<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
MAY 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-13616
INTERVOICE, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1927578
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17811 WATERVIEW PARKWAY, DALLAS, TX 75252
(Address of principal executive offices)
972-454-8000
(Registrant's telephone number, including area code)
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[ ]
The Registrant had 28,922,526 shares of common stock, no par value per
share, outstanding as of July 6, 1999.
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<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
InterVoice, Inc.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
May 31, February 28,
ASSETS 1999 1999
- ------------------------------------ ------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 19,351,529 $ 12,195,612
Accounts and notes receivable, net of allowance
for doubtful accounts of $1,575,280 in 2000 and
$1,305,581 in 1999 42,217,253 42,156,004
Inventory 13,426,018 11,704,428
Prepaid expenses and other current assets 3,775,660 4,497,764
Deferred income taxes 4,513,769 4,513,769
------------- -------------
83,284,229 75,067,577
PROPERTY AND EQUIPMENT
Building 16,300,325 16,300,325
Computer equipment 25,516,444 24,839,081
Furniture, fixtures and other 3,612,041 3,599,873
Service equipment 5,035,071 5,071,153
------------- -------------
50,463,881 49,810,432
Less allowance for depreciation 25,148,474 22,755,583
------------- -------------
25,315,407 27,054,849
OTHER ASSETS
Intangible assets, net of amortization
of $3,465,131 in 2000 and
$3,416,433 in 1999 8,781,048 9,407,075
------------- -------------
$ 117,380,684 $ 111,529,501
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 12,096,135 $ 11,857,317
Customer deposits 3,002,670 4,095,776
Deferred income 5,183,881 5,625,799
Income taxes payable 1,224,681 1,022,171
------------- -------------
21,507,367 22,601,063
DEFERRED INCOME TAXES 1,356,442 1,356,442
LONG TERM BORROWINGS 5,000,000 5,000,000
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: 28,858,171 issued
and outstanding in 2000,
28,728,016 issued and
outstanding in 1999 14,410 14,347
Additional capital 2,354,477 1,719,699
Unearned compensation (606,304) (649,612)
Retained earnings 87,754,292 81,487,562
------------- -------------
89,516,875 82,571,996
------------- -------------
$ 117,380,684 $ 111,529,501
============= =============
</TABLE>
<PAGE> 3
InterVoice, Inc.
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
May 31, May 31,
1999 1998
------------ ------------
<S> <C> <C>
Sales $ 40,076,761 $ 30,000,337
Cost of goods sold 15,347,128 12,530,098
------------ ------------
Gross margin 24,729,633 17,470,239
Research and development expenses 3,839,354 3,284,873
Selling, general and administrative
expenses 11,430,687 9,482,044
------------ ------------
Income from operations 9,459,592 4,703,322
Other income (expense) - net 107,934 (126,734)
------------ ------------
Income before taxes 9,567,526 4,576,588
Income taxes 3,300,796 1,574,000
------------ ------------
Net income $ 6,266,730 $ 3,002,588
============ ============
Net income per share - basic $ 0.22 $ 0.11
============ ============
Net income per share - diluted $ 0.21 $ 0.11
============ ============
</TABLE>
See accompanying notes.
<PAGE> 4
InterVoice, Inc.
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
-------------------------- Additional Unearned Retained
Shares Amount Capital Compensation Earnings Total
---------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at February 28, 1999 28,728,016 $ 14,347 $ 1,719,699 $(649,612) $81,487,562 $82,571,996
Exercise of stock
options 130,155 63 634,778 -- -- 634,841
Amortization of unearned
compensation -- -- -- 43,308 -- 43,308
Net income -- -- -- -- 6,266,730 6,266,730
---------- ----------- ----------- ----------- ----------- -----------
Balance at May 31, 1999 28,858,171 $ 14,440 $ 2,354,477 $(606,304) $87,754,292 $89,516,875
========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE> 5
InterVoice, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
May 31, May 31,
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,266,730 $ 3,002,588
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization 3,190,957 2,608,640
Changes in operating assets
and liabilities: (2,106,660) (2,415,935)
------------ ------------
NET CASH FROM OPERATIONS 7,351,027 3,195,293
INVESTING ACTIVITIES
Purchase of property
and equipment (802,861) (1,347,123)
Purchased software (27,090) (13,993)
------------ ------------
Net cash used in investing activities (829,951) (1,361,116)
FINANCING ACTIVITIES
Exercise of stock options 634,841 401,307
Purchase of treasury stock -- (117,900)
------------ ------------
Net cash used in financing activities 634,841 283,407
------------ ------------
INCREASE IN CASH AND
CASH EQUIVALENTS 7,155,917 2,117,584
Cash and cash equivalents,
beginning of period 12,195,612 4,190,940
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 19,351,529 $ 6,308,524
============ ============
</TABLE>
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MAY 31, 1999
NOTE A - BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. The consolidated balance sheet at February 28, 1999 has been
derived from audited financial statements at that date. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation of the unaudited May 31, 1999 and 1998
consolidated financial statements have been included. Operating results for the
three month period ended May 31, 1999 are not necessarily indicative of the
results that may be expected for the year ending February 28, 2000 as they may
be affected by a number of factors, including the timing and ultimate receipt of
orders from significant customers which continue to constitute a large portion
of the Company's sales, the sales channel mix of products sold, and changes in
general economic conditions, any of which could have an adverse effect on
operations.
NOTE B - REVENUE RECOGNITION
The Company recognizes revenue for sales of systems which do not require
customization by the Company at the time of shipment. Revenue for systems which
require customization by the Company are recognized by the contract method of
accounting using percentage of completion for larger, more complex systems
(generally over a $500,000 sales price) and the completed contract method for
smaller systems. The Company recognizes revenue from services at the time the
service is performed or over the period of the contract for maintenance/support.
NOTE C - EARNINGS PER SHARE
The Company completed a two-for-one stock split in the form of a 100% stock
dividend on January 11, 1999. Basic and diluted earnings per share have been
retroactively adjusted to reflect the split.
<PAGE> 7
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
May 31, May 31,
1999 1998
----------- -----------
<S> <C> <C>
Numerator:
Net Income $ 6,226,730 $ 3,002,588
=========== ===========
Denominator:
Denominator for basic earnings per share
weighted average shares outstanding 28,748,268 27,711,126
----------- -----------
Effect of dilutive securities:
Employee Stock Options 1,591,292 504,234
Non-vested restricted stock 11,313 7,486
Dilutive potential common shares 1,602,605 511,720
----------- -----------
Denominator for diluted earnings per share 30,350,873 28,222,846
----------- -----------
Net income per common share - basic $ 0.22 $ 0.11
=========== ===========
Net income per common share - diluted $ 0.21 $ 0.11
=========== ===========
</TABLE>
Options to purchase 129,898 and 1,167,650 shares of common stock at average
prices of $11.94 and $8.30, respectively, were outstanding during the first
three months of fiscal 2000 and 1999, respectively, but were not included in the
computation of diluted earnings per share because the options' prices were
greater than the average market price of the Company's common shares during such
periods and, therefore, the effect would have been anti-dilutive.
NOTE D - OPERATING SEGMENT INFORMATION AND MAJOR CUSTOMERS
InterVoice is comprised of a single operating segment which develops, sells and
services call automation systems. The Company's Chief Operating Decision Maker
(CODM) assesses performance and allocates resources on an enterprise wide basis.
Therefore, no separately reportable operating segments exist.
The CODM monitors revenues based on customer markets, including Customer Premise
Equipment (CPE), Telecommunications (Telco) and geographic area. The CPE market
includes interactive voice response and customer relationship management systems
such as the Company's OneVoice(R) and AgentConnect (R) products.
<PAGE> 8
The Telco customer market focuses on systems for telecommunications network
operators and includes the Company's InControl(R) product. CPE and Telco
revenues are shown exclusive of system maintenance and software license fee
revenues. The Company's net revenues by customer market and geographic area were
as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
-------------------
May 31 May 31
Net Revenues by Customer Market: 1999 1998
------- -------
<S> <C> <C>
Customer Premise Equipment $26,875 $18,866
Telecommunications 9,555 7,868
Other 3,647 3,266
------- -------
Total $40,077 $30,000
======= =======
Geographic Area Net Revenues: 1999 1998
------- -------
United States $30,012 $21,585
The Americas (excluding the U.S.)* 6,023 5,607
Pacific Rim* 3,020 2,122
Europe, Middle East and Africa* 1,022 686
------- -------
Total $40,077 $30,000
======= =======
</TABLE>
*Represent export sales from the United States
No customer accounted for 10% or more of the Company's sales during the first
quarter of 1999 or 1998.
NOTE E - ACQUISITION OF BRITE VOICE SYSTEMS, INC.
On April 27, 1999, the Company signed a definitive merger agreement to acquire
all of the outstanding shares of Brite Voice Systems, Inc. (Brite). Pursuant to
the agreement, InterVoice will pay Brite shareholders $13.40 per Brite share, or
based on approximately 12.3 million shares of Brite common stock outstanding,
total consideration of approximately $164.4 million. Of this total,
approximately $122.7 million, or $10.00 per Brite share, will be in cash and
approximately $41.7 million, or $3.40 per Brite share, will be in shares of
InterVoice common stock. The merger will be accounted for as a purchase business
combination. The transaction is being executed in two steps. The first step was
an all cash tender offer at $13.40 per share, which closed on June 9, 1999.
Pursuant to the tender offer, the Company purchased approximately 75%, or 9.2
million shares, of Brite's common stock. The second step will consist of a
merger in which shares of Brite common stock not purchased in the cash tender
offer will be exchanged into shares of InterVoice common stock. The ratio of
exchange will be determined at the time of the merger based on the average
closing price of an InterVoice share for the preceding 25 trading days. This
transaction has been approved by the Boards of Directors of Brite and
InterVoice.
<PAGE> 9
In connection with this transaction, the Company has entered into a loan
agreement with Bank of America and nine other banks to provide a senior secured
credit facility amounting to $150 million, including a $125 million term loan
and a $25 million revolving credit agreement. The term loan agreement is subject
to scheduled repayments, as defined, during 2000-2003. The revolving credit
agreement will expire upon the earlier of the termination of the term loan, or
August 31, 2003. The cash required to service the facilities could have a
material impact upon the operating cash requirements of the Company for the
foreseeable future. At July 15, 1999, the Company had borrowed $135 million
under the agreement, at an average annual interest rate of 7.5%. Interest under
the credit facility accrues at a variable rate indexed to the prime rate or an
adjusted London Interbank Offering Rate. In connection with the new senior
secured credit facility, the Company terminated its $20 million credit facility
with Bank of America.
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations:
SALES. The Company's total sales of approximately $40.1 million in the
first quarter of fiscal 2000 increased approximately $10.1 million, or 34%, from
the same period of the previous year. The Company's domestic Customer Premises
Equipment (CPE) sales during the first quarter of fiscal 2000 rose to $23.7
million, an increase of 51% versus the same period of the previous year, and
constituted 59% of the Company's total sales. The increase in such sales is
primarily due to the Company's continued investment in product development,
expanding its distribution channels, increasing advertising and marketing
programs, and in hiring and training new and existing sales, service and
support personnel. International CPE sales in the amount of $3.2 million during
the quarter increased 2% versus the same period of the previous year, and
constituted 8% of the Company's total sales. Worldwide Telecommunications
(Telco) sales during the quarter were $9.6 million, a 21% increase versus the
same period of the previous year, and constituted 24% of the Company's total
sales. Such sales increased for the same reasons as the increase in domestic CPE
sales. Service sales in the amount of $3.6 million during the quarter increased
12% versus the same period of the previous year and constituted 9% of the
Company's total sales. The increase in service sales is the result of continued
increases in the Company's installed base of systems. No customer accounted for
10% or more of the Company's total sales during the quarter.
The Company anticipates a material increase in consolidated revenues and
earnings beginning in the second quarter of fiscal 2000 as a result of the
acquisition of 75% of the common stock of Brite Voice Systems, Inc. ("Brite")
during June 1999. The acquisition of Brite common stock, and the proposed merger
with Brite, are described below in the section entitled "Liquidity and Capital
Resources". Brite reported total sales and income from continuing operations of
$135,715,000 and $1,773,000, respectively, for the calendar year ended December
31, 1998 in its annual report on Form 10-K. In addition, the Company anticipates
a material increase in consolidated sales, general and administrative expenses,
research and development expenses and cost of goods sold as a result of the
acquisition.
COST OF GOODS SOLD. Cost of goods sold of approximately $15.3 million
during the first quarter of fiscal 2000 decreased to 38% of total sales from 42%
in the same period of the previous year. This was the result of increased sales
during the first quarter of fiscal 2000 and the Company's continued emphasis on
expense control.
RESEARCH AND DEVELOPMENT. Research and development expenses of
approximately $3.8 million during the first quarter of fiscal 2000 increased
approximately $0.5 million, or 17%, over the same period of the previous year.
Such expenses during the first quarter of fiscal 2000 included porting the
Company's InterSoft core software to the UNIX and Windows NT operating systems;
developing computer platform independent voice automation hardware and software;
further development of the Company's NSP 5000 platform; augmenting the Company's
speech recognition and voice verification capabilities; and the integration into
the Company's product offerings of the ESP product line purchased from
Integrated Telephony Products, Inc. and the computer telephony software suite
purchased from Dronen Consulting, Incorporated. Additionally, expenditures were
made for the ongoing development of the Company's OneVoice systems (the
Company's IVR system), AgentConnect (the Company's
<PAGE> 11
customer relationship management system), OneLink (a digital interface for
analog switches), and digital VocalCard software and hardware functionality.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased to approximately $11.4 million during the
first quarter of fiscal 2000 from approximately $9.5 million during the same
period of the previous year. As a percentage of the Company's total sales,
selling, general and administrative expenses decreased to 28.5% from 31.6%. The
Company has continued its measures to control selling, general and
administrative expenses, as a percentage of sales, within a targeted range.
OTHER INCOME/EXPENSE. Other income of approximately $0.1 million during
the first quarter of fiscal 2000 was primarily net interest income paid on the
Company's net cash reserves. Other expense of approximately $0.1 million during
the first quarter of fiscal 1999 was primarily net interest expense paid on its
short term borrowings.
INCOME FROM OPERATIONS. Operating income and net income during the
first quarter of fiscal 2000 were approximately $9.6 million and $6.3 million,
respectively, compared to $4.6 million and $3.0 million, respectively, during
the same period of the previous year. The increases in operating income and net
income are the result of increased sales and the Company's efforts to control
expenses.
LIQUIDITY AND CAPITAL RESOURCES. At May 31, 1999, the Company had cash reserves
of approximately $19.4 million while borrowings under the Company's unsecured,
revolving credit line with Bank of America were $5.0 million. Operating cash
flow during the quarter was approximately a positive $7.4 million. Net income
plus non-cash expensed items during the quarter totaled $9.5 million while an
increase in operating assets totaled $2.1 million. The increase in operating
assets was primarily attributable to a $1.7 million increase in inventories
required to support future sales. Days sales outstanding (DSO's) of accounts
receivable continue to be a focus for the Company. At May 31, 1999, DSO's were
95 days down from 98 days at February 28, 1999. Investing activities, primarily
the purchase of computer and test equipment, used approximately $0.8 million
while financing activities, primarily proceeds from the exercise of employee
stock options, contributed approximately $0.6 million to cash flow. Net cash
flow during the quarter was approximately a positive $7.2 million. The Company
did not increase its borrowings during the quarter. The Company believes its
cash reserves and internally generated cash flow will be sufficient to meet its
operating cash requirements for the foreseeable future. The Company reviews
acquisition opportunities from time to time and believes it has access to the
financial resources necessary to pursue attractive acquisition opportunities as
they arise. The term loan and revolving credit agreement discussed below
includes normal and customary provisions which limit the Company's ability to
make such acquisitions.
The Company completed a two-for-one stock split in the form of a 100% stock
dividend on January 11, 1999. Basic and diluted earnings per share have been
retroactively adjusted to reflect the stock split.
<PAGE> 12
On April 27, 1999, the Company signed a definitive merger agreement to acquire
all of the outstanding shares of Brite Voice Systems, Inc. (Brite). Pursuant to
the agreement, InterVoice will pay Brite shareholders $13.40 per Brite share, or
based on approximately 12.3 million shares of Brite common stock outstanding,
total consideration of approximately $164.4 million. Of this total,
approximately $122.7 million, or $10.00 per Brite share, will be in cash and
approximately $41.7 million, or $3.40 per Brite share, will be in shares of
InterVoice common stock. The merger will be accounted for as a purchase business
combination. The transaction is being executed in two steps. The first step was
an all cash tender offer at $13.40 per share, which closed on June 9, 1999.
Pursuant to the tender offer, the Company purchased approximately 75%, or 9.2
million shares, of Brite's common stock. The second step will consist of a
merger in which shares of Brite common stock not purchased in the cash tender
offer will be exchanged into shares of InterVoice common stock. The ratio of
exchange will be determined at the time of the merger based on the average
closing price of an InterVoice share for the preceding 25 trading days. This
transaction has been approved by the Boards of Directors of Brite and
InterVoice.
In connection with this transaction, the Company has entered into a loan
agreement with Bank of America and nine other banks to provide a senior secured
credit facility amounting to $150 million, including a $125 million term loan
and a $25 million revolving credit agreement. The term loan agreement is subject
to scheduled repayments, as defined, during 2000-2003. The revolving credit
agreement will expire upon the earlier of the termination of the term loan, or
August 31, 2003. The cash required to service the facilities could have a
material impact upon the operating cash requirements of the Company for the
foreseeable future. At July 15, 1999, the Company had borrowed $135 million
under the agreement, at an average annual interest rate of 7.5%. Interest under
the credit facility accrues at a variable rate indexed to the prime rate or an
adjusted London Interbank Offering Rate. In connection with the new senior
secured credit facility, the Company terminated its $20 million credit facility
with Bank of America.
A Registration Statement on Form S-4 as amended, file No. 333-79839 (the
"Registration Statement"), for the proposed merger between the Company and Brite
was filed with the Securities and Exchange Commission on July 13, 1999. This
quarterly report on Form 10-Q incorporates by reference the following sections
from the Registration Statement which further describe certain matters related
to the acquisition of Brite that could have a material impact upon the operating
cash requirements of the Company for the foreseeable future: (i) "The Merger
Financing Arrangements Related to the Merger" (pages 38-40) and "Risk Factors -
The bank loan to finance the Brite acquisition puts InterVoice at financial
risk" (pages 12-13); (ii) "Risk Factors - Failure or inability to successfully
integrate the operations and products of Brite could negatively impact
InterVoice's business" (page 13); (iii) "The Merger - AT&T Warrant" (page 45),
"The Merger - Brite Stock Option Plans" (page 43) and "Risk Factors - Certain
arrangements may have influenced the decision of Brite's board of directors to
recommend the merger" (page 18); and (iv) "The Merger - Fees and Expenses" (page
<PAGE> 13
45). The information is incorporated by reference and is deemed to be a part of
this quarterly report on Form 10-Q.
YEAR 2000 COMPLIANCE
Many installed computer systems used by numerous companies to run a variety of
applications are not capable of processing date sensitive information that falls
beyond the twentieth century. Unless these computer systems are replaced or
upgraded prior to the year 2000 to process such date sensitive information, the
systems may experience severe operating difficulties or system failures.
Beginning in fiscal 1996, the Company initiated a program to replace and upgrade
its information systems to accommodate the Company's growth, improve
productivity and remediate any century compliance problems. This program should
be substantially completed by July 1999.
Additionally, the Company has created a year 2000 project team to review and
test its information technology systems and non-information technology systems
and to resolve any century compliance issues that are found. The team also is
attempting to ensure that any replacements and upgrades to the Company's
information systems are century compliant before they are implemented. In this
regard, the team is continuing to work with third party vendors to assess the
year 2000 readiness of its information technology systems. The year 2000
readiness of the Company's information technology systems is, therefore,
partially dependent upon the accuracy of disclosures and representations made by
third party vendors, such as Oracle, PeopleSoft, MicroSoft, IBM and Dell
Computer. The Company anticipates that its testing and remediation program for
year 2000 issues with respect to mission-critical systems should be
substantially completed by August 1999. Because most of the expenditures to
replace and upgrade the Company's internal systems have been made and will be
incurred in the ordinary course of business (i.e., on a non-accelerated basis),
the Company does not anticipate that it will incur material incremental expenses
in connection with its year 2000 remedial efforts. As a result of the program to
replace and upgrade its internal systems, and the efforts of the year 2000
project team, the Company believes that its internal systems will be century
compliant prior to the year 2000. However, there is no assurance that the
Company will identify and resolve any and all century compliance problems with
its internal systems in a timely manner, that the expenses associated with such
remedial efforts will not be significant, or that such problems will not have a
material adverse effect on the Company's business, operating results and
financial condition.
The Company has created a detailed year 2000 testing program for its
mission-critical systems. During the first fiscal quarter, the Company completed
a century compliance testing and remediation program for its customer service
systems. The remaining mission-critical systems and applications are scheduled
for century compliance testing during the Company's second fiscal quarter ending
August 31, 1999. The commencement of the Company's fiscal year 2000 on March 1,
1999 helped to accelerate its year 2000 testing program, particularly for
mission-critical financial,
<PAGE> 14
manufacturing and order entry applications which process dates that reflect the
fiscal year end date (i.e., February 29, 2000).
In addition to assessing and testing internal business systems for year 2000
readiness issues, the Company is also in the process of reviewing its other
contingency plans for system failures that might arise in connection with the
millennium transition. The Company currently has certain disaster recovery
processes and procedures designed to allow it to continue critical business
operations in the event of a software or hardware failure, or the failure of
infrastructure services (i.e., electricity, telephone services, water transport,
internet services, etc.).
These disaster recovery processes and procedures generally involve manual "work
arounds" and alternate computerized solutions. The Company is in the process of
reviewing the adequacy of these processes and procedures in light of potential
century compliance issues. While the Company does not currently have a full
contingency plan for system failures that may occur in connection with the year
2000, the Company believes that a satisfactory contingency plan can be developed
for mission critical systems based, in part, on existing disaster recovery
programs. To assist with the development of a full contingency plan, the Company
is in the process of engaging a disaster recovery service company. As part of
the contingency plan, the Company has acquired an auxiliary power generator to
help operate mission-critical systems in the event of temporary power failures.
Based on a thorough review and testing of its software products and other
products, the Company believes that its current products are century compliant.
The Company began designating certain products as such in June 1997. The
Company's assessment of its current products is partially dependent upon the
accuracy of disclosures and representations concerning century compliance made
by its suppliers, such as MicroSoft, IBM and Dell Computer. However, many of the
Company's customers are using earlier versions of the Company's software
products and other products that may not be century compliant. The Company has
instituted programs to actively warn these customers of the risks associated
with using software and other products which may not be century compliant, and
to actively encourage such customers to migrate to the Company's current
products.
The Company's products are generally integrated with a customer's enterprise
system, which involves software products developed by other vendors. A customer
may mistakenly believe that century compliance problems with its enterprise
system are attributable to products provided by the Company. The Company may in
the future be subject to claims based on century compliance issues related to a
customer's enterprise system or other products provided by third parties, custom
modifications to the Company's products made by third parties, the Company's
earlier products which may not be completely century compliant, the Company's
performance and warranty obligations under customer contracts, or issues arising
from the customer's unique application or the integration of the Company's
products with other products. The Company has not been a party to any proceeding
involving its products or services in
<PAGE> 15
connection with century compliance issues, however, there is no assurance that
the Company will not in the future be required to defend its products or
services in such proceedings against claims of century compliance issues, and
any resulting liability of the Company for damages could have a material adverse
effect on the Company's business, operating results and financial condition.
As discussed above in the section entitled "Liquidity and Capital Resources",
the Company has acquired 75% of the common stock of Brite, and anticipates
acquiring the remaining stock in a merger described in the Registration
Statement. In connection with this acquisition, the Company is in the process of
reviewing Brite's products and internal systems for century compliance.
Based on recent discussions with current and potential customers, the Company
believes that the timing of purchases and implementations of call processing
systems may be influenced by year 2000 readiness issues. Year 2000 readiness
issues might encourage some customers to purchase new call processing systems,
or upgrades to existing systems, in order to ensure that they have century
compliant current systems. On the other hand, some customers may have to spend
significant amounts to remedy year 2000 readiness issues with their internal
computer systems not related to their call processing systems. These
expenditures could cause customers to delay or forego purchases of other
computerized systems, such as call processing systems. Some customers may also
choose to delay the implementation or purchase of new or upgraded computer
systems, including call processing systems, in order to stabilize their internal
operations and reduce the risk of introducing new year 2000 issues. Accordingly,
the Company believes that year 2000 issues may simultaneously encourage certain
customers to purchase call processing systems prior to the year 2000, and may
cause other customers to delay their purchases of call processing systems. If
year 2000 concerns lead to a net reduction in the Company's revenues, such a
reduction could have a material adverse effect on the Company's business,
financial condition and results of operations.
BRITE VOICE SYSTEMS, INC. SUBSIDIARY
As discussed above in the section entitled "Liquidity and Capital Resources",
the Company has acquired 75% of the common stock of Brite. The Company
anticipates acquiring the remaining stock of Brite in a merger described in the
Registration Statement discussed above. The Company's future success will depend
in part on its ability to efficiently integrate and operate Brite and its
products with the Company's business, and its ability to retain and assimilate
key employees of Brite. This quarterly report on Form 10-Q incorporates by
reference the following section from the Registration Statement which further
describes certain risks associated with assimilating Brite's business, products
and employees which could have a material impact on the Company's consolidated
operations: "Risk Factors--Failure or inability to successfully integrate the
operations and products of Brite could negatively impact InterVoice's business"
(page 13). The information is incorporated by reference and is deemed to be a
part of this quarterly report on Form 10-Q.
<PAGE> 16
FORWARD LOOKING STATEMENTS. This report on Form 10-Q 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 announcement 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. 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 2000, and beyond, to differ materially from
those expressed in any forward-looking statements made by or on behalf of the
Company:
o The Company faces intense competition based on product capabilities and
experiences 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. 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.
o Continued availability of suitable non-proprietary computing platforms and
system operating software that are compatible with the Company's products.
o 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.
o Increasing litigation with respect to the enforcement of patents,
copyrights and other intellectual property.
o The ability of the Company to retain its customer base and, in particular,
its more significant customers such as Siemens AG, an InterVoice
distributor, which accounted for over ten percent of the Company's total
sales during fiscal 1997, since such customers generally are not
contractually obligated to place further orders with the Company.
o Legislative and administrative changes and, in particular, changes
affecting the telecommunications industry, such as the Telecommunications
Act of 1996. While
<PAGE> 17
many industry analysts expect the Telecommunications Act of 1996 ultimately
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.
o 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,
and foreign governmental regulations that may limit or restrict the sales
of 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.
o The quantity and size of large sales (sales valued at approximately $1
million or more) during any fiscal quarter, which can cause wide variations
in the Company's sales and earnings on a quarter to quarter basis.
o 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.
o 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.
o Mergers and acquisitions between companies in the telecommunications and
financial industries which could result in fewer companies purchasing the
Company's products for telecommunications and banking applications, and/or
delay such purchases by companies that are in the process of reviewing
their strategic alternatives in light of a merger or acquisition.
o 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company invests cash balances in excess of operating requirements in
short-term securities, generally with maturities of 90 days or less. In
addition, the Company's current term loan and revolving credit agreement
provides for borrowings which bear interest at variable rates based on either a
prime rate, the federal funds rate or the London Interbank Offering Rate, plus
an applicable margin. As of July 15, 1999 the Company had $135 million
outstanding pursuant to the credit agreement. Due to the magnitude of this
credit facility, the Company believes that the effect of any reasonably
possible near-term changes in interest rates on the Company's financial
position, results of operations, and cash flows may be material.
<PAGE> 18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
27.1 Financial Data Schedule
99.1 Pages 12, 13, 18, 38-40, 43 and 45 of the Registration Statement
on Form S-4, as amended (incorporated by reference to pages 12, 13, 18,
38-40, 43 and 45 of the Registration Statement on Form S-4/A (Amendment
No. 1) filed by the Company on July 13, 1999).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERVOICE, INC.
Date: 07/15/99 By: /s/ ROB-ROY J. GRAHAM
---------------------------------
Rob-Roy J. Graham
Chief Financial Officer
(Chief Accounting Officer)
<PAGE> 19
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
27.1 Financial Data Schedule
99.1 Pages 12, 13, 18, 38-40, 43 and 45 of the Registration Statement
on Form S-4, as amended (incorporated by reference to pages 12,
13, 18, 38-40, 43 and 45 of the Registration Statement on Form
S-4/A (Amendment No. 1) filed by the Company on July 13, 1999).
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> MAY-31-1999
<CASH> 19,351,529
<SECURITIES> 0
<RECEIVABLES> 42,217,253
<ALLOWANCES> 1,575,280
<INVENTORY> 13,426,018
<CURRENT-ASSETS> 83,284,229
<PP&E> 50,463,881
<DEPRECIATION> 25,148,474
<TOTAL-ASSETS> 117,380,684
<CURRENT-LIABILITIES> 21,507,367
<BONDS> 0
0
0
<COMMON> 14,410
<OTHER-SE> 89,502,465
<TOTAL-LIABILITY-AND-EQUITY> 117,380,684
<SALES> 40,076,761
<TOTAL-REVENUES> 40,076,761
<CGS> 15,347,128
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 648,054
<INTEREST-EXPENSE> 50,823
<INCOME-PRETAX> 9,567,526
<INCOME-TAX> 3,300,796
<INCOME-CONTINUING> 6,266,730
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,266,730
<EPS-BASIC> 0.22
<EPS-DILUTED> 0.21
</TABLE>
