<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
MAY 31, 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 32,792,375 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>
(In Thousands Except Share Data)
ASSETS May 31, 2000 February 29, 2000
------------ -----------------
<S> <C> <C>
Cash and cash equivalents $ 12,410 $ 23,263
Trade accounts receivable, net of allowance
for doubtful accounts of $3,173 in 2001
and $4,161 in 2000 80,147 93,157
Income tax receivable 3,066 3,903
Inventory 38,790 27,211
Prepaid expenses and other current assets 9,749 8,997
Deferred income taxes 6,183 4,029
----------- ------------
Current Assets 150,345 160,560
Building 19,574 19,522
Computer equipment and software 46,173 46,228
Furniture, fixtures and other 4,567 4,566
Service equipment 6,981 5,956
----------- ------------
77,295 76,272
Less allowance for depreciation 38,654 35,257
----------- ------------
Net property and equipment 38,641 41,015
Intangible assets, net of amortization of
$18,296 in 2001 and $14,400 in 2000 94,570 98,568
Other assets 2,863 2,880
----------- ------------
$ 286,419 $ 303,023
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 32,506 $ 27,240
Accrued expenses 12,718 14,596
Customer deposits 5,617 8,010
Deferred income 30,427 14,450
Current portion of long term borrowings 27,500 25,000
----------- ------------
Current liabilities 108,768 89,296
Long term liabilities -- 958
Deferred income taxes 24,876 25,738
Long term borrowings 52,500 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: 32,792,375 issued, and
outstanding in 2001,
32,587,524 issued and outstanding in 2000 16 16
Additional capital 50,999 49,984
Unearned compensation (3,189) (3,701)
Retained earnings 55,590 66,642
Accumulated other comprehensive income (3,141) (910)
----------- ------------
Stockholders' equity 100,275 112,031
----------- ------------
$ 286,419 $ 303,023
=========== ============
</TABLE>
<PAGE> 3
InterVoice-Brite, Inc.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
(In Thousands Except
Per Share Data)
Three Months Ended
----------------------------
May 31, 2000 May 31, 1999
------------ ------------
<S> <C> <C>
Sales $ 71,468 $ 40,077
Cost of goods sold 34,901 15,347
----------- -----------
Gross margin 36,567 24,730
Research and development expenses 9,017 3,839
Selling, general and administrative expenses 21,897 11,431
Amortization of goodwill and acquisition
related intangible assets 3,474 --
----------- -----------
Income from operations 2,179 9,460
Other income 191 159
Interest Expense (2,048) (51)
----------- -----------
Income before taxes and the cumulative effect
of a change in accounting principle 322 9,568
Income taxes 124 3,301
----------- -----------
Income before the cumulative effect
of a change in accounting principle 198 6,267
Cumulative effect on prior years of adopting
SEC Staff Accounting Bulletin No. 101 (11,250) --
----------- -----------
Net (loss) income $ (11,052) $ 6,267
=========== ===========
Per Basic Share:
Income before the cumulative effect of
a change in accounting principle $ 0.01 $ 0.22
Cumulative effect on prior years of adopting
SEC Staff Accounting Bulletin No. 101 (0.35) --
----------- -----------
Net (loss) income $ (0.34) $ 0.22
=========== ===========
Per Diluted Share:
Income before the cumulative effect of
a change in accounting principle $ 0.01 $ 0.21
Cumulative effect on prior years of adopting
SEC Staff Accounting Bulletin No. 101 (0.33) --
----------- -----------
Net (loss) income $ (0.32) $ 0.21
=========== ===========
</TABLE>
<PAGE> 4
InterVoice-Brite, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
(In Thousands)
Three Months Ended
----------------------------
May 31, 2000 May 31, 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Income before the cumulative effect of a
change in accounting principle $ 198 $ 6,267
Adjustments to reconcile income
before the cumulative effect of a change
in accounting principle to net cash provided
by operating activities:
Depreciation and amortization 8,240 3,191
Changes in operating assets and liabilities 1,605 (2,107)
------------ ------------
NET CASH FROM OPERATIONS 10,043 7,351
INVESTING ACTIVITIES
Purchases of property and equipment (1,517) (803)
Other -- (27)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (1,517) (830)
FINANCING ACTIVITIES
Paydown of debt (20,000) --
Exercise of stock options 1,015 635
------------ ------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (18,985) 635
Effect of exchange rate on cash (394) --
------------ ------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (10,853) 7,156
Cash and cash equivalents, beginning of period 23,263 12,196
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 12,410 $ 19,352
============ ============
</TABLE>
<PAGE> 5
InterVoice-Brite, Inc.
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
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 -- -- -- -- (11,052) -- (11,052)
Foreign currency translation
adjustment -- -- -- -- -- (2,231) (2,231)
Exercise of stock options 204,851 -- 1,015 -- -- -- 1,015
Amortization of unearned
compensation -- -- -- 512 -- -- 512
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at May 31, 2000 32,792,375 $ 16 $ 50,999 $ (3,189) $ 55,590 $ (3,141) $ 100,275
========== ========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MAY 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 May 31, 2000 and 1999
consolidated financial statements have been included. Operating results for the
three month period ended May 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 first quarter of fiscal 2001 and
2000 was ($13.3) million and $6.3 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.
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 three months ended May 31, 1999 do not include those of Brite.
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 May 31, 2000, $80 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 8.80%
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 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
<PAGE> 7
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 months ended May 31, 2000, the net effect of the change in
accounting was to increase income before the cumulative effect of the accounting
change $4.0 million ($.11 per share). For the three months ended May 31, 2000,
the Company recognized $16.6 million in revenue that is included in the
cumulative effect adjustment as of March 1, 2000. Assuming the accounting change
was applied retroactively by the Company to prior periods, pro forma net income
and net income per common share would have been $6.4 million and $0.21 for the
three months ended May 31, 1999.
NOTE D - INVENTORIES
Inventories consist of the following (In thousands):
<TABLE>
<CAPTION>
May 31, 2000 February 29, 2000
------------ -----------------
<S> <C> <C>
Purchased parts $ 28,022 $ 21,134
Work in progress 7,991 5,213
Finished goods 2,777 864
-------- --------
$ 38,790 $ 27,211
======== ========
</TABLE>
<PAGE> 8
NOTE E - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
(in thousands) May 31, 2000 May 31, 1999
------------ ------------
<S> <C> <C>
Numerator:
Income before the cumulative effect
of a change in accounting principle $ 198 $ 6,267
Cumulative effect on prior years of
adopting SEC SAB No. 101 (11,250) --
-------- --------
Net Income (Loss) $ (11,052) $ 6,267
-------- --------
Denominator:
DENOMINATOR FOR BASIC EARNINGS PER SHARE 32,539 28,748
Effect of dilutive securities:
Employee Stock Options 2,293 1,591
Non-vested restricted stock 61 11
-------- --------
Dilutive Potential common shares 2,354 1,602
DENOMINATOR FOR DILUTED EARNINGS PER SHARE 34,893 30,350
BASIC:
Income before the cumulative effect
of a change in accounting principle $ 0.01 $ 0.22
Cumulative effect on prior years of
adopting SEC SAB No. 101 (0.35) --
-------- --------
Net Income (Loss) $ (0.34) $ 0.22
======== ========
DILUTED:
Income before the cumulative effect
of a change in accounting principle $ 0.01 $ 0.21
Cumulative effect on prior years of
adopting SEC SAB No. 101 (0.33) --
-------- --------
Net Income (Loss) $ (0.32) $ 0.21
======== ========
</TABLE>
Options to purchase 2,500 and 129,898 shares of common stock at average prices
of $29.19 and $11.94, respectively, were outstanding during the first three
months of fiscal 2001 and 2000, respectively, but were not included in the
computation of diluted earnings per share because the options' prices were
greater than the average market price of the Company's common shares during such
periods and, therefore, the effect would have been anti-dilutive.
NOTE 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.
<PAGE> 9
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 thousands):
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
May 31, 2000 May 31, 1999
------------ ------------
<S> <C> <C>
Sales:
Business Systems $ 23,812 $ 26,875
Network Systems 24,284 9,555
Services 23,372 3,647
-------- --------
Total $ 71,468 $ 40,077
======== ========
Geographic Area Net Sales:
United States $ 40,986 $ 30,012
The Americas (Excluding U.S.) 974 6,023
Pacific Rim 3,732 3,020
Europe, Middle East & Africa 25,776 1,022
-------- --------
Total $ 71,468 $ 40,077
======== ========
</TABLE>
One customer accounted for approximately 21% of the Company's sales during the
three month period ending May 31, 2000. No customer accounted for 10% or more of
the Company's sales during the three month period ended May 31, 1999.
NOTE G - CONTINGENCIES
The Company provides certain automated call processing services on a managed
services basis for a large domestic telecommunications company. The
telecommunications company has alleged 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 Company has
acknowledged that it may owe the telecommunications company an immaterial amount
as a monetary penalty for failing to adhere to a specific service level, and has
denied all other alleged 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 will prevail
in any litigation asserted against the Company in connection with the managed
services contract.
<PAGE> 10
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 accounted for approximately 16% of the Company's total sales
during fiscal 2000, since such customers generally are not
contractually obligated to place further orders with the Company.
o Legislative and administrative changes and, in particular, changes
affecting the telecommunications industry, such as the
Telecommunications Act of 1996. While 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 and adverse 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
<PAGE> 11
automation systems. Additionally, changes in foreign credit markets and
currency exchange rates may result in requests by many international
customers for extended payment terms and may have an adverse impact on
the Company's cash flow and its level of accounts receivable.
o The quantity and size of large sales (sales valued at approximately $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.
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.
o The Company's business transactions in foreign currencies are subject
to adverse movements in foreign currency exchange rates.
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.
Sales in the first quarter of fiscal 2001 were approximately $71.5 million. Such
sales increased approximately $31.4 million, or 78%, when compared to the same
period of fiscal 2000. 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 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 21% of the Company's total sales during the first quarter of
fiscal 2001. Sales in the first quarter of fiscal 2001 declined, on a
sequential basis, $9.1 million from pro forma sales of $80.6 million in the
fourth quarter of fiscal 2000 (adjusted to reflect revenue which would have been
recognized under SAB 101). Some contributing factors for the sequential decline
in sales include: (1) a sluggish demand from the former Brite customer base as
they evaluate the Company's product roadmap resulting from the merger of 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, and (4) attrition in the Company's
Network Systems sales force.
<PAGE> 12
To enhance comparability of the Company's sales for its first quarter 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
---------------- ----------------
First Quarter 2001 2000* 2001 2000
------------- ---- ----- ---- -----
<S> <C> <C> <C> <C>
Sales:
Business Systems 23.8 34.9 23.8 26.9
Network Systems 24.3 24.6 24.3 9.5
Services** 23.4 17.8 23.4 3.6
---- ---- ---- ----
Total 71.5 77.3 71.5 40.0
==== ==== ==== ====
</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 of Brite's TSL division, which was sold
December 1, 1998.
The following discussion compares sales performance on an "as adjusted" basis
only.
Business Systems sales decreased 32% in the first quarter of fiscal 2001 when
compared to the same period of the previous fiscal year. The Company believes
this decline is 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 16% of the
Company's total Business Systems sales during the first quarter of fiscal 2001.
Network Systems sales during the first three months of fiscal 2001 were
approximately equal to such sales during the same period of the previous fiscal
year. Third-party surveys indicate that the market addressed by the Company's
Network Systems products is growing. The Company believes a contributing factor
to its flat sales growth in this market segment was sales force attrition.
International Network Systems sales constituted 64% of the Company's total
Network Systems sales during the first quarter of fiscal 2001.
Services sales increased 31% in the first quarter of fiscal 2001 when compared
to the same period of the previous fiscal year. An increase in the Company's
Managed Services sales was the primary reason for the increase in Services
sales. The 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 first quarter 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
48% of the Company's total Services sales during the first quarter of fiscal
2001.
COST OF GOODS SOLD. Cost of goods sold was approximately $34.9 million for the
first quarter of fiscal 2001. As a percentage of sales, cost of goods sold was
48.8% for the first quarter of fiscal 2001 as compared to 38.3% for the same
period of the previous fiscal year. The increase in cost of goods sold as a
percentage of sales is attributable to less than anticipated sales while the
Company continued to invest 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 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
first quarter of fiscal 2001 were approximately $9.0 million, or 12.6% of the
Company's total sales. Such expenses were 9.6% of the Company's total sales in
the same period of the previous fiscal year. The Company continued to invest in
research and development resources despite less than anticipated Sales. Research
and development expenses included the design of new products and the enhancement
of existing products. The Company
<PAGE> 13
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 first quarter of fiscal 2001 were
approximately $21.9 million, or 30.6% of the Company's total sales, versus 28.5%
during the same period in the previous fiscal year. The Company continued to
hire and train new and existing sales and sales support personnel and expand its
marketing and advertising programs worldwide despite less than anticipated
sales.
AMORTIZATION OF GOODWILL AND ACQUIRED INTANGIBLE ASSETS. Such expenses were
approximately $3.5 million for the first quarter of fiscal 2001. Goodwill and
intangible assets acquired in the merger with Brite totaled approximately $104
million with useful lives averaging seven years.
OTHER INCOME. Other income of approximately $0.2 million during the first
quarter of fiscal 2001 was primarily interest paid on the Company's net cash
reserves.
INTEREST EXPENSE. Interest expense of approximately $2.0 million for the first
quarter of fiscal 2001 was interest paid on the Company's long term borrowings
obtained during the second quarter of fiscal 2000 in connection with the merger
with Brite. See "Liquidity and Capital Resources" for a description of the
Company's long term borrowings.
INCOME (LOSS) FROM OPERATIONS. During the first quarter of fiscal 2001, the
Company generated operating income of $2.2 million income before the cumulative
effect of a change in accounting principle of $0.2 million, and a net loss of
$11.1 million. As described in Note C of the Notes to the Consolidated Financial
Statements, 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. Operating and net
income for the first quarter of fiscal 2000 were approximately $9.5 million and
$6.3 million. Despite less than anticipated sales during the first quarter of
fiscal 2001, the Company continued to invest in application engineering,
customer service, research and development, sales, sales support and
administrative personnel and resources to pursue opportunities in all of its
markets.
LIQUIDITY AND CAPITAL RESOURCES. At May 31, 2000, the Company had cash reserves
of approximately $12.4 million while borrowings under the Company's term loan
facility were $80.0 million. Operating cash flow during the quarter was
approximately $10.0 million. Income before the cumulative effect of a change in
accounting principle plus non-cash expense items during the quarter totaled $8.4
million while a decrease in operating assets totaled $1.6 million. Days sales
outstanding (DSO's) of accounts receivable continue to be a focus for the
Company. At May 31, 2000, DSO's were 101, which was days up slightly from 99
days at February 29, 2000. Investing activities, primarily the purchase of
computer and test equipment, used approximately $1.5 million during the quarter
while financing activities, primarily pay down of debt net of proceeds from the
exercise of employee stock options, consumed approximately $19.0 million in
cash. Net cash flow during the quarter was approximately a negative $10.9
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 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 July 14, 2000, the Company had $80 million of borrowings
outstanding under the agreement, at an average annual interest rate of 8.8%.
Interest under the credit facility accrues at a variable rate indexed to the
prime rate or an adjusted London Interbank Offering Rate.
<PAGE> 14
During the quarter, the Company entered into interest rate swap
arrangements with a total notional amount of $125 million to change the
characteristics of interest payments on its long-term borrowings from
LIBOR-based variable-rate payments to fixed-rate payments. As of May 31, 2000,
the variable-rate of 8.63% under the long-term borrowings had been swapped for
an effective rate of 8.5%. The effect of interest rate swaps on the Company's
interest expense during the quarter was immaterial. Upon expiration of the
previously discussed swap agreements during June 2000, the Company entered into
new interest rate swap agreements, expiring June 2002, for a notional amount of
$40.0 million for an effective rate of 8.34%.
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.
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> 15
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 May 31, 2000, the Company had
$80 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 May 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 borrowings from LIBOR-based, variable
rate payments to fixed rate payments. As of May 31, 2000, the variable-rate of
8.63% under the long-term borrowings had been swapped for an effective rate of
8.5%. The effect of interest rate swaps on the Company's interest expense during
the quarter was immaterial. As of July 14, 2000, the Company is a party to
interest rate swap agreements, expiring June 2002, for a notional amount of
$40.0 million for an effective rate of 8.34%.
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 dollars, limiting the Company's
ability to hedge against adverse movements in foreign currency exchange rates.
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 First Amendment to the Third Amended and Extended Employment
Agreement executed as of June 26, 2000, between the Company and
Daniel D. Hammond
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the three month period
ended May 31, 2000.
<PAGE> 17
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: 07/14/00 By: /s/ ROB-ROY J. GRAHAM
---------------------
Rob-Roy J. Graham
Chief Financial Officer
(Chief Accounting Officer)
<PAGE> 18
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.1 First Amendment to the Third Amended and Extended Employment
Agreement executed as of June 26, 2000, between the Company
and Daniel D. Hammond.
27.1 Financial Data Schedule
