<PAGE> 1
================================================================================
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
NOVEMBER 30, 1999
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 32,076,478 SHARES OF COMMON STOCK, NO PAR VALUE PER SHARE,
OUTSTANDING AS OF THE CLOSE OF THE PERIOD COVERED BY THIS REPORT.
================================================================================
<PAGE> 2
INTERVOICE-BRITE, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
November 30, February 28,
ASSETS 1999 1999
--------------- ---------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 38,275,251 $ 12,195,612
Accounts receivable, net of allowance
for doubtful accounts of $7,893,664
in 2000 and $1,305,581 in 1999 86,734,932 42,156,004
Inventory 30,807,806 11,704,428
Prepaid expenses and other current assets 7,040,523 4,497,764
Deferred income taxes 10,689,959 4,513,769
--------------- ---------------
173,548,471 75,067,577
PROPERTY AND EQUIPMENT
Building 19,428,399 16,300,325
Computer equipment 41,270,973 24,839,081
Furniture, fixtures and other 4,413,329 3,599,873
Service equipment 5,402,039 5,071,153
--------------- ---------------
70,514,740 49,810,432
Less allowance for depreciation 31,151,173 22,755,583
--------------- ---------------
39,363,567 27,054,849
OTHER ASSETS
Intangible assets, net of amortization
of $10,650,963 in 2000 and $3,416,433 in 1999 104,700,497 9,407,075
Other assets 3,057,382 --
--------------- ---------------
$ 320,669,917 $ 111,529,501
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 31,393,653 $ 7,650,940
Accrued expenses 15,328,125 4,206,377
Customer deposits 9,700,971 4,095,776
Deferred income 9,844,123 5,625,799
Income taxes payable 2,221,394 1,022,171
--------------- ---------------
68,488,266 22,601,063
LONG TERM LIABILITIES 1,083,331 --
DEFERRED INCOME TAXES 23,889,862 1,356,442
LONG TERM BORROWINGS 125,000,000 5,000,000
STOCKHOLDERS' EQUITY
Preferred Stock, $100 par value--2,000,000
shares authorized: none issued
Common Stock, no par value, at nominal assigned value--
62,000,000 shares authorized: 32,076,478 issued and
outstanding in 2000, 28,728,016 issued and
outstanding in 1999 16,011 14,347
Additional paid-in capital 44,226,935 1,719,699
Unearned compensation (599,817) (649,612)
Retained earnings 58,757,125 81,487,562
Accumulated other comprehensive income (191,796) --
--------------- ---------------
102,208,458 82,571,996
--------------- ---------------
$ 320,669,917 $ 111,529,501
=============== ===============
</TABLE>
<PAGE> 3
INTERVOICE-BRITE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------- --------------------------------
November 30, November 30, November 30, November 30,
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Sales $ 82,034,870 $ 35,010,205 $ 201,971,807 $ 98,080,821
Cost of goods sold 34,702,626 13,714,612 97,928,708 39,688,701
-------------- -------------- -------------- --------------
Gross Margin 47,332,244 21,295,593 104,043,099 58,392,120
-------------- -------------- -------------- --------------
Research and development expenses 9,344,645 3,264,998 50,981,566 9,788,021
Selling, general and administrative
expenses 21,000,630 9,525,284 59,688,907 28,538,341
Amortization of goodwill and
acquired intangible assets 3,528,542 -- 7,057,084 --
-------------- -------------- -------------- --------------
Income (loss) from operations 13,458,427 8,505,311 (13,684,458) 20,065,758
Other income 81,811 95,253 1,159,047 309,896
Interest expense (2,685,498) (193,375) (5,558,726) (622,316)
-------------- -------------- -------------- --------------
Income (loss) before income taxes 10,854,740 8,407,189 (18,084,137) 19,753,338
Income taxes 3,745,000 2,900,481 4,646,300 6,814,902
-------------- -------------- -------------- --------------
Net income (loss) $ 7,109,740 $ 5,506,708 $ (22,730,437) $ 12,938,436
============== ============== ============== ==============
Net income (loss) per share - basic $ 0.22 $ 0.20 $ (0.76) $ 0.47
============== ============== ============== ==============
Net income (loss) per share - diluted $ 0.21 $ 0.18 $ (0.76) $ 0.44
============== ============== ============== ==============
</TABLE>
<PAGE> 4
INTERVOICE-BRITE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional
----------------------------- Paid-In Unearned
Shares Amount Capital Compensation
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at February 28, 1999 28,728,016 $ 14,347 $ 1,719,699 $ (649,612)
Issuance of stock in connection with acquisition 2,985,792 1,507 42,360,900 --
Exercise of stock options 349,334 150 1,867,872 --
Tax effects relating to exercise of stock options -- -- (1,912,234) --
Issuance of restricted stock 13,336 7 190,698 (190,705)
Amortization of unearned compensation 240,500 240,500
Net income (loss) -- -- -- --
Foreign currency translation adjustment -- -- -- --
------------- ------------- ------------- -------------
Balance at November 30, 1999 32,076,478 $ 16,011 $ 44,226,935 $ (599,817)
============= ============= ============= =============
<CAPTION>
Accumulated Other
Retained Comprehensive
Earnings Loss Total
------------- ---------------- -------------
<S> <C> <C> <C>
Balance at February 28, 1999 $ 81,487,562 -- $ 82,571,996
Issuance of stock in connection with acquisition -- -- 42,362,407
Exercise of stock options -- -- 1,868,022
Tax effects relating to exercise of stock options -- -- (1,912,234)
Issuance of restricted stock -- -- --
Amortization of unearned compensation
Net income (loss) (22,730,437) -- (22,730,437)
Foreign currency translation adjustment -- (191,796) (191,796)
------------- ------------- -------------
Balance at November 30, 1999 $ 58,757,125 $ (191,796) $ 102,208,458
============= ============= =============
</TABLE>
<PAGE> 5
INTERVOICE-BRITE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
November 30, November 30, November 30, November 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 7,109,140 $ 5,506,708 $ (22,730,437) $ 12,938,436
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities:
Depreciation and amortization 7,685,473 2,871,225 20,503,776 8,032,944
In-process research and
development charge -- -- 30,100,000 --
Changes in operating assets
and liabilities 6,269,491 (2,844,932) 72,813 (5,633,811)
------------- ------------- ------------- -------------
NET CASH PROVIDED BY OPERATIONS 21,064,104 5,533,001 27,946,152 15,337,569
INVESTING ACTIVITIES
Purchase of property and equipment (2,788,887) (1,031,021) (6,492,560) (3,459,101)
Purchased software (199,921) (5,081,610) (729,457) (5,328,458)
Purchase of Brite Voice Systems,
Inc., net of cash acquired -- -- (116,512,518) --
------------- ------------- ------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (2,988,808) (6,112,631) (123,734,535) (8,787,559)
FINANCING ACTIVITIES
Exercise of stock options 208,413 4,778,746 1,868,022 6,097,682
Purchase of Treasury Stock -- (1,485,000) -- (5,870,638)
Paydown of debt (10,000,000) -- (15,000,000) --
Borrowings -- -- 135,000,000 --
------------- ------------- ------------- -------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (9,791,587) 3,293,746 121,868,022 227,044
------------- ------------- ------------- -------------
INCREASE IN CASH AND
CASH EQUIVALENTS 8,283,709 2,714,116 26,079,639 6,777,054
Cash and cash equivalents,
beginning of period 29,991,542 8,253,878 12,195,612 4,190,940
------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS,
END PERIOD $ 38,275,251 $ 10,967,994 $ 38,275,251 $ 10,967,994
============= ============= ============= =============
</TABLE>
5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED NOVEMBER 30, 1999
NOTE A -- BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. The consolidated balance sheet at February 28, 1999 has been
derived from audited financial statements at that date. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation of the unaudited November 30, 1999 and 1998
consolidated financial statements have been included. Operating results for the
three and nine month periods ended November 30, 1999 are not necessarily
indicative of the results that may be expected for the year ending February 29,
2000 as they may be affected by a number of factors, including the timing and
ultimate receipt of orders from significant customers which continue to
constitute a large portion of the Company's sales, the sales channel mix of
products sold, and changes in general economic conditions, any of which could
have an adverse effect on operations.
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 third quarters of fiscal 2000 and
1999 was $6.7 million and $5.5 million. For the nine months ended November 30,
1999 and 1998, it was ($22.9) million and $12.9 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 as a separate component of stockholders' equity. Any
transaction gains or losses are included in the accompanying consolidated
statements of operations.
NOTE B - ACQUISITION OF BRITE VOICE SYSTEMS, INC.
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 consideration. Brite provided voice processing and call processing
systems and services which incorporate prepaid/postpaid applications, voice
response, voice recognition, voice/facsimile messaging, audiotex and interactive
computer applications into both standard products and customized product
solutions. Approximately $122.7 million was paid in cash, and approximately
$42.4 million was paid in InterVoice-Brite common stock. The Company's
consolidated statements of operations reflect the results of operations of Brite
beginning June 1, 1999.
The aggregate purchase price for Brite was approximately $174.3 million, which
includes direct costs and assumed liabilities relating to the merger. The
components of the aggregate purchase price were as follows (in millions):
<TABLE>
<S> <C>
Cash $ 122.7
Issuance of common stock 42.4
Other direct costs of merger and assumed liabilities 9.2
--------
$ 174.3
========
</TABLE>
6
<PAGE> 7
Other direct costs of the merger and assumed liabilities primarily consisted of
employee termination costs, transaction costs and costs associated with the
elimination of excess facilities. As of November 30, 1999, unpaid accruals
included in these costs were $5.3 million. The merger has been accounted for as
a purchase business combination. The purchase price has been allocated to
identifiable tangible and intangible assets acquired and liabilities assumed
based on their estimated fair values as follows:
<TABLE>
<S> <C>
Working capital $ 45.4
Property and equipment 17.8
Other assets 5.2
Other liabilities (1.4)
Identified intangible assets 74.5
Purchased in-process R&D (expensed) 30.1
Deferred tax liability on identified intangibles (28.8)
Goodwill 31.5
----------
$ 174.3
==========
</TABLE>
The estimates of fair value were determined by the Company's management based on
information furnished by management of Brite and an independent valuation of
existing product technology ($25.9 million), in-process R&D ($30.1 million), and
other identified intangibles. Other identified intangibles include customer
relationships ($32.8 million), assembled workforce ($9.2 million), and trade
name ($6.6 million). Identified intangibles and the excess of cost over net
assets acquired (i.e. goodwill) are being amortized on a straight-line basis
over 5-10 years and 10 years, respectively.
Amounts allocated to in-process R&D were expensed at the time of acquisition as
the Company determined that the in-process R&D had not reached technological
feasibility based on the status of design and development activities that
require further refinement and testing. Brite's in-process R&D related to
technologies which support Brite's interactive voice response (IVR)/computer
telephony integration (CTI), intelligent network, messaging, voice dialing, and
prepaid/postpaid product families. The valuation of existing product technology
and in-process R&D was performed using the income approach, which includes an
analysis of the markets, cash flows, and risks associated with achieving such
cash flows. The income approach focuses on the income producing capability of
the existing products and in-process R&D projects and best represents the
present value of the future economic benefits expected to be derived.
Significant assumptions used in the valuation of in-process R&D included the
stages of completion of R&D projects, projected operating cash flows, and the
discount rate. At the time of the merger, Brite management estimated the
remaining cost to complete the in-process R&D projects to be approximately $1.6
million with a remaining time requirement of approximately 8-12 months.
Projected operating cash flows were expected to begin in fiscal 2000. The
discount rate selected for Brite's in-process technologies was 27.5%. If the R&D
projects are not successfully developed, the Company may not realize the value
assigned to the in-process R&D. As of November 30, 1999, development of the
projects had progressed as planned with remaining costs to complete estimated at
$0.7 million.
In connection with this transaction, the Company obtained senior secured credit
facilities amounting to $150 million from Bank of America, made up of 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. The credit facilities require
the Company to comply with certain financial covenants as defined in the related
credit agreements. As of November 30, 1999, $125 million was outstanding under
the credit facilities. On December 10, 1999 the company repaid $25 million of
its borrows to reduce the amount outstanding under the credit facilities to $100
million. 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 8.60%. On December 10, 1999, the Company entered
into interest rate swap agreements to hedge its exposure to interest rate
fluctuations. Swaps hedging $50 million of the Company's borrowings mature June
9, 2002 and limit the interest rate on such borrowings to a maximum of 8.7%.
Swaps hedging the remainder of the Company's borrowings mature June 9, 2000 and
limit the interest rate on such borrowings to a maximum of 8.4%.
7
<PAGE> 8
The following unaudited pro forma information presents the Company's results of
operations for the nine month periods ended November 30, 1999 and 1998 as if the
Brite merger had occurred at March 1, 1999 and 1998, respectively. The pro forma
information has been prepared by combining the results of operations of the
Company and Brite, adjusted for additional amortization expense of identified
intangibles and goodwill, interest expense on the credit facilities, and the
resulting impact on the provision for income taxes. No adjustment has been made
to account for the two companies' different fiscal year ends. This pro forma
information does not purport to be indicative of what would have occurred had
the Brite merger occurred as of the dates assumed or of results of operations
which may occur in the future (in thousands, except per share data):
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------------------
November 30, 1999 November 30, 1998
----------------- -----------------
<S> <C> <C>
Sales $ 238,545 $ 208,420
Income before income taxes $ 12,406 $ 4,117
Net income $ 8,754 $ 1,810
Net income per share - basic $ 0.28 $ 0.06
Net income per share - diluted $ 0.27 $ 0.06
</TABLE>
Proforma income before income taxes and net income exclude the effects of a
$30.1 million charge for in-process research and development acquired in the
merger with Brite Voice Systems, Inc. and approximately $4.2 million of
restructuring charges related to the merger consisting primarily of employee
severance expenses and the write-off of certain inventory and intangible assets
made redundant in the merger.
NOTE C - REVENUE RECOGNITION
The Company recognizes revenue for sales of systems which do not require
customization by the Company at the time of shipment. Revenue for systems which
require customization by the Company are recognized by the contract method of
accounting using percentage of completion for larger, more complex systems
(generally over a $500,000 sales price) and the completed contract method for
smaller systems. The Company recognizes revenue from services at the time the
service is performed or over the period of the contract for maintenance/support.
NOTE D - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
November 30, 1999 February 28, 1999
----------------- -------------------
<S> <C> <C>
Purchased parts $ 20,083,277 $ 9,504,635
Work in progress 9,717,985 501,195
Finished goods 1,006,544 1,698,598
----------------- -------------------
$ 30,807,806 $ 11,704,428
================= ===================
</TABLE>
NOTE E - INCOME TAXES
The Company's income tax expense for the nine months ended November 30, 1999
differs significantly from the federal statutory rate primarily due to
non-deductible charges during the periods relating to in-process R & D and
amortization of goodwill from the merger with Brite. Income taxes were provided
for at 34.5% of pre-tax income during the third quarter.
8
<PAGE> 9
NOTE F - EARNINGS PER SHARE
The Company completed a two-for-one stock split in the form of a 100% stock
dividend on January 11, 1999. Basic and diluted earnings per share have been
retroactively adjusted to reflect the split.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------- -----------------------------------
November 30, November 30, November 30, November 30,
------------- ------------- ------------- -------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Numerator:
Net Income (loss) $ 7,109,740 $ 5,506,708 $ (22,730,437) $ 12,938,436
============= ============= ============= =============
Denominator:
Denominator for basic earnings per share
weighted average shares outstanding 31,987,926 27,957,360 29,947,144 27,801,632
============= ============= ============= =============
Effect of dilutive securities:
Employee stock options 1,605,509 2,634,108 1,839,090
Non-vested restricted stock 28,630 -0- -0- -0-
------------- ------------- ------------- -------------
Dilutive potential common shares 1,634,139 2,634,108 -0- 1,839,090
------------- ------------- ------------- -------------
Denominator for diluted
earnings per share 33,622,065 30,591,468 29,947,144 29,640,722
============= ============= ============= =============
Net income (loss) per common share
- basic $ .22 $ 0.20 $ (0.76) $ 0.47
============= ============= ============= =============
Net income (loss) per common share
- diluted $ .21 $ 0.18 $ (0.76) $ 0.44
============= ============= ============= =============
</TABLE>
NOTE: 1,705,127 potentially dilutive shares were excluded from the diluted
earnings per share calculation for the nine months ending November 30, 1999 as
they would be anti-dilutive due to net losses.
NOTE G - 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 revenues based on customer markets, including Business
Systems, Network Systems and Services and geographic area. The Business Systems
market includes interactive voice response and customer relationship management
systems such as the Company's OneVoice and AgentConnect products. The Network
Systems customer market focuses on systems for telecommunications network
operators and includes the Company's InControl and Brite Debit products.
9
<PAGE> 10
Services revenues include fees for post warranty 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 revenues by market and geographic area were as follows.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------- ----------------------------------
November 30, November 30, November 30, November 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
Revenues:
<S> <C> <C> <C> <C>
Business Systems $ 26,809,537 $ 27,824,301 $ 81,958,460 $ 71,089,170
Network Systems 32,050,246 2,927,070 71,181,066 15,137,795
Services 23,175,087 4,258,834 48,832,281 11,853,856
------------- ------------- ------------- -------------
Total $ 82,034,870 $ 35,010,205 $ 201,971,807 $ 98,080,021
============= ============= ============= =============
Geographic Area Net Revenues:
United States $ 46,455,612 $ 29,464,479 $ 122,398,657 $ 80,833,044
The Americas (Excl U.S.) 3,837,901 2,384,697 12,430,336 9,170,330
Pacific Rim 4,492,043 1,774,035 12,513,455 4,805,817
Europe, Middle East & Africa 27,249,314 1,386,994 54,629,359 3,271,630
------------- ------------- ------------- -------------
Total $ 82,034,870 $ 35,010,205 $ 201,971,807 $ 98,080,821
============= ============= ============= =============
</TABLE>
No customer accounted for 10% or more of the Company's sales during the nine
month periods ended November 30, 1999 or November 30, 1998. One customer
accounted for 11.3% of the Company's sales during the three month period ended
November 30, 1999.
NOTE H-NON-RECURRING AND UNUSUAL EXPENSES
Included in cost of goods sold for the first nine months of fiscal 2000 are
charges totaling $9.1 million including a charge related to a comprehensive
cross-license agreement executed with an affiliate of Lucent Technologies, Inc.
and charges related to the write-off of certain inventory and intangible assets
made obsolete as a result of the merger with Brite. Included in research and
development expenses for the second quarter of fiscal 2000 is a charge of $30.1
million related to in-process research and development as more fully described
in Note B. Finally, included in selling, general and administrative expenses for
the second quarter of fiscal 2000 are charges totaling $5.9 million including a
provision for severance for employees of the Company prior to the Brite merger
made redundant as a result of the merger, an increase in the Company's bad debt
provision related to the impairment of certain foreign accounts receivable, a
provision for lease termination expenses for properties made redundant by the
Brite merger and a charge related to bad debt expense relating to the write-off
of receivables relating to the cancellation of certain customer equipment
trade-in obligations. Unpaid employee severance and lease termination costs as
of November 30, 1999 were $0.4 million.
10
<PAGE> 11
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SALES. Sales in the first nine months and third quarter of fiscal 2000 were
approximately $202.0 million and $82.0 million, respectively. Such sales
increased approximately $103.9 million and $47.0 million, respectively, or 106%
and 134%, when compared to the same periods of fiscal 1999. The increases are
primarily due to the Company's merger with Brite Voice Systems, Inc. (Brite)
which was accounted for using the purchase method of accounting. Results of
Brite's operations have been consolidated with those of InterVoice, Inc.
effective June 1, 1999, the first day of the Company's second fiscal quarter.
To enhance comparability of the Company's sales for its first nine months and
third quarter of fiscal 2000 the information below is also presented on an "as
adjusted" basis as though the merger with Brite had occurred at the beginning of
the respective periods presented.
<TABLE>
<CAPTION>
As Adjusted ($M) As Reported ($M)
-------------------- --------------------
Nine Months 2000* 1999* 2000 1999
- ----------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales:
Business Systems 84.7 90.8 82.0 70.3
Network Systems 91.0 65.8 71.0 17.3
Services** 62.8 36.6 49.0 10.5
------ ------ ------ ------
Total 238.5 193.2 202.0 98.1
====== ====== ====== ======
Third Quarter
Sales:
Business Systems 26.8 34.1 26.8 26.9
Network Systems 32.0 22.6 32.0 5.1
Services** 23.3 13.9 23.2 4.0
------ ------ ------ ------
Total 82.1 70.6 82.0 35.0
====== ====== ====== ======
</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.
** Does not include sales by Brite's TSL division, which was sold December
1, 1998.
The following discussion compares sales performance only on an "as adjusted"
basis.
Business Systems sales decreased 7% in the first nine months and decreased 21%
in the third quarter of fiscal 2000 when compared to the same periods of the
previous fiscal year. Such sales in the previous fiscal year were favorably
impacted by a pent up demand for the Company's host computer and operating
system independent products which were then recently released. Excluding such
sales, Business Systems sales in the first nine months of fiscal 2000 would have
been approximately equal to such sales in the same period of the previous fiscal
year. The decline of such sales in the third quarter, compared to the same
period of the previous fiscal year, was also attributable, in part, to a
sluggishness in demand from the former Brite customer base as those companies
evaluated the Company's product roadmap resulting from the Company's merger with
Brite. The Company believes this sluggishness in demand to be temporary.
International Business Systems sales constituted 14% and 11% of the Company's
total Business Systems sales during the first nine months and third quarter of
fiscal 2000, respectively.
Network Systems sales increased 38% in the first nine months and 42% in the
third quarter of fiscal 2000 when compared to the same periods of the previous
fiscal year. Such sales increased as a result of the Company's continued
investments in product development, expansion of distribution channels,
advertising and marketing programs and in hiring and training new sales, service
and support personnel. International Network Systems sales constituted 74% and
70% of the Company's total Network Systems sales during the first nine months
and third quarter of fiscal 2000, respectively.
Services sales increased 72% in the first nine months and 68% in the third
quarter of fiscal 2000 when compared to the same periods of the previous fiscal
year. An increase in the Company's Managed Services sales was the primary reason
for the increase in Service sales. The Company, as a result of its
11
<PAGE> 12
merger with Brite, 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 first nine months and third quarter of fiscal 2000 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 39%, and 43% of the Company's total Services sales
during the first nine months and third quarter of fiscal 2000, respectively.
COST OF GOODS SOLD. Cost of goods sold was approximately $97.9 million and $34.7
million for the first nine months and third quarter of fiscal 2000. During the
second quarter the Company incurred charges of, in the aggregate, $9.1 million
of a non-recurring nature. These charges include a charge related to a
comprehensive patent cross-license agreement with an affiliate of Lucent
Technologies, Inc., a provision for inventories made obsolete as a result of the
merger with Brite, and a provision for the impairment of certain intangible
assets relating to the Company's ESP product line made obsolete as a result of
the merger with Brite. Without these charges, cost of goods sold would have been
$88.8 million for the first nine months of fiscal 2000. As a percentage of sales
and without the charges described above, cost of goods sold was 44% for the
first nine months and 42% for third quarter of fiscal 2000 as compared to 40%
and 39% for the same periods of the previous fiscal year. The increase in cost
of goods sold as a percentage of sales is attributable to the Company's merger
with Brite which, historically, has had a greater cost of goods sold, as a
percentage of sales, than the Company due to higher third party hardware content
in its systems than in the Company's systems.
RESEARCH AND DEVELOPMENT. Research and development expenses during the first
nine months and third quarter of fiscal 2000 were approximately $51.0 million
and $9.3 million respectively. Such expenses for the first nine months of fiscal
2000 include a $30.1 million charge for in-process research and development,
(see "In-Process Research and Development" below), incurred during the second
quarter in connection with the Brite merger. Net of this charge, research and
development expenses were approximately $20.9 million during the first nine
months of fiscal 2000. Such expenses, net of the in-process research and
development charge, were 10% of the Company's total sales during the first nine
months of fiscal 2000 and 11.4% during the third quarter. Such recurring
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.
IN-PROCESS RESEARCH AND DEVELOPMENT. During the second quarter of fiscal 2000,
the Company acquired all of the outstanding stock of Brite in a two-step
transaction involving aggregate consideration of approximately $165.1 million of
cash and common stock. Brite provides voice processing and call processing
systems and services which incorporate prepaid/postpaid applications, voice
response, voice recognition, voice/facsimile messaging, audiotex and interactive
computer applications into both standard products and customized market
solutions. Approximately $122.7 million was paid in cash, and approximately
$42.4 million was paid in InterVoice-Brite common stock. The Company's
consolidated statements of operations reflect the results of operations of Brite
beginning June 1, 1999.
The aggregate purchase price for Brite was approximately $174.3 million, which
includes other direct costs and assumed liabilities relating to the merger.
Other direct costs of the merger and assumed liabilities primarily consisted of
employee termination costs, transaction costs and costs associated with the
elimination of excess facilities. The merger has been accounted for as a
purchase business combination.
The purchase price has been allocated to identifiable tangible and intangible
assets acquired and liabilities assumed based on their estimated fair values.
The estimates of fair values were determined by the Company's management based
on information furnished by management of Brite and an independent valuation of
existing product technology ($25.9 million), in-process R&D ($30.1 million), and
other identified intangibles. Other identified intangibles include customer
relationships ($32.8 million), assembled workforce ($9.2 million), and trade
name ($6.6 million). Identified intangibles and the excess of cost over net
assets acquired (i.e. goodwill) are being amortized on a straight-line basis
over 5-10 years and 10 years, respectively.
12
<PAGE> 13
In-process R&D of $30.1 million was expensed at the time of acquisition as the
Company determined that the in-process R&D had not reached technological
feasibility based on the status of design and development activities that
required further refinement and testing. Brite's in-process R&D related to
technologies which support Brite's interactive voice response (IVR)/computer
telephony integration (CTI), intelligent network, messaging, voice dialing, and
prepaid/postpaid product families.
The valuation of existing product technology and in-process R&D was performed
using the income approach, which includes an analysis of the markets, cash
flows, and risks associated with achieving such cash flows. The income approach
focuses on the income producing capability of the existing products and
in-process R&D projects and best represents the present value of the future
economic benefits expected to be derived. Significant assumptions used in the
valuation of in-process R&D included the stages of completion of R&D projects,
projected operating cash flows, and the discount rate. At the time of the
merger, Brite management estimated the remaining cost to complete the in-process
R&D projects to be approximately $1.6 million with a remaining time requirement
of approximately 8-12 months. Projected operating cash flows were expected to
begin in fiscal 2000. The discount rate selected for Brite's in-process
technologies was 27.5%. If the R&D projects are not successfully developed, the
Company may not realize the value assigned to the in-process R&D. As of November
30, 1999, development of the projects had progressed as planned with remaining
costs to complete estimated at $0.7 million.
SELLING, GENERAL AND ADMINISTRATION. Selling, general and administration
expenses during the first nine months and third quarter of fiscal 2000 were
approximately $59.7 million and $21.0 million respectively. Such expenses for
the first nine months of fiscal 2000 include non-recurring charges totaling $5.9
million, including a provision for severance for employees of the Company prior
to the merger with Brite Voice Systems made redundant to the Company's staffing
plan as a result of the merger, an increase to the Company's bad debts provision
as a result of the impairment of certain foreign accounts receivable, a
provision for lease termination expenses for properties occupied by the Company
before the merger with Brite made redundant as a result of the merger, travel
expenses associated with developing the plan for merging the operation of the
Company with the operations of Brite, and a charge to bad debt expense relating
to the write off of receivables relating to the cancellation of certain customer
equipment trade-in obligations. Net of these charges, which were booked during
the second quarter, selling, general and administrative expenses were
approximately $53.8 million for the first nine months of fiscal 2000. Such
expenses, net of these changes, were 27% of the Company's total sales during the
first nine months of fiscal 2000 and 26% during the third quarter. The Company
expects selling, general and administrative expenses as a percentage of total
sales to decline as efficiencies are achieved through combining the operations
of the Company with those of Brite.
AMORTIZATION OF GOODWILL AND ACQUIRED INTANGIBLE ASSETS. Such expenses were
approximately $7.1 and $3.5 million for the first nine months and third quarter
of fiscal 2000, respectively. Goodwill and intangible assets acquired in the
merger with Brite totaled approximately $106 million with useful lives averaging
seven years.
OTHER INCOME. Other income of approximately $1.2 million and $0.1 million during
the first nine months and third quarter of fiscal 2000 was primarily interest
paid on the Company's net cash reserves.
13
<PAGE> 14
INTEREST EXPENSE. Interest expense of approximately $5.6 million and $2.7
million for the first nine months and third quarter of fiscal 2000 was paid on
the Company's long term borrowings obtained during the second quarter in
connection with the merger with Brite (See "Liquidity and Capital Resources" for
a description of the Company's long term borrowings).
INCOME TAXES. The Company's income tax expense for the first nine months of
fiscal 2000 differs significantly from the federal statutory rate primarily due
to non-deductible charges during the periods relating to in-process R & D and
amortization of goodwill resulting from the merger with Brite. During the third
quarter, income taxes were provided for at a rate of 34.5% of pre-tax income.
INCOME (LOSS) FROM OPERATIONS. Operating losses for the first nine months of
fiscal 2000 were approximately $13.7 million and net losses were $22.7 million.
As previously mentioned, the Company incurred during the second quarter unusual
charges reported in cost of goods sold and selling, general and administrative
expenses totaling approximately $9.1 million and approximately $5.9 million,
respectively. In addition, the Company incurred a charge of $30.1 million for
in-process research and development relating to its merger with Brite.
Adjusting for these unusual charges and the charge for in-process research and
development, operating income for the first nine months and third quarter of
fiscal 2000 would have been approximately $31.4 million and $13.5 million,
respectively. Operating income for the same periods in the previous year was
approximately $20.1 million and $8.5 million. The increase in operating income
is primarily due to the merger with Brite.
Adjusting for the unusual charges and the charge for in-process research and
development, net income for the first nine months and third quarter of fiscal
2000 would have been approximately $18.8 million and $7.1 million, respectively.
Net income for the same periods in the previous fiscal year was approximately
$12.9 million and $5.5 million. The increase is primarily due to the merger with
Brite.
LIQUIDITY AND CAPITAL RESOURCES. At November 30, 1999, the Company had cash
reserves of approximately $38.3 million while borrowings under the Company's
term loan and revolving credit facility with Bank of America were $125.0
million. Borrowings under the credit facilities were paid down to $100 million
on December 10, 1999. Operating cash flow during the third quarter was
approximately $21.1 million. Net income plus non-cash expense items during the
quarter totaled $14.8 million while a decrease in operating assets generated
cash of $6.3 million. The decrease in operating assets was primarily
attributable to a reduction in days sales outstanding (DSO's) of accounts
receivable. At November 30, 1999, DSO's were 95 days, down from 101 days at
August 31, 1999. Investing activities, primarily the purchase of computer and
test equipment, used approximately $3.0 million during the quarter while
financing activities, primarily pay down of the borrowings to finance the Brite
merger, used $10.0 million; proceeds from the exercise of employee stock options
contributed approximately $0.2 million to cash flow. Net cash flow during the
quarter was approximately a positive $8.3 million. The Company believes its cash
reserves and internally generated cash flow will be sufficient to meet its
operating cash and debt service requirements for the foreseeable future. In
addition, the Company has available a $25 million revolving credit facility with
Bank of America. 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, however, the term loan and revolving credit
agreement discussed below includes normal and customary provisions which limit
the Company's ability to make such acquisitions.
The Company completed a two-for-one stock split in the form of a 100% stock
dividend on January 11, 1999. Basic and diluted earnings per share have been
retroactively adjusted to reflect the stock split.
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, made up of 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 January 14, 2000, the Company had borrowings of $100
million
14
<PAGE> 15
outstanding under the agreement, at an average annual interest rate of 8.60%.
Interest under the credit facility accrues at a variable rate indexed to the
prime rate, the federal funds rate or an adjusted London Interbank Offering
Rate. On December 10, 1999, the Company entered into interest rate swap
agreements to hedge its exposure to interest rate fluctuations. Swaps hedging
$50 million of the Company's borrowings mature June 9, 2002 and limit the
interest rate on such borrowings to a maximum of 8.7%. Swaps hedging the
remainder of the Company's borrowings mature June 9, 2000 and limit the interest
rate on such borrowings to a maximum of 8.4%.
A Registration Statement on Form S-4 as amended, file No. 333-79839 (the
"Registration Statement"), for the proposed merger between the Company and Brite
was filed with the Securities and Exchange Commission on July 13, 1999. This
quarterly report on Form 10-Q incorporates by reference the following sections
from the Registration Statement which further describe certain matters related
to the acquisition of Brite that could have a material impact upon the operating
cash requirements of the Company for the foreseeable future: (i) "The Merger
Financing Arrangements Related to the Merger" (pages 38-40) and "Risk Factors -
The bank loan to finance the Brite acquisition puts InterVoice at financial
risk" (pages 12-13); (ii) "Risk Factors - Failure or inability to successfully
integrate the operations and products of Brite could negatively impact
InterVoice's business" (page 13); (iii) "The Merger - AT&T Warrant" (page 45),
"The Merger - Brite Stock Option Plans" (page 43) and "Risk Factors - - Certain
arrangements may have influenced the decision of Brite's board of directors to
recommend the merger" (page 18); and (iv) "The Merger - Fees and Expenses" (page
45). The information is incorporated by reference and is deemed to be a part of
this quarterly report on Form 10-Q.
YEAR 2000 COMPLIANCE
Many installed computer systems used by numerous companies to run a variety of
applications are not capable of processing date sensitive information that falls
beyond the twentieth century. The Company was concerned that unless these
computer systems were replaced or upgraded prior to the year 2000 to process
such date sensitive information, the systems might experience severe operating
difficulties or system failures.
Beginning in fiscal 1996, the Company initiated a program to replace and upgrade
its information systems to accommodate the Company's growth, improve
productivity and remediate any century compliance problems. This program was
substantially completed during the third quarter of fiscal 1999.
Additionally, the Company created a year 2000 project team to review and test
its information technology systems and non-information technology systems and to
resolve any century compliance issues that were found. The team also worked to
ensure that any replacements and upgrades to the Company's information systems
were century compliant before they were implemented. In this regard, the team
also worked with third party vendors to assess the year 2000 readiness of its
information technology systems. The year 2000 readiness of the Company's
information technology systems is, therefore, partially dependent upon the
accuracy of disclosures and representations made by third party vendors, such as
Oracle, PeopleSoft, MicroSoft, IBM and Dell Computer. Because most of the
expenditures to replace and upgrade the Company's internal systems were incurred
in the ordinary course of business (i.e., on a non-accelerated basis), the
Company did not incur material incremental expenses in connection with its year
2000 remedial efforts.
As a result of the program to replace and upgrade its internal systems, and the
efforts of the year 2000 project team, the Company's mission-critical internal
systems were century compliant in all material respects prior to January 2000.
Accordingly, the Company did not experience any system failures in connection
with its mission-critical internal systems. While it is unlikely that the
Company will experience any significant year 2000 issues with its
mission-critical internal systems after the date this quarterly report is filed,
there is still a possibility that the Company may, in the future, experience
century noncompliance issues with such systems.
The Company created a detailed year 2000 testing program for its
mission-critical systems. During the first fiscal quarter, the Company completed
a century compliance testing and remediation program for its customer service
systems. The Company substantially completed its testing and remediation program
for year 2000 issues with respect to mission-critical systems during the third
fiscal quarter. Prior to the merger, Brite had conducted a testing and
remediation program for year 2000 issues associated with its mission-critical
systems. The Company also reviewed and confirmed the year 2000 readiness of
mission-critical systems acquired in the merger that remained in operation after
the end of calendar year 1999.
15
<PAGE> 16
Many mission-critical systems and/or system applications associated with the
domestic operations of Brite, such as finance and purchasing, were transitioned
to the Company's existing enterprise system before the year 2000.
The commencement of the Company's fiscal year 2000 on March 1, 1999 helped to
accelerate its year 2000 testing program, particularly for mission-critical
financial, manufacturing and order entry applications which process dates that
reflect the fiscal year end date (i.e., February 29, 2000).
In addition to assessing and testing internal business systems for year 2000
readiness issues, the Company also reviewed its other contingency plans for
system failures that might have, but did not, arise in connection with the
millennium transition. The Company used certain previously developed disaster
recovery processes and procedures that would have allowed it to continue
critical business operations in the event of a software or hardware failure, or
the failure of infrastructure services (i.e., electricity, telephone services,
water transport, internet services, etc.).
These disaster recovery processes and procedures generally involved manual "work
arounds" and alternate computerized solutions. The Company determined that these
processes and procedures were adequate in light of potential century compliance
issues. As part of the contingency plan, the Company acquired auxiliary power
generators to help operate mission-critical systems in the event of temporary
power failures. The Company also implemented plans for addressing any year 2000
readiness issues or concerns of customers during the weeks surrounding the turn
of the century. These plans included additional staffing in the Company's
RealCare maintenance department, specific procedures for diagnosing and
resolving year 2000 readiness issues for customer systems, restrictions on
vacations during the January 1st time-frame, and additional phone capacity to
handle any increase in customer service calls.
Based on a thorough review and testing of its software products and other
products, the Company believes that its current products are century compliant.
The Company began designating certain products as such in June 1997. Brite began
designating certain of its products as century compliant beginning in August
1998. The Company's assessment of its current products, including Brite's
products, was partially dependent upon the accuracy of disclosures and
representations concerning century compliance made by its suppliers, such as
MicroSoft, IBM and Dell Computer. However, the Company was concerned that many
customers were using earlier versions of software products and other products
that the Company had not designated as century compliant. The Company had
instituted programs to actively warn these customers of the risks associated
with using software and other products which may not be century compliant, and
to actively encourage such customers to migrate to the Company's current
products.
The Company did not experience a significant increase in customer service calls
during the first two weeks of January 2000. Any customer service inquiries which
were, or might have been, related to the century date change, generally involved
minor nonconformities which were resolved within 24 hours or less. While the
Company may receive some additional customer service calls relating to the
century date change, the Company does not anticipate receiving many such
inquiries.
The Company has not been required to defend its products or services in judicial
proceedings related to the century date change. As a result of the Company's
success in minimizing and resolving century noncompliance issues and notifying
customers of the actions necessary to avoid such issues, the Company believes it
is unlikely that it will be required in the future to defend its products or
services in proceedings against claims based on century noncompliance issues.
However, there is no assurance the Company will not be involved in such
proceedings in the future.
BRITE VOICE SYSTEMS, INC. SUBSIDIARY. As discussed above in the section entitled
"Liquidity and Capital Resources", the Company has acquired all of the common
stock of Brite. The Company's future success will depend in part on its ability
to efficiently integrate and operate Brite and its products with the Company's
business, and its ability to retain and assimilate key employees of Brite. This
quarterly report on Form 10-Q incorporates by reference the following section
from the Registration Statement which further describes certain risks associated
with assimilating Brite's business, products and employees
16
<PAGE> 17
which could have a material impact on the Company's consolidated operations:
"Failure or inability to successfully integrate the operations and products of
Brite could negatively impact InterVoice's business" (page 13). The information
is incorporated by reference and is deemed to be a part of this quarterly report
on Form 10-Q.
17
<PAGE> 18
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 report
regarding the Company's financial position, business strategy, plans and
objectives of management of the Company for future operations, and industry
conditions, are forward-looking statements. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to be correct. The
following significant factors, among others, sometimes have affected, and in the
future could affect, the Company's actual results and could cause such results
during fiscal 2000, and beyond, to differ materially from those expressed in any
forward-looking statements made by or on behalf of the Company:
o The Company faces intense competition based on product capabilities and
experiences ever increasing demands from its actual and prospective
customers for its products to be compatible with a variety of rapidly
proliferating computing, telephony and computer networking technologies and
standards. The ultimate success of the Company's products is dependent, to
a large degree, on the Company allocating its resources to developing and
improving products compatible with those technologies, standards and
functionalities that ultimately become widely accepted by the Company's
actual and prospective customers. The Company's success is also dependent,
to a large degree, on the Company's ability to implement arrangements with
other vendors with complementary product offerings to provide actual and
prospective customers greater functionality and to ensure that the
Company's products are compatible with the increased variety of
technologies and standards.
o Continued availability of suitable non-proprietary computing platforms and
system operating software that are compatible with the Company's products.
o Certain of the components for the Company's products are available from
limited suppliers. The Company's operating results could be adversely
affected if the Company were unable to obtain such components in the
future.
o Increasing litigation with respect to the enforcement of patents,
copyrights and other intellectual property.
o The ability of the Company to retain its customer base and, in particular,
its more significant customers such as Siemens AG, an InterVoice-Brite
distributor, which accounted for over ten percent of the Company's total
sales during fiscal 1997, since such customers generally are not
contractually obligated to place further orders with the Company.
o The Company's ability to retain its managed services customer base which is
comprised of a limited number of telecommunications companies, since such
customers generally have a limited commitment to continue to purchase such
services from the Company
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.
o Risks involved in the Company's international distribution and sales of its
products, including unexpected changes in regulatory requirements,
unexpected changes in exchange rates, the difficulty and expense of
maintaining foreign offices and distribution channels, tariffs and other
barriers to trade, difficulty in protecting intellectual property rights,
and foreign governmental regulations that may limit or restrict the sales
of call automation systems. Additionally, changes in foreign credit markets
and currency exchange rates may result in requests by many international
customers for extended payment terms and may have an adverse impact on the
Company's cash flow and its level of accounts receivable.
18
<PAGE> 19
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 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 ability of the Company to avoid liquidated damages under certain
customer contracts is dependent upon the Company's ability to avoid
performance delays and/or system operating interruptions.
o The Company's ability to hire and retain, within the Company's compensation
parameters, qualified technical talent and outside contractors in highly
competitive markets for the services of such personnel.
o Mergers and acquisitions between companies in the telecommunications and
financial industries which could result in fewer companies purchasing the
Company's products for telecommunications and financial 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 manner.
o The Company's business transactions in foreign currencies are subject
to adverse movements in foreign currency exchange rates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company invests cash balances in excess of operating requirements in
short-term securities, generally with maturities of 90 days or less. In
addition, the Company's current term loan and revolving credit agreement
provides for borrowings which bear interest at variable rates based on either a
prime rate, the federal funds rate or the London Interbank Offering Rate, plus
an applicable margin. As of January 14, 2000, the Company had $100 million
outstanding pursuant to the credit agreement. Due to the magnitude of this
credit facility, the Company believes that the effect of any reasonably possible
near-term changes in interest rates on the Company's financial position, results
of operations, and cash flows may be material. On December 10, 1999, the Company
entered into interest rate swap agreements to hedge its exposure to interest
rate fluctuations. Swaps hedging $50 million of the Company's borrowings mature
June 9, 2002 and limit the interest rate on such borrowings to a maximum of
8.7%. Swaps hedging the remainder of the Company's borrowings mature June 9,
2000 and limit the interest rate on such borrowings to a maximum of 8.4%.
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 generally mitigates
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.
19
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
27.1 Financial Data Schedule
99.1 Pages 12, 13, 18, 38-40, 43 and 45 of the Registration Statement on
Form S-4, as amended (incorporated by reference to pages 12, 13, 18
38-40, 43 and 45 of the Registration Statement on Form S-4/A
(Amendment No. 1) filed by the Company on July 13, 1999).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERVOICE-BRITE, INC.
Date: 01/14/00 By: /s/ ROB-ROY J. GRAHAM
---------------------------
Rob-Roy J. Graham
Chief Financial Officer
(Chief Accounting Officer)
20
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27.1 Financial Data Schedule
99.1 Pages 12, 13, 18, 38-40, 43, and 45 of the Registration
Statement on Form S-4, as amended (incorporated by reference
to page 12, 13, 18, 38-40, 43 and 45 of the Registration
Statement on Form S-4/A (Amendment No. One) filed by the
Company on July 13, 1999).
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> NOV-30-1999
<CASH> 38,275,251
<SECURITIES> 0
<RECEIVABLES> 94,628,596
<ALLOWANCES> 7,893,664
<INVENTORY> 30,807,806
<CURRENT-ASSETS> 173,548,471
<PP&E> 70,514,740
<DEPRECIATION> 31,151,173
<TOTAL-ASSETS> 320,669,917
<CURRENT-LIABILITIES> 68,488,266
<BONDS> 0
0
0
<COMMON> 16,011
<OTHER-SE> 102,192,447
<TOTAL-LIABILITY-AND-EQUITY> 320,669,917
<SALES> 201,971,807
<TOTAL-REVENUES> 201,971,807
<CGS> 97,928,708
<TOTAL-COSTS> 97,928,708
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 225,192
<INTEREST-EXPENSE> 5,558,726
<INCOME-PRETAX> (18,084,137)
<INCOME-TAX> 4,646,300
<INCOME-CONTINUING> (22,730,437)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,730,437)
<EPS-BASIC> (0.76)
<EPS-DILUTED> (0.76)
</TABLE>
