<PAGE>
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 March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------------- ------------------
COMMISSION FILE NUMBER 0-17920
BRITE VOICE SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
KANSAS 48-0986248
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
250 INTERNATIONAL PARKWAY
HEATHROW, FLORIDA 32746
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (407) 357-1000
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 [ ]
As of May 10, 1999, 12,275,803 shares of the registrant's common stock were
outstanding.
<PAGE>
BRITE VOICE SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1999 and
December 31, 1998................................................. 3
Consolidated Statements of Income - Three Months Ended
March 31, 1999 and 1998........................................... 4
Consolidated Statements of Comprehensive Income - Three Months
Ended March 31, 1999 and 1998..................................... 5
Consolidated Statements of Cash Flows - Three Months Ended
March 31, 1999 and 1998.......................................... 6
Notes to Consolidated Financial Statements......................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 14
PART II. OTHER INFORMATION.............................................. 15
Item 6. Exhibits and Reports on Form 8-K.................................. 15
SIGNATURES................................................................... 16
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BRITE VOICE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents........................................... $ 12,432 $ 11,208
Accounts receivable, less allowance for doubtful accounts:
1999 - 1,971; 1998 - 1,762....................................... 49,512 57,559
Inventories......................................................... 22,557 21,676
Prepaid expenses and other.......................................... 6,904 6,967
---------- ----------
Total Current Assets.............................................. 91,405 97,410
---------- ----------
PROPERTY AND EQUIPMENT
Land, building and improvements..................................... 3,074 3,074
Furniture and equipment............................................. 25,544 24,581
---------- ----------
28,618 27,655
Less accumulated depreciation....................................... (11,787) (10,480)
---------- ----------
Total Property and Equipment...................................... 16,831 17,175
---------- ----------
OTHER ASSETS ............................................................ 7,408 7,534
--------- ------------
TOTAL ASSETS.................................................... $ 115,644 $ 122,119
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.................................................... $ 9,869 $ 13,916
Accrued salaries and wages.......................................... 2,971 2,791
Other accrued expenses.............................................. 4,813 3,947
Deferred revenue.................................................... 5,042 3,648
Customer deposits................................................... 2,957 2,860
Income taxes payable................................................ 3,184 8,211
---------- ----------
Total Current Liabilities......................................... 28,836 35,373
---------- ----------
LONG-TERM DEFERRED REVENUE............................................... 1,458 1,833
---------- ----------
COMMITMENTS AND CONTINGENCIES............................................
STOCKHOLDERS' EQUITY
Preferred stock, no par value; authorized 10,000,000 shares;
none issued and outstanding....................................... -- --
Common stock, no par value; authorized 30,000,000 shares;
Issued 12,271,178 shares - 1999; 12,258,678 shares - 1998......... 45,325 45,221
Retained earnings................................................... 41,114 39,737
Cumulative foreign currency translation adjustment.................. (1,089) (45)
---------- ----------
Total Stockholders' Equity........................................ 85,350 84,913
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...................... $ 115,644 $ 122,119
========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-3-
<PAGE>
BRITE VOICE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---------- ----------
(Unaudited)
<S> <C> <C>
REVENUES
Systems.................................................. $ 22,654 $ 17,948
Services................................................. 13,919 7,427
---------- ----------
36,573 25,375
---------- ----------
COSTS AND EXPENSES
Cost of Sales:
Systems................................................ 11,892 8,436
Services............................................... 7,885 3,956
Research and engineering................................. 4,345 3,507
Selling, general and administrative...................... 10,563 9,227
---------- ----------
34,685 25,126
---------- ----------
OPERATING INCOME............................................ 1,888 249
OTHER INCOME, NET........................................... 278 363
---------- ----------
INCOME BEFORE TAXES......................................... 2,166 612
INCOME TAX PROVISION........................................ 789 231
---------- ----------
INCOME FROM CONTINUING OPERATIONS........................... 1,377 381
INCOME FROM DISCONTINUED OPERATIONS......................... -- 315
---------- ----------
NET INCOME.................................................. $ 1,377 $ 696
========== ==========
BASIC EARNINGS PER SHARE
Income from continuing operations........................ $ 0.11 $ 0.03
Discontinued operations.................................. -- 0.03
---------- ---------
Net income............................................... $ 0.11 $ 0.06
========== =========
DILUTED EARNINGS PER SHARE
Income from continuing operations........................ $ 0.11 $ 0.03
Discontinued operations.................................. -- 0.03
---------- ---------
Net income............................................... $ 0.11 $ 0.06
========== =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-4-
<PAGE>
BRITE VOICE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
NET INCOME ............................................. $ 1,377 $ 696
OTHER COMPREHENSIVE INCOME (EXPENSE)
Foreign currency translation......................... (1,044) 119
---------- ----------
COMPREHENSIVE INCOME.................................... $ 333 $ 815
========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-5-
<PAGE>
BRITE VOICE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................................... $ 1,377 $ 696
Items not requiring (providing) cash:
Depreciation and amortization................................ 1,477 841
Discount recorded for warrant................................ 63 --
Deferred tax asset........................................... -- 473
Income from discontinued operations.......................... -- (315)
Changes in:
Accounts receivable.......................................... 7,516 (3,411)
Inventories.................................................. (1,293) (2,722)
Accounts payable and accrued expenses........................ (2,733) (604)
Other current assets and liabilities......................... (3,779) 1,941
---------- ----------
Net cash provided by (used in) continuing activities..... 2,628 (3,101)
Net cash provided by discontinued operations............. -- 1,192
---------- ----------
Net cash provided by (used in) operating activities...... 2,628 (1,909)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment, net........................ (1,300) (1,331)
Capital expenditures of discontinued operations................ -- (30)
Decrease in other assets....................................... 52 123
---------- ----------
Net cash used in investing activities.................... (1,248) (1,238)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock....................................... 104 486
---------- ----------
Net cash provided by financing activities................ 104 486
---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH........................... (260) (134)
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 1,224 (2,795)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.................... 11,208 26,979
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......................... $ 12,432 $ 24,184
========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-6-
<PAGE>
BRITE VOICE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. The 1999 and 1998 financial statements (except for the December 31, 1998
Balance Sheet) included herein have been prepared by the Company, without
audit, and reflect all adjustments (consisting only of those of a normal
recurring nature) which are, in the opinion of management, necessary to
fairly present the financial position, results of operations and cash flows
for the interim periods. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted,
although the Company believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these condensed
financial statements be read in conjunction with the financial statements
and the notes thereto for the year ended December 31, 1998, contained in
the Company's Annual Report to Stockholders and Form 10-K filed with the
Securities and Exchange Commission.
2. Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -------------
<S> <C> <C>
Purchased parts...................... $ 8,096 $ 9,079
Work in progress..................... 12,196 10,414
Finished goods....................... 2,265 2,183
---------- ---------
$ 22,557 $ 21,676
========== =========
</TABLE>
3. Income taxes paid (refunded) during the three months ended March 31, 1999
and 1998 were $5,860,000 and $(2,294,800), respectively.
Interest paid during the three months ended March 31, 1999 and 1998 was
$14,000 and $18,000, respectively.
4. Following is a reconciliation of the weighted average shares used to
compute basic and diluted earnings per share (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
<S> <C> <C>
1999 1998
--------- ---------
Basic weighted average shares outstanding............. 12,265 12,058
Options............................................... 59 142
--------- ---------
Diluted weighted average shares outstanding........... 12,324 12,200
========= =========
</TABLE>
5. Revenues from sales of systems generally are recognized upon shipment.
However, on occasion the Company enters into contracts for the sale of
large systems that require substantial software development in addition to
hardware. Revenues for these contracts are recognized using the percentage
of completion basis, measured by the percentage of costs incurred to date
compared to estimated total costs required for the specific contract. The
excess of costs and earnings over billings is included in accounts
receivable.
Costs and estimated earnings on these contracts consisted of the following
as of March 31, 1999 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Costs incurred and estimated earnings on specific contract.. $ 47,658
Less billings to date....................................... 43,997
---------
Excess of costs and earnings over billings.................. $ 3,661
=========
</TABLE>
6. The Company recorded restructuring charges of $1,410,000 for the year ended
December 31, 1998, related to the termination of certain executives. Of
this amount, $364,000 had been paid by December 31, 1998 and $809,000 by
March 31, 1999.
-7-
<PAGE>
7. Effective December 1, 1998, the Company consummated the sale of the assets
of its TSL division to ProfitSource Corporation (subsequently named EPS
Solutions Corporation). The Company received $20 million in cash and a
subordinated promissory note of EPS Solutions Corporation with a face value
of $5 million. The Company also received a warrant to purchase 5,000 shares
of TSL Services, Inc., which in certain circumstances may be converted to
shares of EPS Solutions Corporation.
The TSL division has been accounted for as a discontinued operation in the
consolidated financial statements for the period ended March 31, 1998.
8. The Company has three reportable segments: network products, business
systems and customer support. The network products segment includes
products and managed services that increase customers' revenues through
increased subscription or user fees. Business systems includes products and
managed services that reduce customers' costs or improve the efficiency of
services provided to end-user customers. Customer support includes the
provision of maintenance contracts, installation services, time and
materials billing and training to both network products and business
systems customers. The Company evaluates performance based upon profit or
loss from operations before corporate overhead.
<TABLE>
<CAPTION>
BUSINESS SEGMENTS 1999 1998
----------------- --------- ---------
<S> <C> <C>
Revenues
Network products.................................... $ 26,923 $ 12,744
Business systems.................................... 4,593 9,115
Customer support.................................... 5,057 3,516
--------- ---------
$ 36,573 $ 25,375
========= =========
Contribution to Overhead
Network products.................................... $ 7,772 $ 805
Business systems.................................... (725) 3,217
Customer support.................................... 1,885 1,191
--------- ---------
$ 8,932 $ 5,213
========= =========
Capital expenditures
Network products.................................... $ 529 $ 316
Business systems.................................... 86 110
Customer support.................................... 83 97
Corporate........................................... 602 808
--------- ---------
$ 1,300 $ 1,331
========= =========
Depreciation and amortization expense
Network products.................................... $ 466 $ 354
Business systems.................................... 94 104
Customer support.................................... 143 86
Corporate........................................... 774 297
--------- ---------
$ 1,477 $ 841
========= =========
</TABLE>
9. On April 27, 1999, the Company entered into an Acquisition Agreement and
Plan of Merger with InterVoice, Inc., pursuant to which an InterVoice
subsidiary has commenced a cash tender offer for 9,158,155 shares of the
Company's common stock at a price of $13.40 per share. Following completion
of the tender offer, the InterVoice subsidiary will be merged with and into
the Company, and each of the remaining shares of the Company's stock will
be converted into the right to receive the merger consideration in the form
of common stock of InterVoice, Inc., or in certain circumstances, a
combination of cash and common stock of InterVoice, Inc.
-8-
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
FORWARD-LOOKING STATEMENTS
From time to time, information provided by the Company, statements made
by its employees or information included in its filings with the Securities
and Exchange Commission, including this Form 10-Q report, may contain certain
"forward-looking" information, as that term is defined by the Private
Securities Litigation Reform Act of 1995 (the "Act"). The words "expects,"
"anticipates," "believes" and similar words generally signify a
"forward-looking" statement. These forward-looking statements are made
pursuant to the safe harbor provisions of the Act. The reader is cautioned
that all forward-looking statements are necessarily speculative and that
there are certain risks and uncertainties that could cause actual events or
results to differ materially from those referred to in such forward-looking
statements. Such risks and uncertainties include those inherent in the voice
and call processing markets, such as product demand, pricing, market
acceptance, reliance on significant customers, intellectual property rights,
risks in product and technology developments, and other risk factors detailed
in the section below entitled "Certain Factors to be Considered". The Company
undertakes no obligation to publicly revise any forward-looking statement due
to changes in circumstances after the date of this report, or to reflect the
occurrence of unanticipated events.
BASIS OF PRESENTATION
Effective December 1, 1998, the Company consummated the sale of the
assets of its TSL division to ProfitSource Corporation (subsequently named
EPS Solutions Corporation). The Company received $20 million in cash and a
subordinated promissory note of EPS Solutions Corporation with a face value
of $5 million. The Company also received a warrant to purchase 5,000 shares
of TSL Services, Inc., which in certain circumstances may be converted to
shares of EPS Solutions Corporation.
The TSL division has been accounted for as a discontinued operation in
the accompanying financial statements for the period ended March 31, 1998.
RESULTS OF OPERATIONS
The Company derives revenue from the sale of voice processing and call
processing systems to domestic and international customers and the provision
of services related to the operation of these systems. The Company's systems
products can be divided into two categories: those that increase its
customers' revenues through increased subscription or user fees ("network
systems"), and those that reduce customers' costs or improve the efficiency
of services provided to end-user customers ("business systems").
Total revenues increased $11,198,000, or 44.1%, for the three months ended
March 31, 1999, compared to the three months ended March 31, 1998. This increase
was due to increases in both systems revenues and services revenues.
One customer represented 23% of total revenues in 1999. A second
customer represented 22% of total revenues in 1999 and 12% of revenues in
1998.
-9-
<PAGE>
Systems revenues increased $4,706,000, or 26.2%, for the three months ended
March 31, 1999 as shown in the following table:
SYSTEMS REVENUES
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------- % Increase
1999 1998 (Decrease)
--------- -------- -----------
<S> <C> <C> <C>
Business systems.................. $ 2,710 $ 5,910 (54.1)%
Network systems................... 19,944 12,038 65.7%
--------- --------
Total............................. $ 22,654 $ 17,948 26.2%
========= ========
</TABLE>
Business systems revenues decreased $3,200,000, or 54.1%, for the three
months ended March 31, 1999. The Company believes this decline was due in part
to normal fluctuations in customer demand, as well as delays in orders from both
new and existing customers related to a focus by these customers on ensuring
Year 2000 compliance with their current systems, rather than implementing new
systems. Network systems revenues increased $7,906,000, or 65.7%, for the three
months ended March 31, 1999, due primarily to the recognition of revenues from a
large contract with a Japanese telecommunications company for installation of a
voice-activated dialing system, as well as several expansion orders by other
existing customers.
Services revenues increased $6,492,000, or 87.4%, for the three months
ended March 31, 1999. The breakdown of services revenues is shown in the
following table:
<TABLE>
<CAPTION>
SERVICES REVENUES
(IN THOUSANDS)
Three Months Ended
March 31,
-----------------------
1999 1998 % Increase
--------- --------- ----------
<S> <C> <C> <C>
Managed services.................. $ 8,861 $ 3,911 126.6%
Service contract and repair....... 5,058 3,516 43.9%
--------- --------
Total............................. $ 13,919 $ 7,427 87.4%
========= ========
</TABLE>
Managed services revenues increased $4,950,000, or 126.6%, for the three
months ended March 31, 1999. This increase was primarily due to the continued
improvement in call volumes by customers offering prepaid calling services to
subscribers in North America and Europe. The Company receives a portion of the
revenues generated by its customers.
Service contract and repair revenues increased $1,542,000, or 43.9%, for
the three months ended March 31, 1999. The increase in revenue is due primarily
to an increase in installation revenues for new systems and an increase in the
installed base of customers who subscribe to quarterly or annual maintenance
contracts. In addition, the Company recorded approximately $412,000 in revenues
associated with Year 2000 upgrades.
Cost of systems sales increased $3,456,000, or 41.0%, for the three months
ended March 31, 1999. As a percentage of systems sales, actual costs increased
to 52.5% in 1999, compared to 47.0% in 1998. Actual costs increased due
primarily to an increase in the number of systems shipped by the Company. The
increase as a percentage of revenues was due primarily to the lower margin
recognized on international sales, and an increase in resources dedicated to
deployment of customer systems. Systems sales in 1999 included a larger number
of customized sales, which have a higher cost of sales and lower margins.
Cost of services increased $3,929,000, or 99.3%, for the three months ended
March 31, 1999. As a percentage of services revenues, these costs were 56.6% in
1999, compared to 53.3% in 1998. The increase in actual costs and costs as a
percentage of revenues was due primarily to increases in revenues related to
contracts under which the Company provides prepaid calling services on a managed
services basis. These contracts are expected to generate lower gross margins
than the Company's other services businesses.
-10-
<PAGE>
Research and engineering expenses increased $838,000, or 23.9%, for the
three months ended March 31, 1999. The increase in actual expenditures was
due to an increase in engineering personnel, including outside consultants,
dedicated to designing new products and enhancing existing products,
including upgrading existing products for Year 2000 compliance. As a
percentage of revenues, these expenses decreased to 11.9% in 1999, compared
to 13.8% in 1998. The Company typically targets its annual engineering
expenditures based upon annual revenue goals. Fluctuations in engineering
expenditures as a percentage of sales in a given year are generally due to
fluctuations from revenue goals, or variances from budgeted expenditures. The
Company believes that it must continue to increase spending on research and
engineering activities in absolute terms in order to remain competitive in
the voice and call processing markets. Such expenses could increase as a
percentage of revenues as well.
Selling, general and administrative expenses increased $1,336,000, or
14.5%, for the three months ended March 31, 1999. As a percentage of
revenues, these expenses decreased to 28.9% in 1999, compared to 36.4% in
1998. This decline as a percentage of revenues was due to increased controls
over expenditures, and a larger revenue base over which to spread the fixed
costs of operations.
The effective income tax rate for the three months ended March 31, 1999
was 36.4%, compared to 37.2% in 1998. The variance from the United States
statutory rate for 1999 and 1998 was due primarily to the provision for state
income taxes and utilization of certain credit carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company had a current ratio of 3.2 to 1 and
working capital of $62,569,000, compared to a current ratio of 2.8 to 1 and
working capital of $62,037,000 at December 31, 1998.
Operating activities provided net cash of $2,628,000 for the three months
ended March 31, 1999, principally due to an increase in net income and the
reduction of accounts receivable offset by inventory and income tax related
expenditures. Inventory increased $1,293,000 during the three months ended March
31,1999 due principally to the increase in work in progress associated with
certain network systems contracts that will be recognized in the second quarter.
Income tax payments of $5,860,000 were made during the first quarter of 1999,
primarily related to the gain on the sale of the TSL division in 1998.
The Company regularly invests excess funds in short-term securities,
such as bankers' acceptances, government obligations and variable rate demand
notes, having maturities up to one year. Management believes that restricting
investments to these types of securities maximizes financial flexibility and
minimizes exposure to interest rate and other market risks. The Company
utilizes these investments as sources of liquidity, to the extent that cash
requirements exceed short-term cash receipts.
The Company maintains a line of credit that is used from time to time to
fund short-term cash requirements. In December 1998, this line of credit was
increased from $10 million to $25 million. There were no borrowings outstanding
under the line as of March 31, 1999.
The Company has no additional capital commitments, and believes that funds
on hand and the availability of its line of credit will provide sufficient
sources of funds to meet all capital requirements for at least the next twelve
months. The Company believes that it has adequate borrowing capacity to fund its
long-term objectives as well.
INFLATION
Inflation has not had a material impact on the Company's results of
operations. Because of the competitive nature of the computer industry, the
costs of parts used in the Company's products have remained relatively
stable. However, should inflation rise to higher levels, the Company believes
that such inflationary costs would be passed on to customers by both the
Company and its competition.
-11-
<PAGE>
CERTAIN FACTORS TO BE CONSIDERED
UNCERTAINTY OF REVENUES. The Company has no significant long-term supply
agreements with customers and, as a result, revenues in any quarter are
dependent upon orders that are received and shipped during the quarter.
Further, a large percentage of any quarter's system shipments are recorded in
the last month of the quarter. Consequently, quarterly revenues and operating
results will depend on the volume and timing of new orders received during a
quarter, which are difficult to predict. Failure to receive adequate amounts
of new orders could adversely affect revenues and operating results, and such
shortfalls may not be known until very late in any quarter.
INTERNATIONAL OPERATIONS. The Company faces a number of risks in conducting
its international business that do not affect its domestic business, including
greater concentration of business with fewer customers, longer payment cycles,
greater difficulty in accounts receivable collection and difficulty in staffing
and managing foreign subsidiary operations.
Installation of the Company's products outside the United States requires
that the Company conform to local telephone and electrical regulations. The
Company has traditionally relied on its suppliers to obtain the necessary
registrations in order for the Company to install products within specific
countries. There can be no assurance that these factors will not have an adverse
impact on the Company's future international sales or operating results.
PRODUCT DEVELOPMENT. The voice processing and call processing industries
are subject to rapid technological change, including continuing improvements in
hardware and software performance. In order to maintain its competitive
position, the Company must continually release new products and develop
enhancements and new features for its existing products on a timely basis. There
can be no assurance that the Company will be successful in developing and
marketing, on a timely basis, product modifications or enhancements, or new
products that respond to technological advances by others, or that such new or
enhanced products or features will adequately and competitively address the
needs of the marketplace. Because of the increasing complexity of the Company's
products, these efforts can be expected to continue to increase in technical
difficulty. Moreover, the Company must manage product transitions successfully,
since announcements or introductions, or the perception that such events are
likely to occur, by either the Company or its competitors, could adversely
affect sales of existing products.
DEPENDENCE ON CERTAIN PERSONNEL. The Company's success is largely dependent
upon its ability to attract and retain qualified employees, especially technical
employees and executives. There exists substantial competition for highly
qualified personnel and there can be no assurance that the Company will be
successful in hiring and retaining the required personnel.
ENHANCED NETWORK SERVICES CONTRACTS. The Company's enhanced network
services products are used by its customers to retain existing subscribers,
recruit new subscribers and increase the revenue generated by each subscriber.
As a result, failure of these customers to provide the services acquired from
the Company to its customers on a timely and uninterrupted basis could cause a
loss of revenue or erosion of customer base. The Company has entered into
contracts in the past, and anticipates entering into contracts in the future,
which provide for penalties in the event the Company fails to deliver products
in the time frame contracted for, fails to meet service availability
requirements, or causes a network outage. The Company has incurred penalties,
but has generally been able to negotiate with its customers to obtain reductions
or waivers of such penalties. There is no assurance that any of the Company's
customers will continue to waive or reduce such penalties, nor is there any
assurance that customers will not assert such penalties in the future. Because
the Company's customers are generally large telecommunications providers with
significant subscriber bases, the Company's failure to perform under its
contracts and the assertion of penalties could materially and adversely affect
the Company's operating results and financial condition.
In December 1997, the Company announced that it had entered into an
agreement to provide enhanced telecommunications products to AT&T Corp.
("AT&T"). The initial order under the agreement was for approximately $25
million, representing the largest single contract in the Company's history. The
Company has completed the software development, integration and testing phases
of the contract; however, the Company was late in delivering the product, and
believes it may have been subject to penalties relating to late delivery. In
March 1999, AT&T waived its rights to assert any such penalties.
-12-
<PAGE>
SOLE SOURCE OF SUPPLY. For quality control, ease of development and
purchasing efficiencies, the Company has elected to purchase components from
one supplier. Although the Company has been able to obtain supplies of these
components in a timely manner, the interruption in supply of any of these
components could have an adverse impact on the Company's revenues and
operating results. While the Company believes that other suppliers could
provide required components in the event of an interruption in supply, a
change in suppliers could cause a delay in manufacturing and a possible loss
of sales, which would adversely affect operating results.
PROPRIETARY RIGHTS. The Company has periodically received, and may
receive in the future, communications from third parties asserting patent
rights or copyrights on certain of the Company's products and product
features. In certain instances, the Company's customers have also received
similar communications. The Company believes that its products and other
proprietary rights do not infringe the proprietary rights of third parties.
There can be no assurance, however, that third parties will not assert
infringement claims against the Company in the future, or that any such
claims will not require the Company to enter into license arrangements or
result in protracted and costly litigation, regardless of the merits of such
claims. In addition, it is possible that one or more of the Company's
customers may encourage the Company to obtain licenses or indemnify them
against loss should a liability arise from the utilization of a Company
product which is determined to have infringed. There also can be no assurance
that the Company will be able to obtain licenses to disputed third party
technology or that such licenses, if available, would be available on
commercially reasonable terms.
VOLATILITY OF COMMON STOCK PRICE. The market for the Company's stock is
highly volatile. Any variance in operating results from analysts' expectations
or changes in estimated results by industry analysts could have an adverse
affect on the trading price of the Company's common stock in a given period.
Furthermore, in recent years the market prices of securities of many high
technology companies have experienced extreme fluctuations, in many cases for
reasons unrelated to the operating performance of the specific companies. These
broad market fluctuations may adversely affect the market price of the Company's
common stock.
YEAR 2000 COMPLIANCE. In 1997, the Company began the process of identifying
and determining the appropriate resolution to all of the Company's issues
relating to the "Millennium Bug". These issues arise because of date sensitive
software programs which use two digits to define the applicable year, resulting
in interpretation of a date using "00" as the year 1900 rather than 2000. This
could result in miscalculations or a major system failure. The Company has
concluded that if no action is taken to avoid the consequences, its Year 2000
issues will have a material affect on the Company's results of operations and
financial condition.
Areas which require remediation are: 1) in-house systems and software
programs used to run the business; 2) products sold to the Company's customers;
and 3) systems and services provided by vendors.
The Company has reviewed its in-house systems for compliance and determined
that all systems will be affected. During 1998, the Company converted its
accounting, inventory, manufacturing control and human resources systems to a
new system in order to provide more efficient management information throughout
the Company. The conversion cost approximately $2 million and the new system is
warranted by the vendor to be Year 2000 compliant. Testing of this system is
currently in process to verify compliance. All remaining in-house computer
systems have been classified as mission critical and non-mission critical. The
Company has elected to focus on only the mission critical systems, including
operating systems and applications software. Studies are currently being
conducted to determine which mission critical systems are compliant and which
are not. The Company estimates that approximately half of its systems are
currently compliant, and believes that any remaining systems that have been
identified as mission critical will be compliant by the third quarter of 1999.
Non-compliant systems must be replaced or abandoned prior to the beginning of
2000. The Company estimates the cost of completing all testing and bringing the
remaining systems into compliance or replacing non-compliant systems to be
approximately $1 million.
Each of the Company's products sold or licensed to customers must be
evaluated for Year 2000 compliance. The Company must determine which products
will be discontinued, and which products will be made compliant. The Company has
completed an inventory of its products in the field, and has established
revision levels and dates by which each product will be Year 2000 compliant.
Each product must have an agreed upon test plan, engineering plan, and a plan
for notifying customers of product revisions and phase-outs. The Company expects
that all products to be updated for Year 2000 compliance will be completed
before the end of the second quarter of 1999, and the Company intends to charge
for integration and installation of compliant systems. The Company is unable to
-13-
<PAGE>
predict the eventual cost of achieving Year 2000 compliance. However, failure
to complete plans for each product, or failure to execute such plans, will
have a material impact on the Company's sales, as it will be unable to
compete with companies which offer Year 2000 compliant products.
The Company purchases components and services which must be evaluated for
Year 2000 compliance. The Company has divided its vendors into those who supply
critical services, manufacturing suppliers and manufacturing contractors. The
Company intends to obtain certification from each of its material vendors as to
its Year 2000 compliance. The Company believes that the costs to evaluate its
key vendors and obtain certification will not be material.
The Company has not developed contingency plans related to Year 2000
compliance. The Company believes that the steps being taken are adequate to
detect and correct all material Year 2000 issues related to systems sold to
customers, and all mission critical internal systems. The Company intends to
continue to test for Year 2000 compliance, and will handle exceptions on a
case-by-case basis.
Despite the Company's intent to complete the modifications necessary to
be Year 2000 compliant, there is a risk that the Company will be unable to
complete all tasks required in a timely manner, or that certain systems could
be overlooked. Should the required modifications not be made, or should they
not be completed in a timely manner, this issue could materially and
adversely affect the Company's operating results and financial condition.
Furthermore, the majority of the effort described above will be performed by
the Company's employees. During the period such employees are completing Year
2000 remediation, they will be unavailable to perform their normal tasks.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company transacts business in various foreign currencies. 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.
The Company uses derivative financial instruments selectively to offset
exposure to market risks arising from changes in foreign exchange rates.
Derivative financial instruments currently utilized by the Company include
foreign currency forward contracts to hedge receivables denominated in a
currency other than the functional currency of the business.
As of March 31, 1999, the Company had entered into forward exchange
contracts to sell a notional amount of $2,492,972 in Japanese Yen for delivery
at various dates during April and May of 1999. Changes in the market value of
these contracts are highly correlated with changes in the market value of the
underlying accounts receivable. Accordingly, the Company believes there is no
material risk to its financial position or results of operations in the event of
a material change in the relative value of the U.S. dollar against foreign
currencies.
The Company does not use derivative financial instruments for speculative
trading purposes, nor does it hedge its balance sheet exposure related to the
Company's investments in its foreign subsidiaries.
-14-
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 27 - Financial Data Schedule.
(b) No reports were filed on Form 8-K during the reporting period.
-15-
<PAGE>
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.
Dated: May 11, 1999
BRITE VOICE SYSTEMS, INC.
/s/ Glenn A. Etherington
----------------------------------------
Glenn A. Etherington
Chief Financial Officer
Duly Authorized Officer on behalf of the
Registrant
-16-
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 12,432
<SECURITIES> 0
<RECEIVABLES> 49,512
<ALLOWANCES> 1,971
<INVENTORY> 22,557
<CURRENT-ASSETS> 91,405
<PP&E> 28,618
<DEPRECIATION> 11,787
<TOTAL-ASSETS> 115,644
<CURRENT-LIABILITIES> 28,836
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45,325
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<TOTAL-REVENUES> 36,573
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