<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
AUGUST 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-13616
INTERVOICE-BRITE, 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 32,929,863 SHARES OF COMMON STOCK, NO PAR VALUE PER SHARE,
OUTSTANDING AS OF THE CLOSE OF THE PERIOD COVERED BY THIS REPORT.
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<PAGE> 2
InterVoice-Brite, Inc.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
(In Thousands)
August 31, February 29,
ASSETS 2000 2000
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 17,642 $ 23,263
Trade accounts receivable, net of allowance
for doubtful accounts of $3,212 in 2001 and
$4,161 in 2000 67,643 93,157
Income tax receivable 3,903 3,903
Inventory 41,775 27,211
Prepaid expenses and other current assets 8,247 8,997
Deferred income taxes 5,077 4,029
------------ ------------
Current Assets 144,287 160,560
Building 20,220 19,522
Computer equipment and software 46,871 46,228
Furniture, fixtures and other 4,573 4,566
Service equipment 7,042 5,956
------------ ------------
78,706 76,272
Less allowance for depreciation 41,616 35,257
------------ ------------
Net property and equipment 37,090 41,015
Intangible assets, net of amortization
of $21,528 in 2001 and
$14,400 in 2000 90,459 98,568
Other assets 1,080 2,880
------------ ------------
$ 272,916 $ 303,023
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 27,557 $ 27,240
Accrued expenses 12,850 14,596
Customer deposits 9,674 8,010
Deferred income 22,388 14,450
Current portion of long term borrowings 30,000 25,000
------------ ------------
Current liabilities 102,469 89,296
Long term liabilities -- 958
Deferred income taxes 24,664 25,738
Long term borrowings 45,000 75,000
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: 32,929,863 issued
and outstanding in 2001,
32,587,524 issued and outstanding in 2000 16 16
Additional capital 51,805 49,984
Unearned compensation (2,677) (3,701)
Retained earnings 56,123 66,642
Accumulated other comprehensive loss (4,484) (910)
------------ ------------
Stockholders' equity 100,783 112,031
------------ ------------
$ 272,916 $ 303,023
============ ============
</TABLE>
<PAGE> 3
InterVoice-Brite, Inc.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Data)
Three Months Ended Six Months Ended
------------------------------ ------------------------------
August 31, August 31, August 31, August 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 72,382 $ 79,860 $ 143,850 $ 119,937
Cost of goods sold 36,238 47,879 71,139 63,226
------------ ------------ ------------ ------------
Gross Margin 36,144 31,981 72,711 56,711
------------ ------------ ------------ ------------
Research and development expenses 8,872 37,797 17,889 41,637
Selling, general and administrative
expenses 21,336 27,258 43,233 38,689
Amortization of goodwill and
acquired intangible assets 3,437 3,528 6,911 3,528
------------ ------------ ------------ ------------
Income (loss) from operations 2,499 (36,602) 4,678 (27,143)
Other income 603 918 794 1,077
Interest expense (1,963) (2,822) (4,011) (2,873)
------------ ------------ ------------ ------------
Income (loss) before taxes and the
cumulative effect of a change in
accounting principle 1,139 (38,506) 1,461 (28,939)
Income taxes (benefit) 606 (2,399) 730 901
------------ ------------ ------------ ------------
Income before the cumulative effect
of a change in accounting principle 533 (36,107) 731 (29,840)
Cumulative effect on prior years of
adopting SEC Staff Accounting
Bulletin No. 101 -- -- (11,250) --
------------ ------------ ------------ ------------
Net income (loss) $ 533 $ (36,107) $ (10,519) $ (29,840)
============ ============ ============ ============
Per Basic Share:
Income (loss) before the cumulative effect
of a change in accounting principle $ 0.02 $ (1.24) $ 0.02 $ (1.03)
Cumulative effect on prior years of
adopting SEC Staff Accounting
Bulletin No. 101 -- -- (0.34) --
------------ ------------ ------------ ------------
Net income (loss) $ 0.02 $ (1.24) $ (0.32) $ (1.03)
============ ============ ============ ============
Per Diluted Share:
Income (loss) before the cumulative effect
of a change in accounting principle $ 0.02 $ (1.24) $ 0.02 $ (1.03)
Cumulative effect on prior years of
adopting SEC Staff Accounting
Bulletin No. 101 -- -- $ (0.33) --
------------ ------------ ------------ ------------
Net income (loss) $ 0.02 $ (1.24) $ (0.31) $ (1.03)
============ ============ ============ ============
</TABLE>
<PAGE> 4
InterVoice-Brite, Inc.
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
(In Thousands, Except Share Data)
Common Stock Accumulated Other
------------------------ Additional Unearned Retained Comprehensive
Shares Amount Capital Compensation Earnings Loss Total
---------- ---------- ---------- ------------ ---------- ----------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 29, 2000 32,587,524 $ 16 $ 49,984 $ (3,701) $ 66,642 $ (910) $ 112,031
Net loss -- -- -- -- (10,519) -- (10,519)
Foreign currency translation
adjustment -- -- -- -- -- (3,574) (3,574)
Exercise of stock
options 342,339 -- 1,821 -- -- -- 1,821
Amortization of unearned
compensation -- -- -- 1,024 -- -- 1,024
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at August 31, 2000 32,929,863 $ 16 $ 51,805 $ (2,677) $ 56,123 $ (4,484) $ 100,783
========== ========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE> 5
InterVoice-Brite, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
(In Thousands)
Three Months Ended Six Months Ended
------------------------------ ------------------------------
August 31, August 31, August 31, August 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Income (loss) before the cumulative effect of a
change in accounting principle $ 533 $ (36,107) $ 731 $ (29,840)
Adjustments to reconcile
income before the cumulative effect of
a change in accounting principle to net cash
provided by operating activities:
Depreciation and
amortization 7,113 9,548 15,353 12,818
In-process research and development charge -- 30,100 -- 30,100
Changes in operating assets
and liabilities: 1,369 (4,089) 2,974 (6,276)
------------ ------------ ------------ ------------
NET CASH FROM OPERATIONS 9,015 (548) 19,058 6,802
INVESTING ACTIVITIES
Purchases of property
and equipment (1,664) (2,901) (3,181) (3,704)
Purchased software (704) (502) (704) (529)
Purchase of Brite Voice Systems, Inc.,
net of cash acquired -- (116,513) -- (116,513)
Other 2,800 -- 2,800 --
------------ ------------ ------------ ------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 432 (119,916) (1,085) (120,746)
FINANCING ACTIVITIES
Paydown of debt (5,000) (5,000) (25,000) (5,000)
Borrowings -- 135,000 -- 135,000
Exercise of stock options 806 1,025 1,821 1,660
------------ ------------ ------------ ------------
NET CASH (USED IN) PROVIDED
BY FINANCING ACTIVITIES (4,194) 131,025 (23,179) 131,660
Effect of exchange rate on cash (21) 80 (415) 80
------------ ------------ ------------ ------------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS 5,232 10,641 (5,621) 17,796
Cash and cash equivalents,
beginning of period 12,410 19,351 23,263 12,196
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 17,642 $ 29,992 $ 17,642 $ 29,992
============ ============ ============ ============
</TABLE>
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED AUGUST 31, 2000
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 29, 2000 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 August 31, 2000 and 1999
consolidated financial statements have been included. Operating results for the
three and six month periods ended August 31, 2000 are not necessarily indicative
of the results that may be expected for the year ending February 28, 2001 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.
In accordance with Statement of Financial Accounting Standards No. 130, the
following comprehensive income disclosures are provided. Total comprehensive
income (loss), i.e., net income (loss) plus foreign currency translation
adjustments to stockholders' equity, for the second quarter of fiscal 2001 and
2000 was ($0.8) million and ($35.9) million. For the six month period ended
August 31, 2000 and 1999 it was ($14.1) million and ($29.6) million.
Financial statements of the Company's foreign subsidiaries have been translated
into U. S. dollars at current and average exchange rates. Resulting translation
adjustments are recorded in accumulated other comprehensive loss. Any
transaction gains or losses are included in the accompanying consolidated
statements of operations.
NOTE B - ACQUISITION OF BRITE VOICE SYSTEMS, INC.
As discussed in the Company's Form 10-K for the fiscal year ended February 29,
2000, during the second quarter of fiscal 2000, the Company acquired all of the
outstanding stock of Brite Voice Systems, Inc. (Brite) in a two-step transaction
involving aggregate consideration of approximately $165.1 million of cash and
common stock. Results of operations of Brite were consolidated with the Company
beginning June 1, 1999; therefore, the Company's results of operations presented
for the six months ended August 31, 1999 include those of Brite only from June
1, 1999 forward.
In connection with this transaction, the Company obtained senior secured credit
facilities amounting to $150 million from Bank of America, including a $125
million term loan facility 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 credit facilities require
the Company to comply with certain financial covenants as defined in the related
credit agreements. As of August 31, 2000, $75 million was outstanding under the
credit facilities. Interest under the credit facilities accrues at a variable
rate indexed to the prime rate or an adjusted London Interbank Offering Rate.
The current average annual interest rate is 8.91%
NOTE C - CHANGE IN ACCOUNTING PRINCIPLE/REVENUE RECOGNITION
Effective March 1, 2000, the Company changed its method of accounting for
revenue recognition in accordance with Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements". For systems that do not require
customization to be performed by the Company, revenue is recognized when the
related hardware and software are delivered, when there is persuasive evidence
that an arrangement exists, when the fee is fixed and determinable and when
collection is probable. Historically, revenue generally had been recognized at
the time of shipment. Although the Company's contract arrangements often include
installation and customer acceptance provisions, revenue generally had been
recognized at the time of shipment based on the Company's belief that no
significant
<PAGE> 7
uncertainties regarding customer acceptance existed. For systems that required
significant customization where the completed contract method of accounting was
applicable, the Company generally had recognized revenue upon completion of
installation and testing procedures but prior to customer acceptance. Under the
new accounting method, effective March 1, 2000, the Company now recognizes
revenue upon customer acceptance. For more complex, customized systems
(generally over a $500,000 sales price), the Company has continued to use a
percentage of completion methodology based on labor inputs. The Company also
continues to recognize revenue from services when the services are performed, or
ratably over a contract period.
The Company had also recognized revenue upon shipment of products to the
customer for systems shipped FOB destination as a common carrier had been used
by the Company resulting in the transfer of substantially all the risks and
rewards of ownership. For systems for which the risk of loss transfers upon
delivery to the customer's site and for which the Company has no significant
post-delivery implementation service obligation, the Company now recognizes
revenue when risk of loss passes.
The cumulative effect of the change on prior years (which principally relates to
changes relating to customer acceptance provisions) resulted in a charge to
operations of $11.3 million (after reduction for income taxes of $7.0 million)
which is included in results of operations for the three months ended May 31,
2000. For the three and six month periods ended August 31, 2000, the Company
recognized $1.2 million and $17.0 million in revenue that is included in the
cumulative effect adjustment as of March 1, 2000. Assuming the accounting change
had been applied retroactively by the Company to prior periods, proforma net
income (loss) for the three and six month periods ended August 31, 1999 would
have been ($39.3) million and ($32.8) million, respectively. Net income (loss)
per common share would have been ($1.34) and ($1.14), respectively. Had the
Company not adopted SAB 101, revenues for the three months ended August 31, 2000
would have been $65.6 million and net income (loss) per common share would have
been ($0.07).
<PAGE> 8
NOTE D - INVENTORIES
Inventories consist of the following (in millions):
<TABLE>
<CAPTION>
August 31, 2000 February 29, 2000
--------------- -----------------
<S> <C> <C>
Purchased parts $ 30.7 $ 21.1
Work in progress 9.0 5.2
Finished goods 2.1 0.9
------------ ------------
$ 41.8 $ 27.2
============ ============
</TABLE>
NOTE E - EARNINGS PER SHARE
<TABLE>
<CAPTION>
(in millions except per share data)
Three Months Ended Six Months Ended
August 31, 2000 August 31, 1999 August 31, 2000 August 31, 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Numerator:
Income before the cumulative
effect of a change in accounting
principle $ 0.5 $ (36.1) $ 0.7 $ (29.8)
Cumulative effect on prior
years of adopting
SAB No. 101 -- -- (11.3) --
---------- ---------- ---------- ----------
Net Income (loss) $ 0.5 $ (36.1) $ (10.6) $ (29.8)
---------- ---------- ---------- ----------
Denominator:
Denominator for basic
earnings per share 32.7 29.1 32.6 28.9
Employee Stock Options .9 -- 1.6 --
Non-vested restricted shares -- -- .1 --
---------- ---------- ---------- ----------
Dilutive Potential common shares .9 0 1.7 0
Denominator for diluted
earnings per share $ 33.6 $ 29.1 $ 34.3 $ 28.9
BASIC:
Income (loss) before the cumulative
effect of a change in
accounting principle 0.02 (1.24) 0.02 (1.03)
Cumulative effect on prior years
of adopting SAB No. 101 -- -- (0.34) --
---------- ---------- ---------- ----------
Net Income (loss) $ 0.02 $ (1.24) $ (0.32) $ (1.03)
========== ========== ========== ==========
DILUTED:
Income (loss) before the cumulative
effect of a change in
accounting principle $ 0.02 $ (1.24) $ 0.02 $ (1.03)
Cumulative effect on prior years
of adopting SAB No. 101 -- -- (0.33) --
---------- ---------- ---------- ----------
Net Income (loss) $ 0.02 $ (1.24) $ (0.31) $ (1.03)
========== ========== ========== ==========
</TABLE>
Options to purchase 3,319,992 and 79,874 shares of common stock at average
prices of $12.64 and $20.87, respectively, were outstanding during the three and
six month periods ended August 31, 2000, respectively, but were not included in
the computation of diluted earnings per share because the options'
<PAGE> 9
prices were greater than the average market price of the Company's common stock
during such periods and, therefore, the effect would have been anti-dilutive.
1,802,005 and 1,746,282 potentially dilutive shares were excluded from the
diluted earnings per share calculations for the three and six month periods
ending August 31, 1999 as they would be anti-dilutive due to net losses.
NOTE F - OPERATING SEGMENT INFORMATION AND MAJOR CUSTOMERS
The Company 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 sales based on customer markets, including Business Systems,
Network Systems and Services. The Business Systems market includes interactive
voice response (IVR) and customer relationship management (CRM) systems. The
Network Systems customer market focuses on systems for telecommunications
network operators.
Services sales include fees for system maintenance, software license fees and
fees for providing voice and call processing services to the Company's customers
on equipment owned and operated by the Company.
The Company's net sales by market and geographic area were as follows (in
millions):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------------- ---------------------------------
August 31, 2000 August 31, 1999 August 31, 2000 August 31, 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Sales:
Business Systems $ 25.4 $ 28.7 $ 49.3 $ 55.1
Network Systems 23.1 29.3 47.4 39.1
Services 23.9 21.8 47.2 25.7
---------- ---------- ---------- ----------
Total $ 72.4 $ 79.8 $ 143.9 $ 119.9
========== ========== ========== ==========
Geographic Area Net Sales:
United States $ 36.2 $ 46.2 $ 77.2 $ 75.9
The Americas (Excluding U.S.) 2.0 2.5 2.9 8.6
Pacific Rim 3.5 5.0 7.3 8.0
Europe, Middle East & Africa 30.7 26.1 56.5 27.4
---------- ---------- ---------- ----------
Total $ 72.4 $ 79.8 $ 143.9 $ 119.9
========== ========== ========== ==========
</TABLE>
One customer accounted for approximately 23% of the Company's sales during the
three month period ended August 31, 2000 and approximately 21% of the Company's
sales during the six month period ended August 31, 2000. Another customer
accounted for approximately 18% and 10% of the Company's sales during the three
and six month periods ended August 31, 2000, respectively. No customer accounted
for 10% or more of the Company's sales during the three or six month periods
ended August 31, 1999.
NOTE G - WARRANT
During fiscal 1997, the Company received a warrant to purchase 741,237 shares of
SpeechWorks International, Inc. common stock at an exercise price of $2.05 per
share. The warrant was issued in connection with a supply agreement, pursuant to
which SpeechWorks supplies the Company with software products and services. Upon
the Company's receipt of the warrant, SpeechWorks was not a publicly traded
company and no value was assigned to the security. The warrant and the shares
underlying the warrant are unregistered securities with no readily ascertainable
market valuation, therefore, the warrant is carried at cost, i.e. no value, on
the Company's balance sheet at August 31, 2000 for the unregistered warrant or
the underlying shares. SpeechWorks became a publicly traded company on August 1,
2000. The October 13, 2000 closing price for a share of SpeechWorks common stock
was $65.
For several reasons, the Company is currently unable to estimate what gain, if
any, it will ultimately realize in connection with the warrant. First, the
Company has not completed its evaluation of its alternatives with respect to
monetizing the warrant. Second, the ultimate price received for the warrant or
the shares underlying the warrant cannot be determined due to relatively long
periods of time before such securities could be sold in a private or public
placement. The Company has agreed not to sell the warrant or underlying
securities in a private placement for a period of six months after SpeechWorks'
initial public offering (August 1, 2000). Should the Company exercise the
warrant with the intent of selling the underlying shares in the public market,
the unregistered shares must be held at least one year before the Company could
sell such shares, subject to limitations under the Securities and Exchange
Commission's Rule 144. The Company does have certain demand registration rights
which could allow the sale of the shares in the public market before the Rule
144 one year holding period lapses. However, such rights cannot be exercised
unilaterally, except in the case of a registration of the shares by SpeechWorks
on Form S-3, for which SpeechWorks will not be eligible until at least August 1,
2001. Third, there is not a readily ascertainable price for the unregistered
warrant or underlying unregistered shares. Generally, unregistered securities
sold through a private offering sell at discounts from the then current market
price. Fourth, a large percentage of SpeechWorks' outstanding common stock is
unregistered and is subject to a lock up period, as are the shares underlying
the Company's warrant. Such an arrangement is not unusual, but the potential
introduction of a large number of shares following a lock up period can affect
the market for an issuer's shares.
Should the Company decide to exercise its warrant, the underlying shares
received will be valued at market as a current asset with a corresponding
increase to the Company's stockholders' equity. Any change of valuation prior to
the final disposition of the underlying shares will be reflected as an
adjustment to the Company's stockholders' equity through accumulated other
comprehensive income.
NOTE H - CONTINGENCIES
The Company provides certain automated call processing services on a managed
services basis for a large domestic telecommunications company. The
telecommunications company has asserted that the Company should pay monetary
penalties under the managed services contract for failing to achieve certain
representations, covenants and specified levels of service. The
telecommunications company is also in the process of performing an audit of the
Company's records relating to the managed services, as expressly contemplated by
the contract. While the Company does not believe that the audit will result in
any claims for material amounts, it is possible that the telecommunications
company will make such claims and such claims may be material. The Company has
acknowledged that it may owe an immaterial amount as a monetary penalty for
failing to adhere to a specific service level, and has denied all other asserted
failures under the contract. A reserve has been established to cover the
immaterial amount the Company has acknowledged it might owe. The parties are in
the process of attempting to negotiate mutually satisfactory agreements to
resolve their dispute and to extend the managed services contract.
<PAGE> 10
There is no assurance that the parties will negotiate mutually acceptable
agreements. The telecommunications company has not threatened litigation against
the Company. In the event litigation is instituted against the Company
concerning the dispute under the contract, the Company intends to vigorously
contest the claims and to assert appropriate defenses. As with any legal
proceeding, there is no guarantee that the Company would prevail in any
litigation that might be asserted against the Company in connection with the
managed services contract.
<PAGE> 11
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
DISCLOSURES REGARDING 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 Form 10-Q, including,
without limitation, statements contained in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Notes to
Consolidated Financial Statements" located elsewhere herein regarding the
Company's financial position, business strategy, plans and objectives of
management of the Company for future operations, and industry conditions, are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. In addition to
important factors described elsewhere in this report, the following significant
factors, among others, sometimes have affected, and in the future could affect,
the Company's actual results and could cause such results during fiscal 2001,
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 British Telecom,
which purchases both systems and managed services from the Company.
Sales to British Telecom accounted for approximately 21% of the
Company's total sales during the first six months of fiscal 2001. The
Company's installed base of customers generally are not contractually
obligated to place further systems orders with the Company or are not
obligated to extend their services contracts with the Company at the
expiration of their current contracts. British Telecom's managed
services contract with the Company expires in December of 2001, unless
the parties agree to extend it.
o Legislative and administrative changes and, in particular, changes
affecting the telecommunications industry, such as the
Telecommunications Act of 1996. While 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.
<PAGE> 12
o The Company's sales are largely dependant upon the strength of the
domestic and international economies and, in particular, demand for the
types of systems offered by the Company in its primary markets. In this
regard, demand for all of the Company's systems is partially dependant
upon the general level of demand for telecommunications equipment,
computers, software and other technology products. Furthermore, demand
for the Company's products offered to telecommunications companies is
very dependant upon the general level of demand for telephone switches
and other telecommunications equipment for public networks. There are
certain indications that, at least for the short term, demand for such
technology products and network-based telecommunications equipment
might be softening.
o Risks involved in the Company's international distribution and sales of
its products, including unexpected and adverse 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. Due in part to the
merger with Brite, the Company's sales outside the United States, as a
percentage of the Company's total sales, increased from 25% to 43% from
the first quarter of fiscal 2000 to the first quarter of fiscal 2001.
o The quantity and size of large sales (sales valued at approximately $4
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 Many of the Company's contracts, particularly for managed services,
foreign contracts and contracts with telecommunication companies,
include provisions to assess liquidated damages for delayed
performance. Since the Company's projects frequently require a
significant degree of customization, it is difficult for the Company to
predict when it will complete such projects. Accordingly, the Company
has had to pay liquidated damages in the past and may have to pay
additional liquidated damages in the future. Any such future liquidated
damages could be significant.
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 sales, administrative and 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.
o The ability of the Company to successfully integrate the products,
customers, employees and other business components of the former
InterVoice and the former Brite in an efficient fashion.
<PAGE> 13
o The ability of the Company to retain certain customers of the former
Brite in light of the Company's decision to phase out certain Brite
products and its ability to persuade such customers to purchase similar
products offered by the Company.
SALES. The Company has complied with generally accepted accounting principles
for its historical revenue recognition. However, in December 1999, the
Securities and Exchange Commission issued new guidance, to which all registrants
are expected to comply, on revenue recognition in its Staff Accounting Bulletin
No. 101. "Revenue Recognition in Financial Statements". Under such guidance, the
Company changed its revenue recognition policy effective with the first quarter
of fiscal 2001. The result of such change is that, for a portion of the
Company's system sales, revenue recognition has shifted from the date of
shipment to the date of customer acceptance, which generally occurs after
shipment.
The Company's total sales in the second quarter and first six months of fiscal
2001 were approximately $72.4 million and $143.9 million, respectively. Second
quarter sales decreased approximately $7.4 million, or 9%, when compared to the
same period of fiscal 2000. Contributing factors for the sales decrease include:
1) a sluggish demand from the former Brite customer base as it evaluates the
Company's product roadmap resulting from the merger with Brite, (2) sluggish
demand from existing and prospective customers as they evaluate their post-Y2K
capital expenditures, (3) a lengthening of the overall sales cycle resulting
from the transition in customer demand from simpler, touch-tone to complex,
speech enabled applications, (4) some possible softness, at least in the short
term, in the market for network-based telecommunications equipment, and (5)
attrition in the Company's Network Systems sales force. Sales during the first
six months of fiscal 2001 were $143.9 million as compared to $119.9 million
during the same period of the prior year. The increase is primarily due to the
Company's merger with Brite Voice Systems, Inc. (Brite) which was accounted for
using the purchase method of accounting. Results of Brite's operations were
consolidated with those of InterVoice, Inc. effective June 1, 1999, the first
day of the Company's second fiscal quarter of fiscal 2000. One customer
accounted for approximately 18% and 10% of the Company's total sales during the
second quarter and first six months of fiscal 2001, respectively. Another
customer accounted for 23% and 21% of the Company's total sales during the
second quarter and first six months of fiscal 2001, respectively.
To enhance comparability of the Company's sales for the second quarter and first
six months of fiscal 2001, the information below is presented on an "as
adjusted" basis as though the merger with Brite and the adoption of SAB 101 (See
Notes B and C to the Consolidated Financial Statements) had occurred at the
beginning of the respective periods presented.
<TABLE>
<CAPTION>
(In millions)
As Adjusted As Reported
------------------------- -------------------------
Second Quarter 2001 2000* 2001 2000
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales:
Business Systems $ 25.4 $ 23.5 $ 25.4 $ 28.7
Network Systems 23.1 27.6 23.1 29.3
Services 23.9 21.8 23.9 21.8
---------- ---------- ---------- ----------
Total $ 72.4 $ 72.9 $ 72.4 $ 79.8
========== ========== ========== ==========
First Six Months
Sales:
Business Systems $ 49.3 $ 58.4 $ 49.3 $ 55.1
Network Systems 47.4 52.2 47.4 39.1
Services 47.2 39.6 47.2 25.7
---------- ---------- ---------- ----------
Total $ 143.9 $ 150.2 $ 143.9 $ 119.9
========== ========== ========== ==========
</TABLE>
* InterVoice-Brite's fiscal year ends the last day of February. Brite's
fiscal year ended December 31. No adjustment has been made to account
for the two companies' different fiscal year ends.
<PAGE> 14
The following discussion compares second quarter and six month sales performance
on an "As Adjusted" basis only.
Business Systems sales during the second quarter of fiscal 2001 were
approximately $25.4 million and increased 9% when compared to the same period of
the previous year. The increase was attributable to a sale during the quarter of
approximately $8.5 million to a domestic customer. Such sales were $49.3 million
during the first six months of fiscal 2001 and declined 16% when compared to the
same period of the previous year. The Company believes the declines are the
result of: (1) a sluggishness in demand from the former Brite customer base as
those companies continued to evaluate the Company's product roadmap resulting
from the merger with Brite, (2) a continued sluggish demand from the Company's
existing and prospective customers as they evaluate their post-Y2K capital
expenditures, and (3) a lengthening of the overall sales cycle resulting from a
transition in customer demand from relatively simple touch-tone based
applications to complex applications embodying speech recognition capabilities.
Additionally, speech recognition enabled sales opportunities tend to be larger
in dollar value, which may extend the customer purchasing cycle. International
Business Systems sales constituted 19% and 18% of the Company's total Business
Systems sales during the second quarter and first six months of fiscal 2001,
respectively.
Network Systems sales during the second quarter of fiscal 2001 were
approximately $23.1 million and declined 16% when compared to the same period of
the previous fiscal year. Such sales for the first six months of fiscal 2001
were $47.4 million and declined 9% when compared to the same period of the
previous year. Third-party surveys indicate good long term prospects for growth
in the market addressed by the Company's Network Systems products. The Company
believes contributing factors to its sales decline in this market segment
include sales force attrition and some possible softness, at least for the short
term, in the market for network-based telecommunication equipment. International
Network Systems sales constituted 87% and 89% of the Company's total Network
Systems sales during the second quarter and first six months of fiscal 2001,
respectively.
Services sales during the second quarter and first six months of fiscal 2001
were $23.9 million and $47.2 million, respectively, and increased 10% and 19%,
respectively, when compared to the same periods of the previous fiscal year. An
increase in the Company's Application Service Provider (ASP) sales was the
primary reason for the increase in Services sales. As an ASP, Company provides
certain voice and call processing services to its customers on equipment owned
and operated by the Company. In return, the Company charges its customers for
such services in one of multiple ways, including fixed rates per month or per
transaction, and/or a share of the revenue generated by the Company's customer
based on such services. Managed Services sales increased in the second quarter
and first six months of fiscal 2001 primarily due to increased call volumes by
customers offering prepaid telecommunication calling services in Europe and
North America. Generally, the Company receives a portion of the prepaid calling
revenues generated by its customers. International Services sales constituted
47% of the Company's total Services sales during both the second quarter and
first six months of fiscal 2001.
The Company continues to believe the long term prospects in its current markets
remain strong. At the same time, the Company realizes its markets are being
transformed by the ongoing convergence of voice, data and internet technologies.
As a result, the Company is investigating alternate methods of combining its
products and services and is focusing on new, strategic partnerships to profit
from this transformation. The result of such investigations may lead the Company
to redirect its marketing efforts and/or increase its investments in application
engineering, customer service, research and development, sales, sales support,
marketing and administrative personnel and resources to pursue new
opportunities.
COST OF GOODS SOLD. Cost of goods sold was approximately $36.2 million and $71.1
million for the second quarter and first six months of fiscal 2001 and, as a
percentage of sales, was 50.0% and 49.4%, respectively. During the second
quarter and first six months of the previous year, such expenses were $47.9
million and $63.2 million, respectively, and included non-recurring charges of
$9.1 million. These non-recurring charges are described in the Company's Form
10-K as filed with the Securities and Exchange Commission on May 26, 2000.
Without these non-recurring charges, cost of goods sold, as a percentage of the
Company's total reported sales, would have been 48.6% and 45.1% during the
second quarter and first six months of the previous year, respectively. The
increases in cost of goods sold during the second quarter and first six months
of fiscal 2001, as a percentage of sales, when compared to cost of goods sold,
net of non-recurring charges, in the previous year, is attributable to the
Company's continued investments in application engineering and customer service
resources to pursue opportunities in all its markets. Additionally, the products
acquired in the merger with Brite historically have had a
<PAGE> 15
greater cost of goods sold, as a percentage of sales, than the Company's other
products due to higher third party hardware content.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses during the
second quarter and first six months of fiscal 2001 were approximately $8.8
million and $17.9 million, or 12.2% and 12.4% of the Company's total sales,
respectively. During the second quarter and first six months of the previous
fiscal year, research and development expenses were $37.8 million and $41.6
million including a charge of approximately $30.1 million for in-process
research and development incurred in connection with the Brite merger, as
described in the Company's Form 10-K as filed with the Securities and Exchange
Commission on May 26, 2000. Net of this charge, research and development
expenses, as a percentage of reported sales, for both periods would have been
9.6%. Research and development expenses included the design of new products and
the enhancement of existing products. The Company expects to maintain its strong
commitment to research and development to remain at the forefront of technology
development in its business segments, which is essential to the continued
improvement of the Company's position in the industry.
SELLING, GENERAL AND ADMINISTRATION EXPENSES. Selling, general and
administration expenses during the second quarter and first six months of fiscal
2001 were approximately $21.3 million and $43.2 million, or 29.4% and 30% of the
Company's total sales, respectively. Such expenses during the second quarter and
first six months of the previous year were $27.3 million and $38.7 million,
respectively, and included non-recurring charges totaling $5.9 million. These
non-recurring charges are described in the Company's Form 10-K as filed with the
Securities and Exchange Commission on May 26, 2000. Without these non-recurring
charges, selling, general and administrative expenses for the second quarter and
first six months of the previous year, as a percentage of the Company's total
reported sales, would have been 26.8% and 27.4%, respectively. The increase in
selling, general and administrative expenses during the second quarter and first
six months of fiscal 2001, as a percentage of sales, versus such expenses, net
of non-recurring charges, during the previous year is the result of the
Company's decision to continue to hire and train new and existing sales and
sales support personnel and expand its marketing and advertising programs
worldwide.
AMORTIZATION OF GOODWILL AND ACQUIRED INTANGIBLE ASSETS. Goodwill and intangible
assets acquired in the merger with Brite totaled approximately $104 million with
useful lives averaging seven years. Amortization of these assets began during
the second quarter of fiscal 2000. Such expenses were approximately $3.4 million
and $6.9 million for the second quarter and first six months of fiscal 2001,
respectively, versus $3.5 million and $3.5 million for the same periods of the
previous fiscal year. Six month results for fiscal 2001 include two quarters
amortization expense while six month data for the previous fiscal year include
only one quarter's amortization expense.
OTHER INCOME. Other income of approximately $0.6 million and $0.8 million during
the second quarter and first six months of fiscal 2001, respectively, was
primarily interest paid on the Company's net cash reserves.
INTEREST EXPENSE. Interest expense was approximately $2.0 million and $4.0
million during the second quarter and first six months of fiscal 2001,
respectively, versus $2.8 million and $2.9 million for the same periods of the
previous fiscal year. The Company's obtained long term borrowings during the
second quarter of fiscal 2000 in connection with its merger with Brite. See
"Liquidity and Capital Resources" for a description of the Company's long term
borrowings. Initial borrowings were $135 million and have been paid down to $75
million at August 31, 2000. The decrease in interest expense during the second
quarter of fiscal 2001 is the result of the borrowings pay down. The increase of
interest expense, when compared to the first six months of fiscal 2001 to the
previous year, is the result of two quarters' interest expense on the Company's
long term borrowings included in six month fiscal 2001 results versus one
quarter's interest expense included in six month results of the previous year.
INCOME (LOSS) FROM OPERATIONS. The Company generated operating income and net
income of $2.5 million and $0.5 million during the second quarter of fiscal
2001. The Company incurred an operating loss and net loss of $36.6 million and
$36.1 million, respectively, during the same period of the previous year. Such
losses included non-recurring charges, as described above, totaling $45.1
million. Adjusting for the non-recurring charges, operating and net income
during the second quarter of the previous year would have been $8.5 million and
$5.5 million.
During the first six months of fiscal 2001, the Company generated $4.7 million
in operating income, $0.7 in million income before the cumulative effect of a
change in accounting principle, and a net loss of $10.5 million. As described in
Note C of the Notes to the Consolidated Financial Statements, during the first
quarter of fiscal 2001, the Company recorded a charge of $11.3 million relating
to the cumulative effect of a change in accounting principle as the result of
changing its revenue recognition policy pursuant to guidance issued by the
Securities and Exchange Commission in its Staff Accounting Bulletin No. 101.
<PAGE> 16
During the first six months of the previous year the Company generated an
operating and net loss of $27.1 million and $29.8 million respectively. Without
the non-recurring charges totaling $45.1 million discussed above, the Company
would have had operating and net income for the first six months of the previous
year of $18.0 million and $11.7 million, respectively.
To enhance comparability of the Company's operating and net incomes (losses),
the information below is presented on an "As Adjusted" basis, excluding the
$11.3 million charge booked in the first quarter of fiscal 2001 relating to the
cumulative effect of a change in accounting principle and the previously
described non-recurring charges totaling $45.1 million booked in the second
quarter of fiscal 2000.
<TABLE>
<CAPTION>
(In millions)
As Adjusted As Reported
--------------------- ----------------------
Second Quarter 2001 2000 2001 2000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating income (loss) $ 2.5 $ 8.5 $ 2.5 $ (36.6)
Net income $ 0.5 $ 5.5 $ 0.5 $ (36.1)
First Six Months
Operating income (loss) $ 4.7 $ 18.0 $ 4.7 $ (27.1)
Net income (loss) $ 0.7 $ 11.7 $ (10.5) $ (29.8)
</TABLE>
During the second quarter and first six months of fiscal 2001, the Company
continued to invest in application engineering, customer service, research and
development, sales, sales support and administration personnel and resources to
pursue opportunities in all its markets. This resulted in a decline in the
Company's "as adjusted" operating and net income versus the same periods in the
previous fiscal year.
LIQUIDITY AND CAPITAL RESOURCES. At August 31, 2000, the Company had cash
reserves of approximately $17.6 million while borrowings under the Company's
term loan facility were $75.0 million. Operating cash flow during the second
quarter and first six months of fiscal 2001 were approximately $9.0 million and
$19.1 million, respectively. Income before the cumulative effect of a change in
accounting principle plus non-cash expense items during the quarter and first
six months totaled $7.6 million and $16.1 million, respectively, while decreases
in operating assets totaled $1.4 million and $3.0 million respectively. Days
sales outstanding (DSO's) of accounts receivable continue to be a focus for the
Company. At August 31, 2000, DSO's were 84, which was down from 101 days at May
31, 2000. Investing activities, primarily the purchase of computer and test
equipment, used cash of approximately $2.4 million and $3.9 million,
respectively, while $2.8 million was received during the second quarter in
connection with the extinguishment of a warrant acquired in the Company's merger
with Brite to purchase shares of the common stock of EPS Solutions Corporation.
Financing activities, primarily pay down of debt partially offset by the net
proceeds from the exercise of employee stock options, consumed cash during the
quarter and six month periods ended August 31, 2000 of approximately $4.2
million and $23.2 million, respectively. Net cash flow during the second quarter
was approximately a positive $5.2 million while net cash flow for the first six
months was a negative $5.6 million. The Company believes its cash reserves and
internally generated cash flow will be sufficient to meet its operating cash
requirements for the foreseeable future. In addition, the Company has an
available $25 million revolving credit facility. The Company reviews share
repurchase and acquisition opportunities from time to time and believes it has
access to the financial resources necessary to pursue attractive repurchase
and/or 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 repurchase and acquisitions.
In connection with the merger with Brite, the Company 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 October 14, 2000, the Company had $75 million of
borrowings outstanding under the agreement, at an average annual interest rate
of 8.91%. Interest under the credit
<PAGE> 17
facility accrues at a variable rate indexed to the prime rate or an adjusted
London Interbank Offering Rate.
During June 2000, the Company entered into interest rate swap agreements,
expiring June 2002, to change the characteristics of interest payments on a
portion of its long-term borrowings from LIBOR-based variable-rate payments to
fixed-rate payments. At August 31, 2000 a notional amount of $40.0 million on
debt with a variable rate of 8.91% had been swapped for an effective rate of
8.34%. The effect of interest rate swaps during the second quarter and first six
months of fiscal 2001 was immaterial.
During fiscal 1997, the Company received a warrant to purchase 741,237 shares of
SpeechWorks International, Inc. common stock at an exercise price of $2.05 per
share. The warrant was issued in connection with a supply agreement, pursuant to
which SpeechWorks supplies the Company with software products and services. Upon
the Company's receipt of the warrant, SpeechWorks was not a publicly traded
company and no value was assigned to the security. The warrant and the shares
underlying the warrant are unregistered securities with no readily ascertainable
market valuation, therefore, the warrant is carried at cost, i.e. no value, on
the Company's balance sheet at August 31, 2000 for the unregistered warrant or
the underlying shares. SpeechWorks became a publicly traded company on August 1,
2000. The October 13, 2000 closing price for a share of SpeechWorks common stock
was $65.
For several reasons, the Company is currently unable to estimate what gain, if
any, it will ultimately realize in connection with the warrant. First, the
Company has not completed its evaluation of its alternatives with respect to
monetizing the warrant. Second, the ultimate price received for the warrant or
the shares underlying the warrant cannot be determined due to relatively long
periods of time before such securities could be sold in a private or public
placement. The Company has agreed not to sell the warrant or underlying
securities in a private placement for a period of six months after SpeechWorks'
initial public offering (August 1, 2000). Should the Company exercise the
warrant with the intent of selling the underlying shares in the public market,
the unregistered shares must be held at least one year before the Company could
sell such shares, subject to limitations under the Securities and Exchange
Commission's Rule 144. The Company does have certain demand registration rights
which could allow the sale of the shares in the public market before the Rule
144 one year holding period lapses. However, such rights cannot be exercised
unilaterally, except in the case of a registration of the shares by SpeechWorks
on Form S-3, for which SpeechWorks will not be eligible until at least August 1,
2001. Third, there is not a readily ascertainable price for the unregistered
warrant or underlying unregistered shares. Generally, unregistered securities
sold through a private offering sell at discounts from the then current market
price. Fourth, a large percentage of SpeechWorks' outstanding common stock is
unregistered and is subject to a lock up period, as are the shares underlying
the Company's warrant. Such an arrangement is not unusual, but the potential
introduction of a large number of shares following a lock up period can
negatively affect the market for an issuer's shares.
Should the Company decide to exercise its warrant, the underlying shares
received will be valued at market as a current asset with a corresponding
increase to the Company's stockholders' equity. Any change of valuation prior to
the final disposition of the underlying shares will be reflected as an
adjustment to the Company's stockholders' equity through accumulated other
comprehensive income.
Impact of Inflation
The Company does not expect any significant short term impact of inflation on
its financial condition. Technological advances should continue to reduce costs
in the computer and communications industries. Further, the Company presently is
not bound by long term fixed price sales contracts which should reduce the
Company's exposure to inflationary effects.
<PAGE> 18
The Company's debt facilities financing is considered to be a material long term
debt obligation, which may expose the Company to inflationary effects associated
with such variable rate loans; however, the Company has entered into interest
rate swap agreements to partially hedge such exposure.
<PAGE> 19
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 up to $150 million 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 August 31, 2000, the Company had
$75 million outstanding under the credit agreement. The credit agreement matures
on August 31, 2003 and the term loan facility is subject to quarterly principal
amortization. The fair value of the borrowings approximate their carrying value
at August 31, 2000. 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. To mitigate the effect of interest rate changes, the
Company enters into interest rate swap arrangements to change the
characteristics of interest payments on its borrowings from LIBOR-based,
variable rate payments to fixed rate payments. As of August 31, 2000, a notional
amount of $40 million of the Company's long term borrowings with a variable
interest rate of 8.91% had been swapped for an effective interest rate of 8.34%.
The effect of interest rate swaps on the Company's interest expense during the
quarter was immaterial.
The Company transacts business in certain foreign currencies, including the
British pound. Accordingly, the Company is subject to exposure from adverse
movements in foreign currency exchange rates. The Company attempts to mitigate
this risk by transacting business in the functional currency of each of its
subsidiaries, thus creating a natural hedge by paying expenses incurred in the
local currency in which revenues will be received. However, the Company's major
foreign subsidiary procures much of its raw materials inventory from its US
parent. Such transactions are denominated in U. S. dollars, limiting the
Company's ability to hedge against adverse movements in foreign currency
exchange rates.
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company provides certain automated call processing services on a managed
services basis for a large domestic telecommunications company. The
telecommunications company has asserted that the Company should pay monetary
penalties under the managed services contract for failing to achieve certain
representations, covenants and specified levels of service. The
telecommunications company is also in the process of performing an audit of the
Company's records relating to the managed services, as expressly contemplated by
the contract. While the Company does not believe that the audit will result in
any claims for material amounts, it is possible that the telecommunications
company will make such claims and such claims may be material. The Company has
acknowledged that it may owe an immaterial amount as a monetary penalty for
failing to adhere to a specific service level, and has denied all other asserted
failures under the contract. A reserve has been established to cover the
immaterial amount the Company has acknowledged it might owe. The parties are in
the process of attempting to negotiate mutually satisfactory agreements to
resolve their dispute and to extend the managed services contract.
There is no assurance that the parties will negotiate mutually acceptable
agreements. The telecommunications company has not threatened litigation against
the Company. In the event litigation is instituted against the Company
concerning the dispute under the contract, the Company intends to vigorously
contest the claims and to assert appropriate defenses. As with any legal
proceeding, there is no guarantee that the Company would prevail in any
litigation that might be asserted against the Company in connection with the
managed services contract.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held at 10:00 a.m., local
time, on Wednesday, June 28, 2000 in Plano, Texas.
For/Against and Broker Non Votes
Proxies were solicited by the Board of Directors of the Company pursuant to
Regulation 14A under the Securities Exchange Act of 1934. There was no
solicitation in opposition to the Board of Directors nominees as listed in the
proxy statement and all such nominees were duly elected. The following persons
are the nominees of the Board of Directors who were elected as directors at the
annual meeting: Daniel D. Hammond, David W. Brandenburg, Joseph J. Pietropaolo,
George C. Platt, Grant A. Dove and Stanley G. Brannan. The number of votes cast
for the election of each of the nominees for director, and the number of
abstentions, were as follows: 23,986,439 votes for the election of Daniel D.
Hammond, with 5,569,120 abstentions; 28,333,410 votes for the election of David
W. Brandenburg, with 1,222,149 abstentions; 28,276,251 votes for the election of
Joseph J. Pietropaolo, with 1,279,308 abstentions; 28,371,170 votes for the
election of George C. Platt, with 1,184,388 abstentions; 28,337,169 votes for
the election of Grant A. Dove, with 1,218,390 abstentions; 28,308,660 votes for
the election of Stanley G. Brannan, with 1,246,899 abstentions. No votes were
cast against the election of any nominee for director.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Fourth Amended and Extended Employment effective as of
September 13, 2000, between the Company and Daniel D. Hammond
10.2 First Amendment to Employment Agreement effective as of
July 1, 2000, between the Company and Rob-Roy J. Graham
27.1 Financial Data Schedule
(b) Reports on Form 8-K
1. A report on Form 8-K was filed June 27, 2000 to
announce the election of David W. Brandenburg as
Chief Executive Officer of the Company.
<PAGE> 21
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-BRITE, INC.
Date: 10/16/00 By: /s/ ROB-ROY J. GRAHAM
---------------------
Rob-Roy J. Graham
Chief Financial Officer
(Chief Accounting Officer)
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.1 Fourth Amended and Extended Employment Agreement effective as
of September 13, 2000, between the Company and Daniel D.
Hammond
10.2 First Amendment to Employment Agreement effective as of July
1, 2000, between the Company and Rob-Roy J. Graham
27.1 Financial Data Schedule
</TABLE>
