,695,706
========== ========== ========== ===========
Year ended February 28,1994
Deducted from asset accounts:
Allowance for doubtful accounts $ 183,106 $ 73,606 ($ 64,712)(A) $ 192,000
Allowance for slow moving inventories 865,072 80,774 (268,590)(B) 677,256
---------- ---------- ---------- -----------
Total $1,048,178 $ 154,380 ($ 333,302) $ 869,256
========== ========== ========== ===========
</TABLE>
- ---------------------
(A) Accounts written off.
(B) Scrapped material.
27
<PAGE> 30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item will be contained in the
sections entitled "Election of Directors" and "Executive Officers" in the
Company's Definitive Proxy Statement, involving the election of directors, to
be filed pursuant to Regulation 14A with the Securities and Exchange Commission
not later than 120 days after the end of the fiscal year covered by this Form
10-K (the "Definitive Proxy Statement") and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be contained in the
section entitled "Executive Compensation" in the Definitive Proxy Statement.
Such information, except for the information captioned "Report of the
Compensation Committee" and "Performance Graph", is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be contained in the
section entitled "Election of Directors" in the Definitive Proxy Statement.
Such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be contained in the
section captioned "Certain Transactions" in the Definitive Proxy Statement.
Such information is incorporated herein by reference.
28
<PAGE> 31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following consolidated financial statements and financial
statement schedules of InterVoice, Inc. and subsidiaries are
included in Items 8 and 14(a), respectively.
<TABLE>
<CAPTION>
Page
----------
<S> <C> <C>
(1) Financial Statements:
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . 15
Consolidated Balance Sheets at February 29, 1996 and February 28, 1995 . 16
Consolidated Statements of Income for the three years ended
February 29, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . 17
Consolidated Statements of Changes in Stockholders' Equity
for the three years ended February 29, 1996 . . . . . . . . . . . . 18
Consolidated Statements of Cash Flows for the three years ended
February 29, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . 19
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . 20
(2) Financial Statement Schedules:
II Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . 27
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
(3) Exhibits:
The exhibits required to be filed by this Item 14 are set forth in the
Index to Exhibits accompanying this report.
(b) No reports on Form 8-K were filed by the Company during the
quarter ended February 29, 1996.
29
<PAGE> 32
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INTERVOICE, INC.
By: /s/ DANIEL D. HAMMOND
----------------------------------
Daniel D. Hammond
Chairman of the Board of Directors
and Chief Executive Officer
30
<PAGE> 33
Dated: May 26, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ DANIEL D. HAMMOND Chairman of the Board of May 28, 1996
----------------------------------- Directors and Chief
Daniel D. Hammond Executive Officer
/s/ MICHAEL W. BARKER President and Chief May 28, 1996
----------------------------------- Operating Officer
Michael W. Barker
/s/ ROB-ROY J.GRAHAM Chief Financial Officer, May 28, 1996
----------------------------------- Chief Accounting Officer
Rob-Roy J. Graham and Controller
(Principal Accounting Officer)
/s/ JOSEPH J. PIETROPAOLO Director May 28, 1996
-----------------------------------
Joseph J. Pietropaolo
/s/ GERALD F. MONTRY Director May 28, 1996
-----------------------------------
Gerald F. Montry
/s/ GEORGE C. PLATT Director May 28, 1996
-----------------------------------
George C. Platt
/s/ GRANT A DOVE Director May 28, 1996
-----------------------------------
Grant A. Dove
</TABLE>
31
<PAGE> 34
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit No. Description Numbered Page
- ----------- ----------- -------------
<S> <C> <C>
3.1 -- Articles of Incorporation, as amended, of Registrant (10)
3.2 -- Second Restated Bylaws of Registrant, as amended (2)
4.1 -- Registration Rights Agreement dated August 31, 1994, among the Company, Sohail
Sattar and Steven E. Polsky and other shareholders of VoicePlex Corporation. (8)
10.1 -- Registrant's 1984 Incentive Stock Option Plan, as amended (1)
10.2 -- Amended and Restated Employment Agreement dated February 28, 1993 by and between the Company and
Daniel D. Hammond (3)
10.3 -- IBM Agreement for Authorized Dealers and Industry Remarketers dated as of April 28, 1988, between
International Business Machines Corporation ("IBM") and the Registrant, as amended and supplemented by
that certain Industry Remarketer Addendum dated as of April 5, 1989 and that certain Industry
Remarketer Addendum dated as of April 25, 1989 (1)
10.4 -- IBM Maintenance Agreement dated June 24, 1987, between IBM and the Registrant, as amended and
supplemented by that certain Corporate Service Amendment dated as of October 26, 1988, that certain
Addendum to Corporate Service Amendment dated as of October 26, 1988 and that certain Industry
Remarketer Service Amendment dated as of October 26, 1988 (1)
10.5 -- Amended and Restated Rights Agreement dated as of December 12, 1994 between the Registrant and KeyCorp
Shareholders Services, Inc. (formerly Society National Bank), as Rights Agent (5)
10.6 -- The InterVoice, Inc. 1990 Incentive Stock Option Plan, as amended (10)
10.7 -- The InterVoice, Inc. 1990 Nonqualified Stock Option Plan for Non-Employees, as amended (4)
10.8 -- Amendment to the 1984 Incentive Stock Option Plan (2)
10.9 -- Employment Agreement dated as of August 31, 1994 between the Company and Michael W. Barker (7)
10.10 -- Separation Agreement dated as of August 31, 1994 between the Company and Donald B. Crosbie (7)
10.11 -- Employment Agreement effective September 1, 1994, between the Company and Sohail Sattar (8)
10.12 -- Employment Agreement effective September 1, 1994, between the Company and Steven E. Polsky (8)
10.13 -- InterVoice, Inc. Employee Stock Purchase Plan (9)
</TABLE>
32
<PAGE> 35
<TABLE>
<S> <C>
10.14 -- Loan Agreement dated as of July 29, 1995 between NationsBank of Texas, N.A. and the Company (11)
10.15 -- Amendment No. 1 dated May 26, 1995, to Amended and Extended Employment Agreement dated as of February
28, 1993 between the Company and Daniel D. Hammond (10)
10.16 -- InterVoice, Inc. Employee Savings Plan (6)
10.17 -- Merger Agreement dated August 31, 1994 among the Company, InterVoice Acquisition Corp., VoicePlex
Corporation and certain shareholders of VoicePlex Corporation. (8)
10.18 -- InterVoice, Inc. Restricted Stock Plan (11)
11. -- Computation of Per Share Earnings (11)
23. -- Consent of Independent Auditors (11)
</TABLE>
_________________
(1) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-2 under the Securities Act of 1933,
Registration No. 33-30847.
(2) Incorporated by reference to exhibits to the Company's 1991 Annual
Report on Form 10-K for the fiscal year ended February 28, 1991,
filed with the Securities and Exchange Commission (SEC) on May 29,
1991, as amended by Amendment No. 1 on Form 8 to Annual Report on
Form 10-K, filed with the SEC on August 1, 1991.
(3) Incorporated by reference to exhibits to the Company's 1994
Quarterly Report on form 10-Q for the quarter ended May 31, 1993,
filed with the SEC on July 1, 1993.
(4) Incorporated by reference to exhibits to the Company's Registration
Statement on form S-8 filed on April 6, 1994, with respect to the
Company's 1990 Nonqualified Stock Option Plan for Non-Employees,
Registration Number 33-77590.
(5) Incorporated by reference to exhibits to Form 8-A/A (Amendment No
1) filed with the SEC on December 15, 1994.
(6) Incorporated by reference to Exhibits to the Company's 1994 Annual
Report on Form 10-K for the fiscal year ended February 28, 1994,
filed with the SEC on May 31, 1994.
(7) Incorporated by reference to Exhibits to the Company's Quarterly
Report on Form 10-Q for the quarter ended August 31, 1994 filed
with the SEC on October 13, 1994.
(8) Incorporated by reference to exhibits to the Company's current
report on Form 8-K dated September 13, 1994, and the Amendment
thereto on Form 8K/A dated October 27, 1994.
(9) Incorporated by reference to exhibits to Registration Statement on
Form S-8 filed with the Securities and Exchange Commission on
December 1, 1993, Registration Number 33-72494.
(10) Incorporated by reference to Exhibits to the Company's 1995 Annual
Report on Form 10-K for the fiscal year ended February 28, 1995,
filed with the SEC on May 30, 1995.
(11) Filed herewith.
Exhibits furnished upon request
33
<PAGE> 1
PROMISSORY NOTE
$15,000,000.00 Dallas, Texas July 29, 1995
FOR VALUE RECEIVED, the undersigned, INTERVOICE, INC. ("Maker") hereby
unconditionally promises to pay to the order of NATIONSBANK OF TEXAS, N.A.
("Payee"), at 901 Main Street, P.O. Box 831000, Dallas, Texas 75283-1000 or at
such other address given to Maker by Payee, the principal sum of FIFTEEN
MILLION AND 00/100 DOLLARS ($15,000,000.00), or so much thereof as shall be
advanced prior to maturity, in lawful money of the United States of America,
together with interest (calculated on the basis of a 360-day year) on the
unpaid principal balance from day-to-day outstanding, computed from the date of
advance until maturity at the rates per annum provided below.
1. Certain Definitions. As used herein, the following terms shall
have the respective meanings assigned to such term:
"Adjusted LIBOR Rate" shall mean, with respect to any Interest Period,
an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of
1%) equal to the sum of (i) the quotient of (a) the LIBOR Rate with respect to
such Interest Period, divided by (b) the remainder of 1.00 minus the LIBOR
Reserve Requirement in effect on the first day of such Interest Period and (ii)
one and seventy-five one hundredths percent (1.75%).
"Advance" shall mean either a Floating Rate Advance or a LIBOR Rate
Advance.
"Business Day" shall mean any day except a Saturday, Sunday or other
day on which commercial banks in Dallas, Texas are authorized or required by
law to close.
"Floating Base Rate" shall mean the Prime Interest Rate established
from time to time by Payee. Maker acknowledges that Payee may, from time to
time, extend credit to other borrowers at rates of interest varying from, and
having no relationship to, such general reference rate. Each change in the Base
Rate shall become effective without prior notice to Maker automatically as of
the opening of business on the date of such change in the Base Rate.
"Floating Rate Advance" shall mean any principal amount under the Note
with respect to which the interest rate is calculated by reference to the
Floating Base Rate for a particular Interest Period.
"Interest Period" means, with respect to a LIBOR Advance, a period
commencing:
(i) on the borrowing date of such LIBOR Advance made hereunder; or
(ii) on the Conversion Date pertaining to such LIBOR Advance, if
such LIBOR Advance is made pursuant to a conversion as described in
Section 3.b. herein; or
(iii) on the last day of the preceding Interest Period in the case
of a rollover to a successive Interest Period;
and ending 1, 2, 3 or 6 months thereafter, as Maker shall elect as provided
herein; provided, that:
(A) any Interest Period that would otherwise end on a day which is
not a LIBOR Business Day shall be extended to the next succeeding
LIBOR Business Day, unless such
<PAGE> 2
LIBOR Business Day falls in another calendar month in which case such
Interest Period shall end on the next preceding LIBOR Business Day;
(B) any Interest Period that begins on the last LIBOR Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month or at the end of such Interest
Period) shall, subject to Clause (A) above, end on the last LIBOR
Business Day of a calendar month; and
(C) if the Interest Period for any LIBOR Advance would otherwise
end after the final maturity date of this Note, then such Interest
Period shall end on the final maturity date of this Note.
"LIBOR Business Day" shall mean a Business Day on which dealings in
Dollars are carried out in the London interbank market.
"LIBOR Advance" shall mean any principal amount under this Note with
respect to which the interest rate is calculated by reference to the Adjusted
LIBOR Rate for a particular Interest Period.
"LIBOR Rate" shall mean, with respect to each Interest Period, the
rate of interest per annum at which deposits in immediately available funds in
Dollars are offered by Payee (at approximately 9:00 o'clock A.M., Dallas time,
three (3) LIBOR Business Days prior to the first day of such Interest Period)
to first class banks in the interbank eurodollar market for delivery on the
first day of such Interest Period, such deposits being for a period of time
equal or comparable to such Interest Period and in an amount equal or
comparable to the principal amount of the LIBOR Advance to which such Interest
Period relates. Payee shall notify Maker of its determination of the LIBOR Rate
as soon as practicable following such determination. Each determination of the
LIBOR Rate by Payee shall, in the absence of manifest error, be conclusive and
binding.
"LIBOR Reserve Requirement" shall, on any day, mean that percentage
(expressed as a decimal fraction) which is in effect on such day, as provided
by the Board of Governors of the Federal Reserve System (or any successor
governmental body) applied for determining the reserve requirements (including
without limitation, basic, supplemental, marginal and emergency reserves) under
Regulation D with respect to "Eurocurrency liabilities" as currently defined in
Regulation D, or under any similar or successor regulation with respect to
Eurocurrency liabilities or Eurocurrency funding. Each determination by Payee
of the Eurodollar Reserve Requirement shall, in the absence of manifest error,
be conclusive and binding.
"Maximum Rate" shall mean the highest nonusurious rate of interest (if
any) permitted by applicable law on such day. Payee hereby notifies Maker that,
and discloses to Maker that, for purposes of Tex. Rev. Civ. Stat. Ann. Art.
5069-1.04, as it may from time to time be amended, the "applicable rate
ceiling" shall be the "indicated rate ceiling" from time to time in effect as
limited by Art. 5069-1.04(b); provided, however, that to the extent permitted
by applicable law, Payee reserves the right to change the "applicable rate
ceiling" from time to time by further notice and disclosure to Maker; and,
provided further, that the "highest nonusurious rate of interest permitted by
applicable law" for purposes of this Loan Agreement and the Note shall not be
limited to the applicable rate ceiling under Art. 5069-1.04 if federal laws or
other state laws now or hereafter in
2
<PAGE> 3
effect and applicable to this Loan Agreement, and the Note (and the interest
contracted for, charged and received hereunder or thereunder) shall permit a
higher rate of interest.
2. Payment of Principal. The unpaid principal balance of this
Note shall be due and payable in one (1) installment, on July 29, 1996, in the
amount of the unpaid principal balance of this Note as of such date.
3. Interest.
a. Rate of Interest. Subject to section 3.e. below, the
unpaid principal of each Floating Base Advance shall bear interest
from the date of advance until paid at a rate per annum which shall
from day to day be equal to the lesser of (a) the Floating Base Rate
in effect from day to day or (b) the Maximum Rate. Subject to section
3.e. below, the unpaid principal of each LIBOR Advance shall bear
interest from the date of advance until paid at a rate per annum which
shall be equal to the lesser of (a) the Adjusted LIBOR Rate for the
applicable Interest Period or (b) the Maximum Rate.
b. Selection of Interest Option.
(i) Subject to the provisions of this Note, Maker shall
have the option to designate that the unpaid principal balance of this
Note shall bear interest at (i) the Floating Base Rate, or (ii) the
Adjusted LIBOR Rate;
(ii) Upon making a notice of borrowing under the Loan
Agreement described below (a "Notice of Borrowing") Maker shall advise
Payee as to whether an Advance shall be (i) a LIBOR Advance, in which
case Borrower shall specify the applicable Interest Period therefor,
or (ii) a Floating Rate Advance. Maker shall give Payee a Notice of
Borrowing on or before 10:30 o'clock a.m. Dallas, Texas time on the
day of each Base Rate Advance and on or before 2:00 o'clock p.m. at
least two (2) LIBOR Business Days prior to each LIBOR Advance. Prior
to 2:00 o'clock p.m. at least two (2) LIBOR Business Days prior to the
termination of each Interest Period with respect to a LIBOR Advance,
Maker shall give Payee notice (a "Rollover Notice") of the interest
option which shall be applicable to such Advance upon the expiration
of such Interest Period. The Rollover Notice shall either be in
writing or by telephone immediately followed by written notice. If
Maker shall specify that said Advance shall be a LIBOR Advance, such
Rollover Notice shall also specify the length of the succeeding
Interest Period selected by Maker with respect to such Advance. Each
Rollover Notice shall be irrevocable and effective upon notification
thereof to Payee. If the required Rollover Notice shall not have been
timely received by Payee prior to the expiration of the then-relevant
Interest Period, then Maker shall be deemed to have elected to have
such Advance be a Floating Rate Advance. With respect to any Floating
Rate Advance, Maker shall have the right, on any LIBOR Business Day,
as the case may be ("Conversion Date"), to convert such Floating Rate
Advance to a LIBOR Advance, by giving Payee a Rollover Notice of such
selection at least two (2) LIBOR Business Days prior to such
Conversion Date.
(iii) Notwithstanding anything to the contrary contained
herein, (i) no more than three (3) Interest Periods shall be in effect
at any one time with respect to LIBOR
3
<PAGE> 4
Advances, and (ii) Maker shall have no right to request a LIBOR
Advance if the Interest Rate applicable thereto would exceed the
Maximum Rate in effect on the first day of the Interest Period
applicable to such Advance.
(iv) Each Notice of Borrowing shall be irrevocable and
binding on Maker and, in respect of any LIBOR Advance specified in
such Notice of Borrowing, Maker shall indemnify Payee against any
loss, cost or expense incurred or suffered by Payee as a result of (i)
any failure to fulfill, on or before the date specified for such
Advance, the conditions to such Advance set forth in the Loan
Agreement, or (ii) Maker's requesting that an Advance not be made on
the date specified for such Advance in the Notice of Borrowing. A
certificate of Payee establishing the amount due from Maker according
to the preceding sentence, together with a description in reasonable
detail of the manner in which such amount has been calculated, shall
be conclusive in the absence of manifest error.
c. Interest Payment Dates. Interest on the unpaid
principal amount of a Floating Rate Advance, computed as aforesaid,
shall be due and payable quarterly as it accrues, commencing on
January 31, 1995, and thereafter on April 30, 1995, and at maturity;
provided, however, that interest with respect to any Floating Rate
Advance shall also be due and payable on the Conversion Date of any
such Advance to a LIBOR Advance. Interest on the unpaid principal
amount of a LIBOR Advance, computed as aforesaid, shall be due and
payable on the last day of the related Interest Period; provided,
however, that interest with respect to any LIBOR Advance shall be
payable no less often than quarterly.
d. Interest on Past-due Amounts. All past due principal
of, and, to the extent permitted by applicable law, interest on, this
Note shall bear interest until paid at the lesser of (i) the Maximum
Rate or (ii) the Floating Base Rate plus two percent (2%).
4. Special Provisions for LIBOR Advances. If, with respect to any
Interest Period for any LIBOR Advance any of the following occurs:
(i) After the date of this Note, the adoption of any
applicable law, rule or regulation or interpretation thereof by any
person charged with the interpretation thereof, or compliance by Payee
with any such law, rule or regulation, in the reasonable judgment of
Payee, makes it unlawful for Payee to make, maintain, or fund any
LIBOR Advance; or
(ii) After the date of this Note, any governmental
authority, central bank or other comparable authority, shall impose,
modify or deem applicable any reserve (including, without limitation,
any imposed by the Board of Governors of the Federal Reserve System
but excluding any reserve requirement included in the LIBOR Reserve
Requirement of Payee), special deposit or similar requirement or
condition affecting any LIBOR Advance, and the result thereof is to
increase the cost to Payee of maintaining any LIBOR Advance;
then Payee shall have no further obligation to permit LIBOR Advances hereunder,
and Maker shall immediately, upon receipt of notice from Payee of the
occurrence of any of the foregoing, repay in full the then-outstanding LIBOR
Advance and convert such LIBOR Advance to a Floating Rate Advance.
4
<PAGE> 5
In the event of any prepayment of all or any portion of any LIBOR
Advance on a day other than the last day of the related Interest Period,
including without limitation, any prepayment made pursuant to this Section 4,
Maker shall pay to Payee an amount equal to any loss, cost or expense incurred
or suffered by Payee as a result of the timing of the payment or failure to
borrow any Advance for which a loan request has been made, or in redepositing,
redeploying or reinvesting the principal amount so paid or affected by the
timing of the LIBOR Advance, including the sum of (a) the interest that, but
for the payment or failure to borrow such Advance, the Payee would have earned
in respect of that principal amount of such LIBOR Advance, reduced, if Payee is
able to redeploy, redeposit or reinvest the principal amount, by the interest
earned by Payee as a result of redepositing, redeploying or reinvesting the
principal amount, plus, (b) any expense or penalty incurred by the Payee on
redepositing, redeploying, or reinvesting the principal amount. Each
determination by Payee of any such amount shall be supported by written
evidence reasonably acceptable to Maker.
5. Payment Dates: Manner of Payment: Application of Payments.
Should the principal of, or any installment of the principal of or interest on,
this Note become due and payable on any day other than a Business Day, the
maturity thereof shall be extended to the next succeeding Business Day, and
interest shall be payable with respect to such extension. All payments of
principal of, and interest on, this Note shall be made by Maker to Lender at
its principal banking office in Dallas, Texas in federal or other immediately
available funds. Payments made to Payee by Maker hereunder shall be applied
first to accrued interest and then to principal. Payments received by Payee
after 2:00 o'clock p.m. on any Business Day shall be deemed to have been
received on the following Business Day.
6. PrePayment. Subject to the provisions set forth in section 4
above, Maker may prepay this Note, in whole or in part, at any time and from
time to time without premium or penalty. Any prepayment made hereunder shall be
made together with interest accrued (through the date of such prepayment) on
the principal amount prepaid.
7. Rights Under Loan Agreement. This Note has been executed and
delivered pursuant to, and is subject to certain terms and conditions set forth
in, that certain Loan Agreement (herein so called) between Maker and Payee,
executed as of the date hereof, and is the "Note" referred to therein. The
Holder of this Note shall be entitled to the benefits provided in the Loan
Agreement. Reference is made to the Loan Agreement for a statement of (i) the
obligation of Payee to advance funds hereunder, (ii) the events upon which the
maturity of this Note may be accelerated, and (iii) Maker's right to cure
certain events of default, if any, as more fully set forth therein.
8. Waivers. Maker and each surety, endorser, guarantor and other
party ever liable for payment of any sums of money payable on this Note,
jointly and severally waive presentment, protest, notice of protest and
non-payment, or other notice of default, notice of acceleration and intention
to accelerate, and agree that their liability under this Note shall not be
affected by any renewal or extension in the time of payment hereof, or in any
indulgences, or by any release or change in any security for the payment of
this Note, and hereby consent to any and all renewals, extensions, indulgences,
releases or changes, regardless of the number of such renewals, extensions,
indulgences, releases or changes.
5
<PAGE> 6
9. No Waiver. No waiver by Payee of any of its rights or remedies
hereunder or under any other document evidencing or securing this Note or
otherwise shall be considered a waiver of any other subsequent right or remedy
of Payee; no delay or omission in the exercise or enforcement by Payee of any
rights or remedies shall ever be construed as a waiver of any right or remedy
of Payee; and no exercise or enforcement of any such rights or remedies shall
ever be held to exhaust any right or remedy of Payee.
10. Limitation of Interest. Regardless of any provision contained
in this Note, the Loan Agreement or any other document executed or delivered in
connection therewith, Payee shall never be deemed to have contracted for or be
entitled to receive, collect or apply as interest on this Note (whether termed
interest herein or deemed to be interest by judicial determination or operation
of law), any amount in excess of the Maximum Rate, and, in the event that Payee
ever receives, collects or applies as interest any such excess, such amount
which would be excessive interest shall be applied to the reduction of the
unpaid principal balance of this Note, and, if the principal balance of this
Note is paid in full, any remaining excess shall forthwith be paid to Maker. In
determining whether or not the interest paid or payable under any specific
contingency exceeds the highest Maximum Rate, Maker and Payee shall, to the
maximum extent permitted under applicable law, (i) characterize any
non-principal payment (other than payments which are expressly designated as
interest payments hereunder) as an expense or fee rather than as interest, (ii)
exclude voluntary pre-payments and the effect thereof, and (iii) spread the
total amount of interest throughout the entire contemplated term of this Note
so that the interest rate is uniform throughout such term; provided, that if
this Note is paid and performed in full prior to the end of the full
contemplated term hereof, and if the interest received for the actual period of
existence thereof exceeds the Maximum Rate, if any, Payee or any holder hereof
shall refund to Maker the amount of such excess, or credit the amount of such
excess against the aggregate unpaid principal balance of all advances made by
the Payee or any holder hereof under this Note at the time in question.
11. Governing Law. This Note is being executed and delivered, and
is intended to be performed in the State of Texas. Except to the extent that
the laws of the United States may apply to the terms hereof, the substantive
laws of the State of Texas shall govern the validity, construction, enforcement
and interpretation of this Note. In the event of a dispute involving this Note
or any other instruments executed in connection herewith, the undersigned
irrevocably agrees that venue for such dispute shall lie in any court of
competent jurisdiction in Dallas County, Texas.
12. Renewal Note. This Note is given in renewal and extension, but
not extinguishment, of all amounts left owing and unpaid on that certain
Promissory Note (the "Prior Note") dated November 30, 1994, in the stated
principal amount of $15,000,000, executed and delivered by Maker and payable to
the order of Payee.
6
<PAGE> 7
EXECUTED AS OF THE DAY AND YEAR FIRST ABOVE WRITTEN.
MAKER:
INTERVOICE, INC.
By: /s/ ROB-ROY J. GRAHAM
------------------------------------
Name: Rob-Roy J. Graham
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Title: Chief Financial Officer
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INTERVOICE, INC.
RESTRICTED STOCK PLAN
SECTION I. PURPOSE
The purpose of the InterVoice, Inc. Restricted Stock Plan (the "Plan")
is to encourage and enable key employees of InterVoice, Inc. (the "Company")
and its subsidiaries, upon whose judgment, initiative and efforts the Company
largely depends for the successful conduct of its business, to remain with and
devote their best efforts to the business of the Company, thereby advancing the
interests of the Company and its stockholders. Accordingly, the Company may
award bonuses in the form of Common Stock of the Company, no par value per
share ("Stock") subject to the restrictions set forth in Section V ("Restricted
Stock"), as hereinafter set forth.
SECTION II. ADMINISTRATION OF THE PLAN
The Plan shall be administered by a committee (the "Committee") of
three or more directors of the Company appointed by the Board of Directors.
Members of the Committee shall not, within one year prior to their appointment
to the Committee, have been granted or awarded equity securities pursuant to
the Plan or pursuant to any other stock option or stock plan of the Company or
any parent or subsidiary corporation of the Company, other than participation
in, or awards of securities pursuant to, formula plans such as the Company's
1990 Nonqualified Stock Option Plan for Non- Employees.
The Committee shall have sole authority to determine the employees who
are to be awarded Restricted Stock from among those eligible hereunder and to
establish the number of shares to be awarded to each in the form of Restricted
Stock after taking into consideration the position held, the duties performed,
the compensation received, the services expected to be rendered by such
employee and other relevant factors. The Committee is authorized to interpret
the Plan, and may from time to time adopt such rules and regulations, not
inconsistent with the provisions of the Plan, as it may deem advisable to carry
out the Plan. A majority of the Committee shall constitute a quorum and the
acts of a majority of the members present at any meeting at which a quorum is
present, or acts approved in writing by a majority of the Committee, shall be
deemed the acts of the Committee. All decisions made by the Committee in
selecting the employees to whom Restricted Stock shall be awarded, in
establishing the number of shares which may be awarded as Restricted Stock to
employees and in construing the provisions of the Plan shall be final. No
member of the Committee shall be liable for any action taken, failure to act,
determination or interpretation made in good faith with respect to the Plan or
any Restricted Stock awarded under the Plan.
SECTION II. SHARES SUBJECT TO THE PLAN
The aggregate number of shares of Stock awarded in the form of
Restricted Stock under this Plan shall not exceed 500,000 shares. Such shares
of Stock may consist of authorized but unissued shares of Stock or previously
issued shares of Stock reacquired by the Company. Any of such shares of Stock
which remain unissued and which have not been awarded in the form of Restricted
Stock at the termination of the Plan shall cease to be subject to Plan. Should
any Stock previously awarded as Restricted Stock be forfeited, the shares of
Restricted Stock so forfeited will again be available for grant or award under
the Plan. The aggregate number of shares of Stock which may be issued under the
Plan shall be subject to adjustment as provided in Section VI hereof.
SECTION IV. ELIGIBILITY
The Committee shall determine and designate, at any time or from time
to time, the key employees of the Company and its subsidiaries to whom
Restricted Stock is to be awarded, but the Committee may authorize the award of
Restricted Stock only to individuals who are key employees (including officers
and directors who are also key employees) of the Company or a subsidiary at the
time the Restricted Stock is awarded. Restricted Stock may be awarded to the
same employee on more than one occasion.
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SECTION V. RESTRICTED STOCK
The Committee may from time to time, in its sole discretion, award
bonuses in the form of Restricted Stock to persons eligible to receive awards
of Restricted Stock under Section IV. All Restricted Stock awarded under the
Plan shall be subject to such restrictions, terms and conditions, if any, as
may be determined by the Committee. The Committee may in its sole discretion
remove, modify or accelerate the release of restrictions on any Restricted
Stock in the event of death or disability of the recipient of such Restricted
Stock, or for such other reasons as the Committee may deem appropriate.
Any certificate or certificates representing shares of Restricted
Stock shall bear a stamped or printed notice on the face thereof to the effect
that such shares have been awarded pursuant to the terms of the Plan and may
not be sold, pledged, transferred, assigned or otherwise encumbered in any
manner except as set forth in the terms of such award. If the Committee so
determines, the certificates representing Restricted Stock shall be deposited
by the recipient with the Company or an escrow agent designated by the Company
until the restrictions thereon have lapsed or have been removed in accordance
with the provisions of this Section. Upon the lapse of the restrictions or
removal thereof by the Committee, new unrestricted certificates for the number
of shares on which the restrictions have lapsed or been removed shall, upon
request by the recipient of the Restricted Stock, be issued in exchange for
such restricted certificates.
SECTION VI. ADJUSTMENTS
In the event the Company shall effect a split of the Stock or dividend
payable in Stock, or in the event the outstanding Stock shall be combined into
a smaller number of shares, the maximum number of shares of Stock as to which
Restricted Stock may be awarded under the Plan shall be increased or decreased
proportionately.
In the event of a reclassification of the Stock not covered by the
foregoing, or in the event of a liquidation or reorganization, the Board of
Directors shall make such adjustments, if any, as it may deem appropriate in
the number and kind of shares. for which Restricted Stock may be awarded under
the Plan.
In the event of a merger or consolidation in which the Company is not
the surviving corporation or sale of all or substantially all of the assets or
capital stock of the Company, any shares of Restricted Stock that have been
awarded but not yet issued shall be immediately issued without regard to any
restrictions, terms or conditions imposed by the Committee pursuant to the
award and any restrictions placed on Restricted Stock that has been issued
shall be released.
The provisions of this Section shall only be applicable if, and only
to the extent that, the application thereof does not conflict with any valid
governmental statute, regulation or rule.
SECTION VII. CONTINUANCE OF EMPLOYMENT
Neither the Plan nor any agreement relating to any award of Restricted
Stock shall impose any obligation on the Company or an Affiliate to continue to
employ any employee.
SECTION VIII. WITHHOLDING
The Company shall have the right to withhold taxes, as required by
law, from any transfer of Stock to an employee under the Plan or to collect, as
a condition of such transfer, any taxes required by law to be withheld.
SECTION IX. AMENDMENT OR TERMINATION OF THE PLAN
The Board of Directors in its discretion may terminate the Plan at any
time with respect to any shares of Stock which have not been awarded as
Restricted Stock. The Board of Directors shall have the right to alter or amend
the Plan or any part thereof from time to time; provided, that no such change
may be made which would impair the rights of the recipient of Restricted Stock
without the consent of such recipient; and provided, further,
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that the Board of Directors may not make any alteration or amendment which
would materially increase the benefits accruing to participants under the Plan,
increase the aggregate number of shares of Stock which may be issued pursuant
to the provisions of the Plan, or materially modify the requirements for
participation in the Plan without the approval of the stockholders of the
Company.
SECTION X. EFFECTIVENESS AND EXPIRATION OF THE PLAN
If adopted by the Board of Directors and approved by the vote of the
holders of a majority of the stock of the Company entitled to vote thereon at a
meeting of stockholders duly called and held for such purpose, or at an annual
meeting thereof, the notice of which has specified that action is to be taken
on the Plan, and the Committee shall have been advised by legal counsel for the
Company that in the opinion of such counsel all applicable requirements of law
precedent to its becoming effective have been fully met, then the Plan shall
become effective on April 4, 1995, subject to shareholder approval, or as soon
thereafter as the aforesaid requirements have been met. The Plan shall expire
20 years after the effective date of the Plan. If the stockholders of the
Company fail so to approve the Plan, the Plan shall thereupon terminate and all
awards of Restricted Stock under the Plan shall become void and of no effect.
With respect to persons subject to Section 16 of the Securities Exchange Act of
1934 (the "1934 Act"), transactions under the Plan are intended to comply with
applicable conditions of Rule 16b-3 or its successors under the 1934 Act. To
the extent any provisions of the Plan or action by the Committee fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Committee or by the Board of Directors.
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EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year Ended February 29/28
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1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
PRIMARY
Average shares outstanding 15,670,718 16,116,392 17,207,154
Net effect of dilutive stock options based on the
treasury stock method using average market price 727,206 638,897 1,211,934
-------------------------------------------
TOTAL 16,397,924 16,755,289 18,419,088
Net Income $17,259,358 $ 2,533,580 $11,705,501
===========================================
Per Share amount $ 1.05 $ 0.15 $ 0.64
===========================================
FULLY DILUTED
Average shares outstanding 15,670,718 16,116,392 17,207,154
Net effect of dilutive stock options based on the
treasury stock method using the year end market
price, if higher than average market price 870,804 748,133 1,211,934
-------------------------------------------
TOTAL 16,541,522 16,864,525 18,419,088
Net Income $17,259,358 $ 2,533,580 $11,705,501
===========================================
Per Share amount $ 1.04 $ 0.15 $ 0.64
===========================================
</TABLE>
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EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under "Item 6. Selected Financial
Data" and to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-17642, Form S-8 No. 33-45131, Form S-8 No. 33-45132, Form S-8
No. 33-62863, Form S-8 No. 33-64860, Form S-8 No. 33-72494, Form S-8 No. 33-
77586, Form S-8 No. 33-77590 and Form S-3 No. 33-85898) of InterVoice, Inc. and
subsidiaries of our report dated April 2, 1996, with respect to the consolidated
financial statements and schedule of InterVoice, Inc. and subsidiaries included
in the Annual Report (Form 10-K) for the year ended February 29, 1996.
ERNST & YOUNG LLP
Dallas, Texas
May 29, 1996
