<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 2, 1999
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-K/A
(AMENDMENT NO. 1)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
---------- ----------
--------------
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:
(972) 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 26,
1999: $320,525,734
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF MAY 26, 1999:
28,811,257
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 1999 ANNUAL MEETING OF SHAREHOLDERS - PART III.
================================================================================
<PAGE> 2
Item 6 and Item 8 of InterVoice's Annual Report on Form 10-K for the fiscal
year ended February 28, 1999 are hereby amended and restated as follows:
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 in conjunction 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 28, 1999 are derived from the
consolidated financial statements of InterVoice, Inc., which financial
statements have been audited by Ernst & Young LLP, independent auditors. The
consolidated financial statements as of February 28, 1999 and 1998, and for each
of the three years in the period ended February 28, 1999 and the report of Ernst
& Young LLP thereon, are included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 29/28
---------------------------------------------------------------------------------
1999 1998** 1997*** 1996 1995****
---- ------ ------- ---- --------
<S> <C> <C> <C> <C> <C>
Net Sales $ 136,904,131 $ 102,307,713 $ 104,845,692 $ 97,103,054 $ 76,265,228
Income (Loss) from Operations 29,148,484 (8,427,179) 17,548,615 25,054,742 9,304,113
Net Income (Loss) 20,192,916 (5,139,846) 12,760,481 17,259,358 2,533,580
Total Assets 111,529,501 84,893,475 109,239,759 89,726,806 62,718,565
Long Term Debt 5,000,000 -- -- -- --
Per Diluted Common Share:
Net Income (Loss) .68 (.17) .39 .53 .08
Cash Dividend -- -- -- -- --
Shares used in Per Diluted Common
Share Calculation* 29,772,504 31,032,672 33,182,320 32,798,866 33,519,312
</TABLE>
*The number of diluted common shares have been restated to reflect a 2 for 1
stock split in the form of a 100% stock dividend paid January 11, 1999.
2
<PAGE> 3
**Fiscal 1998 net sales, loss from operations and net loss were impacted by
adoption of the American Institute of Certified Public Accountants' Statement
of Position 97-2 (SOP 97-2), tightening of certain of the Company's credit
practices, non-recurring expense items and a non-recurring charge resulting
from a portion of the price paid by the Company to Integrated Telephony
Products, Inc. for its ESP product line having been attributed to in-process
research and development. Without these items, net sales in fiscal 1998 would
have been $107.8 million. Income from Operations would have been $2.6 million,
and net income would have been $2.4 million, or $0.08 per share.
***Fiscal 1997 income from operations and net income were impacted by charges
totaling approximately $1.8 million and $1.3 million, respectively, or $0.04 per
share, resulting from a non-recurring litigation settlement. Without this
charge, net income for fiscal 1997 would have been $0.43 per share.
****Fiscal 1995 income from operations and net income were impacted by a
non-recurring charge totaling approximately $10.5 million, or $0.32 per share,
associated with a significant portion of the purchase price of VoicePlex
Corporation having been attributed to in-process research and development.
Without this charge, earnings for fiscal 1995 would have been $0.40 per share.
3
<PAGE> 4
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 28, 1999 and for each of the
three years in the period ended February 28, 1999 follow:
4
<PAGE> 5
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
InterVoice, Inc.
We have audited the accompanying consolidated balance sheets of InterVoice, Inc.
and subsidiaries as of February 28, 1999 and 1998 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended February 28, 1999. 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 28, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended February 28, 1999, 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 7, 1999, except for Note O,
as to which the date is April 27, 1999
5
<PAGE> 6
InterVoice, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
February 28 February 28
ASSETS 1999 1998
- ---------------------------------------------------- ------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 12,195,612 $ 4,190,940
Accounts and notes receivable, net of allowance
for doubtful accounts of $1,305,581 in 1999 and
$368,005 in 1998 42,156,004 26,040,332
Inventory 11,704,428 9,343,338
Prepaid expenses and other current assets 4,497,764 4,490,813
Deferred income taxes 4,513,769 2,325,745
------------- -------------
75,067,577 46,391,168
PROPERTY AND EQUIPMENT
Building 16,300,325 16,249,914
Computer equipment 24,839,081 24,496,337
Furniture, fixtures and other 3,599,873 3,756,164
Service equipment 5,071,153 4,582,221
------------- -------------
49,810,432 49,084,636
Less allowance for depreciation 22,755,583 16,736,766
------------- -------------
27,054,849 32,347,870
OTHER ASSETS
Intangible assets, net of amortization
of $3,416,433 in 1999 and
$1,679,113 in 1998 9,407,075 6,154,437
------------- -------------
$ 111,529,501 $ 84,893,475
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 11,857,317 $ 10,491,913
Customer deposits 4,095,776 2,625,498
Deferred income 5,625,799 5,500,743
Short term borrowings -- 9,000,000
Income taxes payable 1,022,171 --
------------- -------------
22,601,063 27,618,154
DEFERRED INCOME TAXES 1,356,442 644,803
LONG TERM BORROWINGS 5,000,000 --
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: 28,728,016 issued and
outstanding in 1999 and 19,503,291 issued,
13,802,491 outstanding in 1998 14,347 9,726
Additional capital 1,719,699 44,314,685
Unearned Compensation (649,612) --
Treasury stock - at cost -- (50,202,999)
Retained earnings 81,487,562 62,509,106
------------- -------------
82,571,996 56,630,518
------------- -------------
$ 111,529,501 $ 84,893,475
============= =============
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
InterVoice, Inc.
Consolidated Statements Of Operations
<TABLE>
<CAPTION>
Year Ended February 28
1999 1998 1997
----------------------------------------------------
<S> <C> <C> <C>
Sales $ 136,904,131 $ 102,307,713 $ 104,845,697
Cost of Goods Sold 54,191,257 48,854,519 40,131,308
------------- ------------- -------------
Gross Margin 82,712,874 53,453,194 64,714,389
Research and development expenses 13,285,063 12,688,638 11,652,934
Selling, general and administrative expenses 40,279,321 42,374,242 33,712,840
Non recurring expense -- 6,817,493 1,800,000
------------- ------------- -------------
Income (Loss) From Operations 29,148,484 (8,427,179) 17,548,615
Other income - net (352,888) 783,643 680,644
------------- ------------- -------------
Income (Loss) Before Income Taxes (Benefit) 28,795,596 (7,643,536) 18,229,259
Income Taxes (Benefit)
Current 10,079,215 (546,949) 4,191,807
Deferred (1,476,535) (1,956,741) 1,276,971
------------- ------------- -------------
Income Taxes (Benefit) 8,602,680 (2,503,690) 5,468,778
------------- ------------- -------------
Net Income (Loss) $ 20,192,916 $ (5,139,846) $ 12,760,481
============= ============= =============
Net income (loss) per share - basic $ .72 $ (0.17) $ 0.39
============= ============= =============
Net Income (loss) per share - diluted $ .68 $ (0.17) $ 0.38
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
7
<PAGE> 8
InterVoice, Inc.
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock
-------------------- Additional Unearned Treasury Retained
Shares Amount Capital Compensation Stock Earnings Total
--------------------- ----------- ------------ -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
February 29, 1996 15,984,206 $ 9,460 $ 39,103,070 $ (436,281) $ (24,003,245) $ 54,888,471 $ 69,561,475
Exercise of
stock options 344,083 194 2,710,623 -- -- -- 2,710,817
Tax benefit from
exercise of stock
options -- -- 562,340 -- -- -- 562,340
Issuance of
restricted stock 25,684 13 652,747 (57,353) -- -- 595,407
Net income -- -- -- -- -- 12,760,481 12,760,481
----------- -------- ------------ ------------ ------------- ------------ -------------
Balance at
February 28, 1997 16,353,973 $ 9,667 $ 43,028,780 $ (493,634) $ (24,003,245) $ 67,648,952 $ 86,190,520
Exercise of
stock options 97,622 33 752,805 -- -- -- 752,838
Tax benefit from
exercise of stock
options -- -- 246,653 -- -- -- 246,653
Issuance of
restricted stock,
net of forfeitures (8,769) (4) (213,523) 493,634 -- -- 280,107
Issuance of stock to
purchase software 60,465 30 499,970 -- -- -- 500,000
Purchase of treasury
stock, net (2,700,800) -- -- -- (26,199,754) -- (26,199,754)
Net loss -- -- -- -- -- (5,139,846) (5,139,846)
----------- -------- ------------ ------------ ------------- ------------ -------------
Balance at
February 28, 1998 13,802,491 $ 9,726 $ 44,314,685 $ -- $ (50,202,999) $ 65,509,106 $ 56,630,518
=========== ======== ============ ============ ============= ============ =============
Issuance of stock to
purchase software 75,000 $ 38 $ 1,518,712 -- -- -- $ 1,518,750
Exercise of stock
options 783,680 411 7,444,497 -- -- -- 7,444,908
Tax benefit from
exercise of stock
options -- -- 2,612,234 -- -- -- 2,612,234
Issuance of restricted
stock 46,914 23 692,897 (649,612) -- -- 43,308
Purchase of treasury
stock, net (294,000) -- -- -- $ (5,870,638) -- (5,870,638)
Stock split in form of
100% dividend 14,313,931 $ 4,149 $(54,863,326) -- $ 56,073,637 $ (1,214,460) --
Net income -- -- -- -- -- 20,192,916 20,192,916
----------- -------- ------------ ------------ ------------- ------------ -------------
Balance at
February 28, 1999 28,728,016 $14,347 $ 1,719,699 $ (649,612) -- $ 81,487,562 $ 82,571,996
=========== ======== ============ ============ ============= ============ =============
</TABLE>
See notes to consolidated financial statements.
8
<PAGE> 9
InterVoice, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended February 28/29
1999 1998 1997
------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income (loss) $ 20,192,916 $ (5,139,846) $ 12,760,481
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Purchased research and development -- 1,750,000 --
Depreciation and amortization 11,012,637 9,710,597 4,946,376
Deferred income taxes (benefit) (1,476,535) (1,956,741) 1,276,971
Provision for doubtful accounts 1,037,588 291,491 397,739
Provision for slow moving inventories 1,800,000 1,935,067 1,200,000
Disposal of equipment -- 595,760 89,447
Write off of intangible assets 168,789 2,802,423 --
Changes in operating assets and liabilities:
Accounts receivable (17,153,260) 7,174,924 (9,200,060)
Inventories (4,161,089) 36,980 (671,365)
Prepaid expenses and other assets 3,131,224 (420,265) (3,520,298)
Accounts payable and accrued expenses 1,586,092 (2,622,499) 1,097,596
Customer deposits 1,470,276 (778,241) 876,225
Deferred income 125,056 505,512 920,132
Other 318,754 493,634 595,407
------------ ------------ ------------
18,052,448 14,378,796 10,768,651
Investing Activities
Purchases of property and equipment (3,982,298) (9,239,831) (8,545,318)
Increase in other assets (3,639,748) (8,449,606) (4,346,102)
------------ ------------ ------------
(7,622,046) (17,689,437) (12,891,420)
Financing Activities
Borrowings under line of credit -- 9,000,000 --
Repayments on line of credit (4,000,000) -- --
Purchase of treasury stock (5,870,638) (26,199,754) --
Exercise of stock options 7,444,908 539,311 2,710,817
------------ ------------ ------------
(2,425,730) (16,660,443) 2,710,817
------------ ------------ ------------
Increase (Decrease) In Cash and Cash Equivalents 8,004,672 (19,971,084) 588,048
Cash and Cash Equivalents, Beginning of Year 4,190,940 24,162,024 23,573,976
------------ ------------ ------------
Cash and Cash Equivalents, End of Year $ 12,195,612 $ 4,190,940 $ 24,162,024
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
9
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - DESCRIPTION OF BUSINESS
InterVoice, Inc. (together with its subsidiaries, collectively referred to as
"InterVoice" or the "Company") develops, sells and services call automation
systems. The Company's historical emphasis has been on interactive voice
response ("IVR") systems, which allow individuals a self help facility using
their telephones, personal computers, credit card terminals or voices to access
and/or provide information to computer data bases utilized by businesses. More
recently, the Company has focused on systems for telecommunications network
operators which provide a variety of automated services such as processing
collect and credit card calls, and advanced calling features such as prepaid
calling cards, voice and text messaging, one number personal numbering plans
and voice dialing. In the last year, the Company has increased its emphasis on
customer relationship management systems which provide companies automated
customer service, telemarketing capabilities and the ability to generate sales
without human interaction, (i.e., v-commerce and e-commerce). The Company's
products include software development tools designed to support a number of
diverse product applications and to simplify system customization. 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.
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 approximates fair market
value.
INVENTORIES: Inventories, primarily system components, are valued at the lower
of cost or market with cost determined on a first-in, first-out basis. Amounts
presented are net of inventory obsolescence reserves totaling $1,204,526 and
$1,360,000 at February 28, 1999 and 1998, 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. The range of useful lives by major category are:
buildings: 5 to 40 years; computer equipment: 3 to 5 years; furniture, fixtures
and other: 5 years; and service equipment: 3 years. Depreciation expense
totaled $9,260,774, $8,573,956 and $4,124,289 in fiscal 1999, 1998 and 1997,
respectively. The large increase in depreciation expense in fiscal 1998 versus
the prior fiscal year is associated with the purchase and implementation of a
new Oracle based, enterprise-wide management information system. This year 2000
compliant system is expected to support the Company's future growth.
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 twelve years. Amortization expense for these items totaled $1,751,863,
$1,136,641 and $822,087 in fiscal 1999, 1998 and 1997, respectively. The
increase in amortization expense in fiscal 1999 versus prior fiscal years is
associated with the start of amortization of the assets purchased from
Integrated Telephony products, Inc. and Dronen Consulting, Incorporated (see
Note C).
Costs of internally developed software products and substantial enhancements to
existing software products are expensed until technological feasibility is
established, at which time any additional costs would be capitalized in
accordance with Statement of Financial Accounting Standards (SFAS) No. 86.
Technological feasibility of a computer software product is established when
the Company has completed all planning designing, coding, and testing
activities that are necessary to establish that the product can be produced to
meet its design specifications
10
<PAGE> 11
including functions, features, and technical performance requirements. No costs
have been capitalized to date for internally developed software products and
enhancements as the Company's current process for developing software is
essentially completed concurrently with the establishment of technological
feasibility. The Company capitalizes purchased software upon acquisition when
such software is technologically feasible or if it has an alternative future
use, such as use of the software in different products, resale of the purchased
software, or use of the software internally.
IMPAIRMENT OF ASSETS: The Company records impairment losses on long-lived
assets used in operations when events and circumstances indicate that the
assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets.
REVENUE RECOGNITION: The Company recognizes revenue at the time of shipment for
sales of systems which do not require customization to be performed by the
Company. Subsequent to December 1, 1997, revenue for systems which require
customization to be performed 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). Progress toward completion is
measured using work hours or days incurred as a percentage of total estimated
hours or days for each contract. Unbilled receivables accrued under percentage
of completion contracts amounted to $5.8 million and $0 at February 28, 1999
and 1998, respectively. The completed contract method is used for smaller
systems. Prior to December 1, 1997, the Company recognized revenue on systems
requiring customization to be performed by the Company at the date of shipment
or at the point after shipment when the remaining obligations of the Company
became insignificant. The change in accounting was required by the American
Institute of Certified Public Accountant's Statement of Position 97-2 which was
required to be applied prospectively for transactions entered into after the
Company's December 1, 1997 date of adoption. No restatement of prior periods or
cumulative effect adjustment was permitted.
The Company recognizes revenue from services at the time the service is
performed or over the period of the contract for maintenance/support.
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.
RECLASSIFICATIONS: Certain prior year balances have been reclassified to
conform to current year presentation.
NOTE C - INTANGIBLE ASSETS
On September 15, 1998, the Company purchased a computer telephony software
suite from Dronen Consulting, Incorporated for $3,533,723 in cash and 75,000
shares of the Company's stock valued at $1,518,750. The transaction was
accounted for as an asset purchase. The full purchase price of $5,052,473 is
being amortized over the software suite's estimated useful life of five years.
The Company purchased the Enhanced Services Platform (ESP) product line and
certain other assets from Integrated Telephony Products, Inc. on February 26,
1998 in a transaction accounted for as a purchase. This purchase price of
$5,188,071 was comprised of $4,612,500 in cash, Company common stock valued at
$500,000 and other direct acquisition costs totaling $75,571. 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 two purchased research and development projects. The amount
allocated to the purchased research and development projects was expensed at
the time of acquisition as the Company determined that the purchased research
and development projects had not reached technological feasibility based on the
status of design and development activities that required further refinement
and testing. To determine the fair market value of the in-process research and
development projects, the Company used a risk adjusted income approach, in
which fair market value is a function of the future revenues expected to be
generated by an asset, net of all allocable expenses. In determining the amount
of the purchase price to allocate to the purchased research and development
projects, factors such as stage of completion and technological uncertainties
were considered by the Company in determining the present value of the future
benefits to be received. The development activities required to complete the
acquired in-process research and development
11
<PAGE> 12
projects included additional coding, cross-platform porting and validation,
quality assurance procedures and beta testing. The estimated future cost of
completing these activities was expected to be approximately $1 million to be
incurred over the next 12 months. Revenue streams from the resulting products
are expected to begin in fiscal 2000 and were projected forward for five years
in the risk adjusted income analysis. This allocation resulted in a $1,155,000
charge, net of taxes, to the Company's operations in fiscal year 1998. The
remaining purchase price was allocated, based on appraisals, to software
($3,113,643), net tangible assets ($324,428), and deferred tax assets
($595,000).
In connection with the review of its portfolio of intangible assets during
fiscal 1998, the Company wrote off certain items as a result of re-examining
its human resource allocation, product development plans and infrastructure
requirements. Previously capitalized third party product development costs
totaling approximately $1.3 million were written off in line with the Company's
strategy to narrow its product development focus. Previously capitalized third
party development costs of approximately $1.5 million associated with
inefficient, stand alone system configuration software were written off as the
Company's new management information systems (see Note B) have enabled it to
develop and integrate system configuration capabilities which, previously, were
addressed by the stand alone system.
NOTE D - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at February 28:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Accounts payable $ 7,650,940 $ 7,766,531
Accrued compensation 3,018,566 1,575,534
Other 1,187,811 1,149,848
----------- -----------
$11,857,317 $10,491,913
=========== ===========
</TABLE>
NOTE E - REVOLVING CREDIT AGREEMENT
The Company has an unsecured revolving credit agreement with Bank of America in
the amount of $20,000,000 which expires November 18, 2001. At February 28, 1999
and 1998, the Company had borrowed $5,000,000 and $9,000,000, respectively,
under the agreement at an average annual interest rate of 5.8% and 8.5%,
respectively. Interest under the credit arrangement accrues at a variable rate
indexed to the prime rate or an adjusted LIBOR rate. The fair value of this
debt approximates its carrying value at February 28, 1999 and 1998.
NOTE F - INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities are
as follows at February 28:
<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C>
Deferred tax assets:
Unicap $ 682,349 $ 83,713
Allowance for slow moving inventories 542,768 240,066
Deferred revenue 994,191 1,155,371
Accrued expenses 120,071 213,809
Allowance for doubtful accounts 383,691 139,566
Book over tax depreciation/amortization 2,650,410 2,227,807
Charitable contribution carryforward 327,057 955,800
Other 328,414 493,220
Valuation Allowance -- (955,800)
---------- -----------
Total deferred tax assets 6,028,951 4,553,552
---------- -----------
Deferred tax liabilities:
Capitalized Software 2,814,870 2,683,412
Prepaid assets 54,001 186,366
Other 2,752 2,831
---------- -----------
Total deferred tax liabilities 2,871,623 2,872,609
---------- -----------
Net deferred tax assets $3,157,328 $ 1,680,943
========== ===========
</TABLE>
12
<PAGE> 13
Details of the income tax provision are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- ----------
<S> <C> <C> <C>
Income tax provision (benefit):
Current:
Federal $ 9,232,485 $ (496,864) $4,137,807
State 846,730 (50,085) 54,000
------------ ----------- ----------
Total current 10,079,215 (546,949) 4,191,807
Deferred:
Federal (1,406,230) (1,805,826) 1,156,811
State (70,305) (150,915) 120,160
------------ ----------- ----------
Total deferred (1,476,535) (1,956,741) 1,276,971
------------ ----------- ----------
Total $ 8,602,680 $(2,503,690) $5,468,778
============ =========== ==========
</TABLE>
A reconciliation of the United States Federal statutory rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
$ % $ % $ %
---------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes at statutory rates 10,078,459 35.0 (2,598,802) (34.0) 6,380,240 35.0
Research and development tax credit (636,509) (2.2) (282,628) (3.7) 244,000 1.3
Tax exempt interest (509) -- (100,727) (1.3) (175,588) (1.0)
State taxes, net of federal benefit 597,693 2.1 (275,492) (3.6) 35,100 0.2
Foreign loss not benefited -- -- -- -- 132,684 0.7
Foreign sales corp. (benefit)/expense (193,609) (0.7) 24,107 0.3 (544,036) (3.0)
Write-off foreign subsidiary
stock/debt -- -- -- -- (792,517) (4.2)
Charitable contributions in excess of
statutory limitation -- -- 550,147 7.2 -- --
Charitable contributions not
previously benefited (628,743) (2.2) -- -- -- --
Change in valuation allowance (327,057) (1.1) -- -- -- --
Other (287,045) (1.0) 179,705 2.3 188,895 1.0
---------- ------ ---------- ------ ---------- ------
8,602,680 29.9 (2,503,690) (32.8) 5,468,778 30.0
========== ====== ========== ====== ========== ======
</TABLE>
Income taxes, net of refunds, of $515,519, 2,175,000 and $6,587,097 were paid
in fiscal 1999, 1998 and 1997, respectively.
NOTE G - STOCKHOLDERS' EQUITY
STOCK SPLIT
The Company executed a two-for-one stock split in the form of a stock dividend
during fiscal 1999 in which one share of common stock was issued on January 11,
1999 to each holder of stock as of the record date of December 28, 1998. In
connection with the stock split, 14,313,931 shares were issued; 5,994,800
shares from treasury and 8,319,131 newly issued shares. All per share and
weighted average share amounts have been restated to reflect this stock split.
EMPLOYEE INCENTIVE OPTION PLANS
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
13
<PAGE> 14
share are the fair market value per share of stock, based on the closing per
share price on the date of grant. The Company has granted options at various
dates with terms under which the options become exercisable at the rate of 20%,
25% or 33% per year. Options becoming exercisable at 33% per year are
exercisable for six or ten years after the date of grant. Options becoming
exercisable at 20% or 25% per year are exercisable for ten years after the date
of grant.
<TABLE>
<CAPTION>
OPTION PRICE WEIGHTED AVERAGE EXERCISE
SHARES PER SHARE PRICE PER SHARE
------ --------- ---------------
<S> <C> <C> <C>
Balance at February 28, 1996 3,322,248
Granted 1,208,600 $5.94 to $13.63 $10.79
Exercised (571,472) $1.03 to $9.63 $9.11
Forfeited (371,576) $3.82 to $13.13 $8.37
----------
Balance at February 29, 1997 3,587,800
Granted 2,121,490 $3.75 to $5.69 $4.98
Exercised (98,390) $1.64 to $4.25 $3.52
Forfeited (2,184,012) $1.03 to $13.63 $9.20
----------
Balance at February 28, 1998 3,426,888
Granted 881,200 $4.50 to $4.88 $4.85
Exercised (1,320,956) $1.66 to $9.38 $4.95
Forfeited (150,314) $3.75 to $13.94 $4.94
----------
Balance at February 28, 1999 2,836,818
==========
</TABLE>
A total of 627,923 and 1,178,028 employee options were exercisable at average
prices of $8.54 and $5.98 at February 28, 1999, and 1998, respectively.
1998 EMPLOYEE NON-QUALIFIED PLAN
During fiscal 1999, the Company adopted a stock option plan under which shares
of common stock may be authorized for issuance by the Compensation Committee of
the Board of Directors as non-qualified stock options to key employees. Option
prices per share are the fair market value per share of stock, based on the
closing price per share on the date of grant. The Company has granted options
at various dates with terms under which the options become exercisable at a
rate of 25% or 33% per year and are exercisable for a period of ten years after
the date of grant.
<TABLE>
<CAPTION>
Weighted Average
Shares Option Price Exercise Price Per Share
------ ------------ ------------------------
<S> <C> <C> <C>
Balance at February 28, 1998 --
Granted 1,029,500 $4.88 to $13.13 $6.29
Forfeited (50,000) $4.88 to $11.31 $6.61
---------
Balance at February 28, 1999 979,500
=========
</TABLE>
As of February 28, 1999, no options were exercisable under this plan.
1990 NON-EMPLOYEE OPTION PLAN
A stock option plan is in effect under which nonqualified stock options 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, based on the closing per share price on the date of grant.
Each option becomes exercisable within the period specified in the optionee's
agreement and is exercisable for 10 years from the date of grant.
<TABLE>
<CAPTION>
Weighted Average
Shares Option Price Exercise Price Per Share
------ ------------ ------------------------
<S> <C> <C> <C>
Balance at February 29, 1996 92,000
Granted 52,000 $6.97 $6.97
Exercised (44,000) $4.25 $4.25
-------
Balance at February 28, 1997 100,000
Granted 60,000 $4.88 $4.88
-------
Balance at February 28, 1998 160,000
Granted 32,000 $9.00 $9.00
Exercised (65,000) $3.06 to $7.56 $5.32
-------
Balance at February 28, 1999 127,000
=======
</TABLE>
14
<PAGE> 15
A total of 95,000 and 100,000 non-employee options were exercisable at average
prices of $7.00 and $7.19 at February 28, 1999 and 1998, respectively.
For all option plans at February 28, 1999, options for 508,802 shares of common
stock were available for future grant.
EMPLOYEE STOCK PURCHASE PLAN
The Company has adopted an Employee Stock Purchase Plan under which an
aggregate of 1,000,000 shares of common stock may be issued. Options are
granted 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 beginning either December 1 or June 1 and ending on the following
November 30 and May 31, respectively. 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.
<TABLE>
<CAPTION>
Shares Weighted Average
------ Exercise Price per share
------------------------
<S> <C> <C>
Balance at February 28, 1996 96,122 $ 7.37
Granted 141,274 $ 6.12
Exercised (72,694) $ 4.86
Forfeited (23,428) $ 8.61
-------
Balance at February 28, 1997 141,274
Granted 164,424 $ 4.42
Exercised (96,854) $ 4.10
Forfeited (44,420) $ 6.46
-------
Balance at February 28, 1998 164,424
Granted 88,468 $ 8.61
Exercised (128,164) $ 9.25
Forfeited (36,260) $ 4.51
-------
Balance at February 28, 1999 88,468
=======
Grant price per option outstanding $5.71 or $11.24
</TABLE>
As of February 28, 1999, no options were exercisable under this plan.
RESTRICTED STOCK PLAN
During fiscal 1996, the Company adopted a Restricted Stock Plan under which an
aggregate of 1,000,000 shares may be issued. 184,570 shares have been allocated
to three senior executives to be earned based on the achievement of certain
targeted share prices and the continued service of each executive for a
two-year period after each target is met. The remaining shares are available
for annual grants to other key executives as a component of their annual
bonuses on the achievement of targeted annual earnings per share objectives and
the completion of an additional two years of service after the grant. Activity
related to restricted stock during fiscal 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Senior Executive Plan Key Executive Plan
--------------------- ------------------
<S> <C> <C>
Balance at February 28, 1996 61,522 --
Granted 61,522 9,574
Forfeited (18,456) (1,272)
------- -----
Balance at February 28, 1997 104,588 8,302
Forfeited (15,380) (2,158)
------- -----
Balance at February 28, 1998 89,208 6,144
Granted 46,914 --
------- -----
Balance at February 28, 1999 136,122 6,144
======= =====
</TABLE>
15
<PAGE> 16
The weighted average share price for grants during fiscal year 1997 was $10.64
for the Senior Executive Plan and $14.72 for the Key Executive Plan. Shares
forfeited in fiscal 1998 and 1997 had been granted at a weighted average share
price of $11.17 and $10.90, respectively. There was no activity for this plan
during fiscal 1999. At February 28, 1999, approximately 857,086 shares are
reserved for future restricted stock grants.
OTHER STOCK AWARD PLAN DISCLOSURES
Because the Company has elected to continue to apply the provisions of APB 25
for expense recognition purposes, Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation", ("FAS 123") requires
disclosure of pro forma information which provides the effects on Net income
and Net Income per share as if the Company had accounted for its employee stock
awards under fair value methods prescribed by FAS 123. The fair value of the
Company's employee stock awards was estimated using a Black-Scholes option
pricing model with the following weighted-average assumptions for fiscal 1999,
1998 and 1997, respectively: risk-free interest rates of 5.38%, 6.48% and
6.39%; stock price volatility factors of .75, .49 and .66; and expected option
lives of 3.52 years, 4.3 years and 4.1 years. The Company does not have a
history of paying dividends, and none have been assumed in estimating the fair
value of the options. The weighted-average fair value per share of options
granted in fiscal 1999, 1998 and 1997 was 3.26, 1.98 and 5.91, respectively.
Required Pro Forma Disclosures:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income (loss) $15,472,916 $(8,726,923) $10,795,850
Income (loss) per share basic $0.55 $(0.28) $0.34
Income (loss) per share diluted $0.52 $(0.28) $0.33
</TABLE>
As required by FAS 123, only awards granted after fiscal 1995 have been
included in determining the amount of additional compensation expense for those
years. As such, the effects of applying FAS 123 on fiscal 1999, 1998 and 1997
results are not necessarily representative of the additional compensation
expense which will be included in future years' pro forma disclosures as more
than two years of awards will be considered.
Options Outstanding at February 28, 1999
<TABLE>
<CAPTION>
Weighted Average Weighted average
Exercise Prices Shares Exercise price Remaining contractual life in years
--------------- --------- ---------------- -----------------------------------
<S> <C> <C> <C>
$3.06 - $5.00 2,804,712 $ 4.90 8.40
$5.68 - $9.38 593,976 7.40 8.00
$10.38 - $13.63 633,098 $10.77 3.44
---------
4,031,786
=========
</TABLE>
Options Exercisable at February 28, 1999
<TABLE>
<CAPTION>
Weighted average Weighted average
Exercise Prices Shares Exercise price Remaining contractual life in years
--------------- ------- ---------------- ------------------------------------
<S> <C> <C> <C>
$3.06 - $5.00 238,817 $4.68 6.77
$5.68 - $9.38 78,906 $7.37 5.26
$10.38 - $13.63 405,200 $10.68 3.14
-------
722,923
=======
</TABLE>
PREFERRED SHARE PURCHASE RIGHTS
One Preferred Share Purchase Right is attached to each outstanding share of the
Company's common stock. The rights will become exercisable upon the earlier to
occur of ten days after the first public announcement that a person or group has
acquired beneficial ownership of 20 percent or more, or ten days after a person
or group 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
eight-hundredth of a share of Series A Preferred Stock for $37.50, subject to
adjustment. If the Company is acquired in a business combination transaction
while the
16
<PAGE> 17
rights are outstanding, each right will entitle its holder to purchase, for
$37.50, common shares of the acquiring company having a market value of $75. 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
$37.50, a number of shares of the Company's common stock having a market value
of $75. 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 $0.00125. 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.
NOTE H - TREASURY STOCK
Pursuant to authorizations by the Company's Board of Directors, the Company
repurchased 294,000 and 2,700,800 shares of its common stock during fiscal 1999
and 1998, respectively, at an average price per share of $19.97 and $9.70,
respectively. All shares held in treasury were reissued as a part of the
two-for-one stock split paid in the form of a stock dividend which took place
on January 11, 1999.
NOTE I - NON-RECURRING EXPENSES
During fiscal 1998, the Company incurred non-recurring expenses of
approximately $6.8 million including the following: $1.0 million associated
with certain personnel matters, including the resignation of the Company's
former President and Chief Operating Officer, $1.0 million to provide for
potential inventory obsolescence, and $3.0 million to write off certain
intangible assets (see Note B). Additionally, the Company wrote off as
in-process research and development approximately $1.8 million of the purchase
price paid to Integrated Telephony Products, Inc. for its ESP product line (see
Note C).
The Company incurred a one-time charge of approximately $1.8 million in
connection with the settlement of certain litigation during fiscal 1997.
NOTE J - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28/29
1999 1998 1997
---------- ------------ -----------
<S> <C> <C> <C>
Numerator:
Net income (loss) for basic and diluted earnings per share: 20,192,916 ($ 5,139,846) $12,760,481
========== ============ ===========
Denominator:
Denominator for basic earnings per share
weighted average shares outstanding 27,990,907 31,032,672 32,309,672
Effect of dilutive securities:
Employee stock options 1,781,597 -- 807,018
Non-vested restricted stock -- -- 65,632
---------- ------------ -----------
Dilutive potential common shares 1,781,597 -- 872,650
---------- ------------ -----------
Denominator for diluted earnings per share 29,772,504 31,032,672 33,182,322
========== ============ ===========
Net income (loss) per common shares - basic $ 0.72 $ (0.17) $ 0.39
========== ============ ===========
Net income (loss) per common share - diluted $ 0.68 $ (0.17) $ 0.38
========== ============ ===========
</TABLE>
Options to purchase 633,098, 3,725,712, and 2,290,138 shares of common stock at
average exercise prices of $10.77, $7.10, and $10.90, respectively, were
outstanding at February 28, 1999, 1998, and 1997, respectively, but were not
included in the computations of diluted earnings (loss) per share because the
effect would have been anti-dilutive to the calculations. For 1999 and 1997,
the anti-dilution is due to options' exercise prices which were greater than
the average market prices of the common shares. For 1998, the anti-dilution is
due to the net loss for the year ended February 28, 1998.
17
<PAGE> 18
NOTE K - OPERATING SEGMENT INFORMATION AND MAJOR CUSTOMERS
The Company has adopted Statement of Financial Accounting Standards (SFAS) No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
which requires the reporting of certain financial information by operating
segment and geographic area. 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 and AgentConnect products. The Telco customer
market focuses on systems for telecommunications network operators and includes
the Company's InControl 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>
Net Revenues by Customer Market: 1999 1998 1997
------------------------------------
<S> <C> <C> <C>
Customer Premise Equipment $ 97,427 $ 71,921 $ 72,286
Telecommunications 26,163 17,067 20,115
Other 13,314 13,320 12,445
------------------------------------
Total $136,904 $102,308 $104,846
====================================
Geographic Area Net Revenues: 1999 1998 1997
------------------------------------
United States $112,740 $ 81,028 $ 80,083
The Americas (excluding the U.S.)* 13,384 11,489 11,622
Pacific Rim* 6,332 4,372 4,769
Europe, Middle East and Africa* 4,448 5,419 8,372
------------------------------------
Total $136,904 $102,308 $104,846
====================================
</TABLE>
*Represent export sales from the United States
No customer accounted for 10% or more of the Company's sales during fiscal 1999
or 1998. One customer, Siemens AG, one of the Company's resellers, accounted
for 10.2% of the Company's sales during fiscal 1997.
NOTE L - CONCENTRATIONS OF CREDIT RISK
The Company sells systems directly to end-users and distributors primarily in
the banking and financial, telecommunications, human resource, healthcare and
call center vertical markets. 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.
NOTE M - 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 $798,000, $854,000, and $759,000 in
fiscal 1999, 1998 and 1997, respectively.
18
<PAGE> 19
NOTE N - CONTINGENCIES
Commencing in fiscal 1997, Lucent Technologies ("Lucent") suggested in
correspondence to the Company that it should consider licensing certain Lucent
patents for a substantial payment. The Company has an opinion from its outside
legal counsel that the Company does not infringe the Lucent patents by reason of
non-infringement and/or invalidity. The Company has suggested to Lucent that
Lucent should consider licensing certain patents of the Company, and that a
mutual cross-license might be in the best interests of both parties. The parties
have discussed the possibility of negotiations for a mutually satisfactory
cross-license agreement which would resolve the matter. There is no assurance
that the Company will be able to negotiate a cross-license agreement based on
mutually satisfactory terms. Lucent has not threatened litigation against the
Company, and the Company and Lucent did not have any discussions or exchange any
correspondence concerning their respective patent portfolios during fiscal 1999.
In the event that litigation is instituted against the Company concerning the
Lucent patents, the Company intends to vigorously contest the claims and to
assert defenses of non-infringement and/or invalidity of the patents, together
with any other defenses and counterclaims, including any counterclaim for
infringement of its patents, the Company might have. As with any legal
proceeding, there is no guarantee that the Company will prevail in any
litigation asserted against the Company in connection with the Lucent patents.
NOTE O - SUBSEQUENT EVENT
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 will be executed in two steps, the first being an all cash
tender offer at $13.40 per share for approximately 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 twenty-five trading days. This transaction
has been approved by the Boards of Directors of Brite and InterVoice. The cash
tender offer will close on June 1, 1999. The closing of the transaction is
subject to certain customary conditions as described in the merger agreement.
In connection with this transaction, InterVoice has received a commitment from
Bank of America to provide senior secured credit facilities amounting to $150
million, which will include a $125 million term loan facility and a $25 million
revolving credit agreement. The term loan agreement will be 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.
19
<PAGE> 20
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 Period Expenses - Describe Describe Period
- ----------- --------- -------- ---------- -------- ------
<S> <C> <C> <C> <C> <C>
Year ended February 28, 1999
Deducted from asset accounts:
Allowance for doubtful accounts $ 368,004 $ 1,037,588 $ (100,011)(A) $ 1,305,581
Allowance for slow moving inventories 1,360,000 1,800,000 (1,955,474)(B) 1,204,526
Total $ 1,728,004 $ 2,837,588 $ (2,055,485) $ 2,510,107
=========== =========== ============ ===========
Year ended February 28, 1998
Deducted from asset accounts:
Allowance for doubtful accounts $ 250,950 $ 291,491 $ (174,437)(A) $ 368,004
Allowance for slow moving inventories 166,000 1,935,067 (741,067)(B) 1,360,000
Total $ 416,950 $ 2,226,558 $ (951,504) $ 1,728,004
=========== =========== ============ ===========
Year ended February 28, 1997
Deducted from asset accounts:
Allowance for doubtful accounts $ 746,027 $ 397,740 $ (892,817)(A) $ 250,950
Allowance for slow moving inventories 1,350,000 1,200,000 (2,384,000)(C) 166,000
Total $ 2,096,027 $ 1,597,740 $ (3,276,817) $ 416,950
=========== =========== ============ ===========
</TABLE>
- ------------------------------------------
(A) Accounts written off.
(B) Scrapped material.
(C) Includes approximately $1,700,000 reclassified to accumulated depreciation
associated with reclassification of inventory into fixed assets. Also
includes approximately $700,000 of scrapped material.
20
<PAGE> 21
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
Dated: June 2, 1999
21
<PAGE> 22
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 June 2, 1999
- --------------------------------------------- Directors and Chief
Daniel D. Hammond Executive Officer
/s/ ROB-ROY J. GRAHAM Chief Financial Officer, June 2, 1999
- --------------------------------------------
Rob-Roy J. Graham Chief Accounting Officer
and Controller
(Principal Accounting Officer)
/s/ JOSEPH J. PIETROPAOLO Director June 2, 1999
- --------------------------------------------
Joseph J. Pietropaolo
/s/ GEORGE C. PLATT Director June 2, 1999
- --------------------------------------------
George C. Platt
/s/ GRANT A. DOVE Director June 2, 1999
- --------------------------------------------
Grant A. Dove
/s/ DAVID W. BRANDENBURG Director June 2, 1999
- --------------------------------------------
David W. Brandenburg
</TABLE>
22
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit No. Description Numbered Page
- ----------- ----------- -------------
<S> <C> <C>
3.1 Articles of Incorporation, as amended, of Registrant (2)
3.2 Second Restated Bylaws of Registrant, as amended (1)
10.1 Second Amended and Restated Employment Agreement dated as of June 21, 1996,
effective as of March 1, 1996 by and between the Company and Daniel D. Hammond (8)
10.2 First Amendment to Amended and Extended Employment Agreement dated as of June 25,
1996 and effective as of March 1, 1996 by and between the Company and Daniel D.
Hammond (8)
10.3 Amended and Restated Rights Agreement dated as of December 12, 1994 between the
Registrant and KeyCorp Shareholder Services, Inc. (as successor to Society National Bank),
as Rights Agent (4)
10.4 The InterVoice, Inc. 1990 Incentive Stock Option Plan, as amended (8)
10.5 The InterVoice, Inc. 1990 Nonqualified Stock Option Plan for Non-Employees, as
amended (3)
10.6 The InterVoice, Inc. Employee Stock Purchase Plan (6)
10.7 InterVoice, Inc. Employee Savings Plan (5)
10.8 InterVoice, Inc. Restricted Stock Plan (7)
10.9 Employment Agreement dated as of September 1, 1998 between the Company and David
W. Berger (9)
10.10 Employment Agreement dated as of September 16, 1998 between the Company and
Rob-Roy J. Graham (9)
10.11 InterVoice, Inc. 1998 Stock Option Plan (9)
10.12 Assets Purchase Agreement dated as of September 15, 1998 between the Company and
Dronen Consulting, Incorporated (9)
10.13 Amended and Restated Loan Agreement dated as of November 18, 1998 between the
Company and NationsBank, N.A. (10)
10.14 Amended and Restated Promissory Note dated as of November 18, 1998 executed by
the Company in favor of NationsBank, N.A. (10)
10.15 Acquisition Agreement and Plan of Merger dated as of April 27, 1999, by and among
the Company, InterVoice Acquisition Subsidiary III, Inc. ("Acquisition
Subsidiary") and Brite Voice Systems, Inc. ("Brite") (11)
10.16 Stockholders' Agreement dated as of April 27, 1999, by and among the Company,
Acquisition Subsidiary and certain stockholders of Brite named therein (11)
10.17 Commitment Letter dated as of April 26, 1999, by and among the Company, Acquisition
Subsidiary, Bank of America National Trust and Savings Association and NationsBanc
Montgomery Securities LLC (11)
</TABLE>
<PAGE> 24
<TABLE>
<S> <C>
23 Consent of Independent Auditors (12)
27 Financial Data Schedules (12)
</TABLE>
- -----------------------
(1) 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.
(2) 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.
(3) 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.
(4) Incorporated by reference to exhibits to Form 8-A/A (Amendment No. 1) filed
with the SEC on December 15, 1994.
(5) 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.
(6) Incorporated by reference to exhibits to Registration Statement on Form S-8
filed with the SEC on November 30, 1998, Registration Number 333-68103.
(7) Incorporated by reference to exhibits to the Company's 1996 Annual Report
on Form 10-K for the fiscal year ended February 29, 1996, filed with the
SEC on May 29, 1996.
(8) Incorporated by reference to exhibits to the Company's Annual Report on
Form 10-K for the fiscal year ended February 28, 1998, filed with the SEC
on May 29, 1998.
(9) Incorporated by reference to exhibits to the Company's quarterly report on
Form 10-Q for the quarter ended August 31, 1998, filed with the SEC on
October 14, 1998.
(10) Incorporated by reference to exhibits to the Company's quarterly report on
Form 10-Q for the quarter ended November 31, 1998, filed with the SEC on
January 14, 1999.
(11) Incorporated by reference to exhibits to the Schedule 14D-1 filed by the
Company and Acquisition Subsidiary with the SEC on May 3, 1999, as amended
on May 5, 1999 and May 10, 1999, File No. S-40824.
(12) Filed herewith.
Exhibits furnished upon request
<PAGE> 1
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, Form S-8 No. 333-74873, Form S-8 No.
333-68103 and Form S-3 No. 33-85898) of InterVoice, Inc. and subsidiaries of our
report dated April 7, 1999, except for Note O as to which the date is April 27,
1999, with respect to the consolidated financial statements and schedule of
InterVoice, Inc. and subsidiaries included in the Annual Report (Form 10-K, as
amended by Form 10-K/A (Amendment No. 1)) for the year ended February 28, 1999.
ERNST & YOUNG LLP
Dallas, Texas
June 1, 1999
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 12,195,612
<SECURITIES> 0
<RECEIVABLES> 43,461,585
<ALLOWANCES> 1,305,581
<INVENTORY> 11,704,428
<CURRENT-ASSETS> 75,067,577
<PP&E> 49,810,432
<DEPRECIATION> 22,755,583
<TOTAL-ASSETS> 111,529,501
<CURRENT-LIABILITIES> 22,601,063
<BONDS> 0
0
0
<COMMON> 14,347
<OTHER-SE> 82,557,649
<TOTAL-LIABILITY-AND-EQUITY> 111,529,501
<SALES> 136,904,131
<TOTAL-REVENUES> 136,904,131
<CGS> 54,191,257
<TOTAL-COSTS> 54,191,257
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 937,588
<INTEREST-EXPENSE> 352,888
<INCOME-PRETAX> 28,795,596
<INCOME-TAX> 8,602,680
<INCOME-CONTINUING> 20,192,916
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,192,916
<EPS-BASIC> .72
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