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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996)
For the fiscal year ended December 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________ to __________
Commission file number 0-15578
DAVOX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 02-0364368
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
6 Technology Park Drive
Westford, Massachusetts 01886
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (978) 952-0200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 Par Value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _______
---------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
Aggregate market value, as of March 7, 2001 of Common Stock held by non-
affiliates of the registrant: $73,671,774 based on the last reported sale price
on the National Market System as reported by Nasdaq on that date.
Number of shares of Common Stock outstanding at March 7, 2001: 12,644,910
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive Proxy Statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended December 31,
2000. Portions of such Proxy Statement are incorporated by reference in Part
III.
Cautionary Statements
The Private Securities Litigation Reform Act of 1995 contains certain safe
harbors regarding forward-looking statements. Statements set forth herein may
contain "forward-looking" information that involves risks and uncertainties.
Actual future financial or operating results may differ materially from such
forward-looking statements. Statements indicating that the Company "expects,"
"estimates," "believes," "is planning," or "plans to" are forward-looking, as
are other statements concerning future financial or operating results, product
offerings or other events that have not yet occurred. There are several
important factors that could cause actual results or events to differ materially
from those anticipated by the forward-looking statements. Such factors are
described throughout this filing, however the Company goes into greater detail
under Management's Discussion and Analysis of Financial Condition and Results of
Operations--Certain Factors That May Affect Future Results. Although the Company
has sought to identify the most significant risks to its business, the Company
cannot predict whether, or to what extent, any of such risks may be realized nor
can there be any assurance that the Company has identified all possible issues
that the Company may face.
Item 1. Business
- ----------------
General
Davox is a leading developer of customer interaction management (CIM) solutions
that help companies more effectively manage customer interactions via the
telephone, e-mail, and the Internet. Our solutions are used by more than 1,000
companies worldwide - including financial institutions, telecommunications
firms, utilities, and retailers - to provide premium customer service, and to
successfully establish and build valuable customer relationships.
The mission of Davox is to become the dominant global supplier of CIM solutions
that provide companies with a competitive advantage in attracting and retaining
valuable customers.
Davox was incorporated in Massachusetts in 1981 and reorganized in Delaware in
1982. The Company's common stock is listed on the NASDAQ National Market under
the symbol "DAVX". The Company is headquartered in Westford, Massachusetts. The
mailing address for the Company's headquarters is 6 Technology Park Drive,
Westford, Massachusetts, 01886 and its telephone number is (978) 952-0200. Davox
can also be contacted through its web site at www.davox.com.
Market Overview
- ---------------
The CIM software market includes, inbound routing and queuing of telephone
calls, outbound call campaign management using predictive dialing technologies,
automated e-mail response and various forms of real-time interactive Web-based
customer contact. According to the market research firm Datamonitor, the global
market for CIM solutions is projected to grow to $3.0 billion by 2003 from $1.2
billion in 1999, a 28% compound annual growth rate (CAGR).
Companies worldwide recognize the need to more effectively attract, retain and
grow their customer base. In responding to this challenge, these companies are
aggressively
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implementing customer relationship management (CRM) strategies. CRM strategies,
as defined by the market research firm AMR Research, are designed to "attract
and harvest a customer base by creating and supporting profitable customer
relationships."
The customer contact center is a vital element of a CRM strategy. It is in the
contact center where a representative of the company is actually communicating -
through the telephone, e-mail or the Internet - with a customer. The quality of
these interactions is a key element in successfully attracting and retaining
customers.
To effectively manage communications with customers, a successful contact center
must perform a number of critical functions, including the following:
. Provide the company's customer service representatives with all the
information they need to quickly and accurately respond to customer
inquiries received via the telephone, the Internet or through e-mail. This
information could include order status, account balances, shipping
information, previous purchase information, detailed product descriptions
or any other information from various sources that could be relevant to
serving customers.
. Maximize the productivity of the customer service representatives, ensuring
that their time is used effectively. The cost of customer service
representatives is one of the largest on-going expenses of a contact
center.
. Provide customer service representatives with the ability to view a
complete history of communications with a customer, whether via telephone,
e-mail or the Internet.
. Provide managers with historical and real time reporting data to make
effective decisions on how to allocate resources to maximize results.
. Intelligently route telephone calls and e-mails using business rules to the
most appropriate customer service representative, in order to provide
faster, more accurate service and reduce the need to transfer calls.
. Smoothly transfer calls, along with the customer data, from one customer
service representative to another in order to save time and minimize the
customer's inconvenience.
. Conduct proactive customer contact campaigns efficiently and targeted to
the appropriate audience. o Provide a mechanism to escalate customer
contact from the web to e-mail to voice as appropriate.
In evaluating CIM solutions, prudent companies are looking for suppliers who
provide the following capabilities:
. Solutions that can manage customer contact over the telephone, e-mail and
the Internet.
. Solutions that can enhance agent productivity, management control, and
customer satisfaction.
. Solutions that can be integrated into the company's existing technology
infrastructure and can add value to these existing investments.
. Solutions that can be implemented rapidly and expanded to meet growing
needs.
. An ability to understand the needs of the contact center and reliably
service and support the solution.
The Company believes that it provides these capabilities and that its solutions
can have a significant positive impact through increased revenues, reduced
operating costs, increased agent productivity and enhanced customer service.
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Principal Products and Applications
- -----------------------------------
Davox's product strategy is focused on its two major product lines:
Ensemble(TM)Customer Contact Suite and Unison(R) Call Management System.
Ensemble(TM) Customer Contact Suite
Ensemble is a comprehensive CIM solution. The system integrates inbound call
routing, outbound call management, seamless call blending, e-mail response
management, Internet-based communications, agent desktop automation, and
historical and real-time reporting capabilities. Ensemble is a modular platform,
making it possible for companies to deploy the product in stages and to increase
functionality as their needs expand.
Ensemble is comprised of the following modules:
. Inbound - Manages inbound telephone calls by minimizing hold times,
routing calls to specific agents, and presenting relevant customer
information to those agents.
. Outbound - Provides tools for proactive customer contact, including
predictive and preview dialing, campaign and call list management,
scheduled recalls, and automated messaging. These tools are designed
to maximize agent productivity and effectively reach targeted
customers.
. Blend- Monitors telephone traffic and shifts agents between proactive
customer contact activities and inbound call handling in order to
minimize hold times and maximize agent productivity.
. Desktop Automation - Provides customer service representatives with
all the information they need to quickly and accurately respond to
customers' inquiries coming in via the telephone, the Internet or
through e-mail. This information could include order status, account
balances, shipping information, previous purchase information,
detailed product descriptions or any other information from various
sources that could be relevant to serving customers. This
functionality is marketed as LYRICall(TM), the Company's browser-based
desktop automation software.
. Reporting - Provides real-time and historical reporting capabilities
that allow managers to make effective decisions on how to allocate
resources within the contact center and maximize results. This
reporting information covers all customer contact channels including
telephone, e-mail and the Internet.
. E-mail response - Allows companies to respond more quickly, accurately
and consistently to a high volume of e-mail inquiries from customers
and prospects. This feature automatically routes e-mail to the
appropriate agent, responds automatically or suggests responses to
frequent inquiries, and generates reports on e-mail response service
levels and agent productivity.
. Web call-back - Provides companies with a means to enhance their web
sites to communicate more effectively with customers and prospects.
This feature allows a customer or prospect reviewing a company's web
site to click on an icon, fill out a contact form, and initiate a call
from the company to the customer or prospect.
Ensemble has been available for shipment within North America since December
1999 and within other international markets since the second quarter of 2000.
4
Unison(R) Call Management System
Introduced in 1993, the Unison(R) Call Management System is designed to automate
proactive customer contact activities. It manages outbound and call-blending
applications and provides high-productivity tools to increase the number of
calls handled and the quality of each customer contact. Unison is used primarily
in customer contact centers handling credit/collections, telemarketing, and
fundraising campaigns.
Unison provides key outbound call management functionality, including predictive
and preview dialing, campaign and call list management, scheduled recalls,
automated messaging, real-time filtering, system alerts, and voice/data
transfers. The Unison system also provides a graphical management console that
monitors critical functions and displays information about calling campaigns.
The LYRICall agent desktop automation software, described earlier, can be used
with the Unison call management system.
Markets and Distribution Channels
Davox products and services are sold worldwide through multiple distribution
channels, including a direct sales force, distributors and resellers.
North American Operations
In North America, Davox sells its products primarily through a direct sales
force. Davox's headquarters is in Westford, Massachusetts with sales offices
located throughout the United States and Canada.
Davox account executives and solution consultants take a solutions-focused
approach in working with prospective customers. Customer's business needs and
integration requirements are clearly identified and defined before the sale,
ensuring customer expectations are properly met on a timely basis. This
consultative selling approach, combined with Davox's own Enterprise Solutions
Services resources for application development and integration, ensure that the
right solution is quickly deployed to meet customer requirements.
In addition to direct sales in North America, Davox uses authorized resellers to
provide additional market coverage and revenue contribution. The primary
resellers include Siemens Information & Communication Networks, Inc., SBC Global
Services Inc. and Verizon Communications Inc.
International Operations
During 2000, the Company expanded its sales presence in key geographic areas of
the world, establishing subsidiaries in Brazil and Australia, and a branch
office in Japan. In addition, the Company has a direct sales presence in the
United Kingdom (London), Germany (Frankfurt), Singapore, and Mexico (Mexico
City). The Company currently plans to continue to expand its direct sales
presence in the international marketplace.
In addition to its direct sales presence in the international marketplace, Davox
licenses its products through indirect channels, utilizing distributors and
resellers. These indirect channel partners not only have the ability to resell
Davox's product, but also have substantial skills in systems consulting,
integration, and support to meet customer requirements.
In connection with sales outside the United States, some Davox products are
subject to
5
regulation by foreign governments, which requires the Company to follow certain
telecommunications and safety certification procedures for some countries.
Failure to obtain necessary local country approvals or certifications will
restrict Davox's ability to sell into some countries. In addition, other factors
including, but not limited to currency rate fluctuation, import/export
restrictions, political and economic instabilities and other unknown or
unforeseen eventualities, may affect international sales.
International product revenue was approximately $8.4 million, $10.8 million and
$9.7 million, or approximately 18%, 20% and 18% of all product revenue in 2000,
1999, and 1998, respectively.
In 2000, the Company derived 84% of its product revenue from North America; 12%
from Europe, the Middle East, and Africa; 3% from Asia Pacific; and 1% from
Latin America.
Support Services
The Company offers a full line of warranty, service and support options in all
of its geographic markets. Central to the Company's maintenance service
offerings is its Worldwide Support Center located at Davox headquarters in
Westford, Massachusetts. The Company also operates satellite support offices in
Slough, United Kingdom, and Mexico City, Mexico. From these locations, Davox
support professionals manage telephone, Internet and e-mail requests from
customers for information and support. Using state-of-the-art case management
and diagnostic tools, the support centers provide end-to-end problem resolution.
Davox's contract coverage includes access to Davox's support web site for case
logging, interactive problem resolution, periodic product maintenance updates
and various levels of support, including 24 hour x 365 day priority phone
support, problem escalation and on-site hardware maintenance requests.
The Company offers a tiered support program for its distributor channel.
Included in this program are periodic maintenance updates to distributors'
enrolled end-user base, access to Davox's distributor web site, escalated
support for distributor personnel, recommended training curriculums and a spare
parts repair/exchange program.
Davox contracts hardware support with independent third-party service providers
who are recognized for quality support and customer care practices. By
contracting with third party providers for hardware support, Davox can more
effectively focus on developing and supporting its software applications.
The Company believes that it has adequate resources internally and externally in
order to provide services to its customers and partners in the event services
from these third party organizations should cease in any manner; however, loss
of any one of these relationships could materially adversely affect Davox's
ability to provide support to its customers and partners in the geographic
region covered by such organizations until a substitute source could be found.
Davox's Educational Services offers a variety of courses designed to provide
customer contact centers with the skills and knowledge needed to enhance
productivity and raise the level of service they deliver to their customers.
Davox training facilities are located in Acton, Massachusetts; Richardson,
Texas; and Slough, United Kingdom. The Company also offers customized courses
delivered on-site at customer locations.
6
The Company's Enterprise Solutions Services group provides consulting and
integration services to Davox customers. This organization offers consulting
expertise on agent desktop automation, database integration, call flow
automation, project management and other services to help customer contact
centers enhance the productivity and value of their Davox systems. These
services focus on both the traditional customer contact center as well as the
emerging e-business markets.
Services revenue accounted for $47.1 million, or 50% of the Company's total
revenue in 2000. This is an increase of $8.5 million from $38.6 million or 42%
of the Company's total revenue in 1999. The Company's services revenue for 1999
increased $3.5 million from $35.1 million or 39% of the Company's total revenue
in 1998. These increases were due primarily to increased demand for consulting
and implementation services as well as increased maintenance revenue associated
with the Company's growing customer base.
Suppliers
While the majority of the Company's hardware needs are met by readily available
off-the-shelf technology, a small portion remains proprietary. Third-party
contractors manufacture these proprietary hardware components, and the Company
believes there are many qualified vendors for these services. The Company's
production process consists primarily of product staging, quality assurance,
final test and systems integration, which typically occurs at its Westford
facility.
The Company attempts to maintain multiple sources of supply for key components
and believes it has adequate sources for its expected needs. While any of these
sources could be replaced if necessary, the Company might face significant
delays in establishing replacement sources or in modifying its products to
incorporate replacement components or software code. There can be no assurance
that the Company will not suffer delays resulting from non-performance by its
vendors or cost increases due to a variety of factors, including component
shortages or changes in laws or tariffs applicable to items imported by the
Company.
Strategic Partnerships
A complete CRM system is extremely complex and usually entails integration with
existing telecommunications systems, databases and front office applications to
adequately meet customer requirements. Currently, no vendor provides all the
requisite elements for a fully integrated CRM system.
To meet this challenge and to increase its market opportunity, Davox has
undertaken strategic partnerships with various complementary technology and
platform vendors. These partners include Sun Microsystems, Kana Communications,
Siebel Systems, NICE Systems, FaceTime Communications, IEX Corporation, Witness
Systems, and Microsoft Corporation.
In November 1999, Davox entered into a technology licensing agreement and a
global reseller agreement with Kana Communications (Kana), a leading provider of
online customer communications solutions based in Palo Alto, California. Under
the terms of these agreements, Davox has integrated selected Kana technology
into its Ensemble customer contact suite, and it has secured rights to resell
Kana's online customer communications products.
7
Competition
Davox currently competes in the CIM market. In this market, the Company
currently competes with, among others, Genesys Telecommunications (a
wholly-owned subsidiary of Alcatel), Cisco System's Intelligent Contact
Management product line, Aspect Communications, eShare Communications and Avaya,
Inc.
The Company believes that it has a number of advantages over its competitors in
the areas of product functionality, integration, deployment time and customer
service and support.
Certain of the Company's current and potential competitors are larger companies
that have greater financial, technical and marketing resources. It is possible
that competitors could produce products that perform the same or similar
functions as those performed by the Company's products. In addition, current and
potential competitors have established, and may in the future establish,
cooperative relationships among themselves or with third parties to increase the
ability of their products to address the needs of the Company's current or
prospective customers. Accordingly, it is likely that new competitors or
alliances among such competitors will emerge and may rapidly acquire significant
market share, which would have a material adverse effect on the Company's
business, financial condition and results of operations. In order to be
successful in the future, the Company must respond promptly and effectively to
the challenges of technological change, changing customer requirements and
competitive pressures. Increased competition could make it more difficult for
the Company to maintain its market presence.
Significant Customers
Davox has more than 1,000 customers that are located worldwide and represent a
cross-section of industries. For the year ended December 31, 2000, no customer
represented more than 10% of total revenue. For the year ended December 31,
1999, AT&T was the Company's largest single customer, accounting for
approximately 12% of total revenue. In 1998, Lucent Technologies, Inc., a
reseller of Davox products, was the Company's single largest customer,
accounting for approximately 13% of total revenue. Total revenue from the
Company's top three customers amounted to approximately 16%, 24% and 24% of
total revenue in 2000, 1999, and 1998, respectively. The Company believes that
its dependence on any end-user customer or reseller is not likely to increase
significantly as its products continue to be accepted by both existing customers
and new accounts in major industries worldwide.
Research, Development and Engineering
The Company's product development efforts are aimed at designing and developing
customer contact center software that meets software industry standards and
incorporates technologies and features that the Company believes its customers
require. Most of the Company's products are developed internally by research and
development teams located at the Company's headquarters in Westford,
Massachusetts, and at a satellite development facility located in Richardson,
Texas. The Company also licenses certain technology and intellectual property
rights from third parties. The Company believes that by establishing mutually
beneficial relationships with third-party technology companies it can provide
its customers with emerging technologies in the most timely and cost-effective
manner.
The Company's continued success depends on, among other factors, maintaining
close working relationships with its customers, business partners and resellers
and anticipating and responding to their evolving applications needs. The
Company is committed to the development of new products, the improvement of
existing products, and the continued
8
evaluation of new technologies.
The Company spent $16.0 million on research and development in 2000, compared
with $13.3 million in 1999 and $12.1 million in 1998. This represented
approximately 17%, 14%, and 14%, respectively, of total revenue in each of those
years. The Company currently expects to increase its investment in research and
development during 2001 in an effort to continue to expand the market for the
Ensemble product suite.
In addition, the Company did not capitalize any of its software development
costs in 2000, 1999, or 1998, as the additional development costs incurred to
bring the Company's products to a commercially acceptable level after
technological feasibility has been established are not significant.
Selling, General and Administrative
During 2000, the Company's selling, general and administrative expenses
increased as the expansion of international locations continued. New offices
were opened in Brazil, Australia and Japan. Also driving the increase in
selling, general and administrative expense were increased marketing expense and
increased salary-related expenses associated with a growth in employees. During
2000, Davox increased its investment in global marketing and promotion to
increase awareness and demand for its products. Marketing activities include
print advertising, Internet-based marketing, seminars, trade shows and press and
analyst relations.
Intellectual Property
The Company relies on a combination of patent, copyright, trademark, contract
and trade secret laws to establish and protect its proprietary rights in its
technology. The Company owns and licenses a number of patents relating to
predictive dialing, real-time telecommunication management, client/server
computer telephony software, and user interfaces. Software products are
furnished under software license agreements that grant customers licenses to
use, rather than to own, the products. The license agreements contain provisions
protecting the Company's ownership of the underlying technology. Upon
commencement of employment, employees execute a non-disclosure and invention
assignment agreement under which inventions developed during the course of
employment will, at the election of the Company, be assigned to the Company and
which further prohibits disclosure of confidential Company information. There
can be no assurances that the steps taken by the Company in this regard will be
adequate to prevent misappropriation or infringement of its technology or that
Davox's competitors will not independently develop technologies that are
substantially equivalent or superior to Davox's technology. See also "Item
3-Legal Proceedings." Effective protection of intellectual property rights may
be limited or unavailable in certain foreign countries.
Employees
As of December 31, 2000, the Company had 498 employees worldwide, of whom 19
were engaged in operations; 333 in sales, marketing and customer support; 92 in
research, development and engineering; and 54 in administrative functions. None
of the Company's employees are represented by a collective bargaining agreement,
nor has the Company ever experienced any work stoppage. The Company considers
its relations with its employees to be good.
9
Certain Factors That May Affect Future Results
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-K) may contain statements which are
not historical facts, so-called "forward-looking statements". These
forward-looking statements may include, but are not limited to a discussion of
expected financial and operating results and expected results of the company's
marketing efforts and product strategy. Such forward-looking statements involve
risks and uncertainties which may adversely impact whether or not such
forward-looking statements come true. In particular, but without limitation,
statements, using words such as "expects", "anticipates", "believes", "plans
to", "is planning" or "estimates" may be considered forward-looking. The
Company's actual future results may differ significantly from those stated in
any forward-looking statements. Factors that may cause such differences include,
but are not limited to, the factors discussed below. Each of these factors, and
others, are discussed from time to time in the Company's filings with the
Securities and Exchange Commission.
The Company's future results may be subject to substantial risks and
uncertainties. The Company purchases certain equipment for its products from
third-party suppliers and licenses certain components of its software code from
a number of third-party vendors. While the Company believes that third-party
equipment and software vendors could be replaced if necessary, the Company might
face significant delays in establishing replacement sources or in modifying its
products to incorporate replacement components or software code. There can be no
assurance that the Company will not suffer delays resulting from non-performance
by its vendors or cost increases due to a variety of factors, including
component shortages. The Company uses third-party service providers and
co-providers to fulfill its hardware support obligations and professional
services with its customers, therefore risks associated with third-party service
provider or co-provider availability or price increases could cause results to
be impacted. While the Company believes that its currently contracted service
providers and co-providers are adequate at this time, the Company may face
significant delays in establishing replacement providers for such services.
In addition, when integrating third party equipment or software, inherent risks
and uncertainties are present at the early stages of the products life cycle as
a result of the need for live customer environment testing. For example, the
Company has recently integrated Kana technology into its Ensemble solution,
however such integrated product is in early tests. Depending upon the results of
the field testing, risks and uncertainties could arise relating to the financial
and operating results based upon the sales of Ensemble that have the integrated
Kana technology.
The Company relies on certain intellectual property protections to preserve its
intellectual property rights. Any invalidation of the Company's intellectual
property rights or lengthy and expensive defense of those rights could have a
material adverse affect on the financial position and results of operations of
the Company.
The Company's products and their use are subject to a variety of laws, rules and
regulations. Although the Company's customers must comply with most of these
laws, rules and regulations, there is no guarantee that such laws, rules and
regulations will not be expanded. An expansion could prohibit certain customer
uses of the Company's products, which may significantly delay or prohibit the
Company's sale or licensing of its technology. For instance, any banning of
predictive dialers would have a materially adverse impact on the
10
Company's operating and financial results.
The development of new products, the improvement of existing products and the
continuing evaluation of new technologies is critical to the Company's success.
Successful product development and introduction depends upon a number of
factors, including anticipating and responding to the evolving applications
needs of customers and resellers, timely completion and introduction of new
products, and market acceptance of the Company's products.
The CIM and outbound call management industries are extremely competitive.
Certain current and potential competitors of the Company are more established,
benefit from greater market recognition and have substantially greater
financial, development and marketing resources than the Company.
Additionally, the Company's quarterly and annual financial and operating results
are affected by a wide variety of factors that could materially adversely affect
revenue and profitability, including: general economic conditions; the timing of
customer orders; the Company's ability to introduce new products on a timely
basis; introduction of products and technologies by the Company's competitors;
market acceptance of the Company's and its competitors' products; effects of
litigation described in Item 3-Legal Proceedings; the ability to hire and retain
key personnel and fluctuations in the tax rates assessed upon Davox.
International revenues are expected to continue to account for a significant
portion of the Company's total revenues in future periods. International sales
are subject to certain inherent risks, including, but not limited to those risks
discussed in this section and elsewhere in the Form 10-K: unexpected changes in
regulatory requirements and tariffs; difficulties in staffing and managing
foreign operations; longer payment cycles; problems in collecting accounts
receivable; exchange rate fluctuations; potentially adverse tax treatment, and
the inability to expand distribution channels. As a result of the foregoing and
other factors, the Company may experience material fluctuations in future
financial and operating results on a quarterly or annual basis, which could
materially and adversely affect its business, financial condition, results of
operations and stock price.
Item 2. Properties
- ------------------
The Company's corporate offices are located at an 85,000 square foot, two-story
building in Westford, Massachusetts. The facility is occupied under a lease that
expires in September 2008. The Company also leases a Richardson, Texas facility
of approximately 26,000 square feet, which expires in January 2002. In addition,
the Company leases facilities for sales and service offices in eight states as
well as in Canada, the United Kingdom, Mexico, Singapore, Germany, Brazil and
Japan. The current aggregate annual rental payments for all of the Company's
facilities are approximately $2.7 million.
Item 3. Legal Proceedings
- -------------------------
In 1998, a customer of Davox was sued for patent infringement by Manufacturing
Administration and Management Systems, Inc. (MAMS) alleging that the customer's
use of a computer driven automated dialer infringes MAMS's patent. Under Davox's
contract with this customer, Davox is obligated to defend and indemnify such
customer against any such claims. In the third quarter of 1998, Davox sued MAMS
in federal court in the Eastern District of New York in an action entitled
"Davox Corporation v. Manufacturing Administration and Management Systems,
Inc.". In the lawsuit, Davox is seeking a declaratory judgment that its products
do not infringe the MAMS patent or, in the alternative,
11
that the MAMS patent is invalid. Davox believes that MAMS's assertions of patent
infringement are without merit, and Davox will vigorously pursue this action
against MAMS. While the outcome of this litigation cannot be predicted with
certainty at this time, management does not believe that the outcome will have a
material adverse effect on the Company's business, financial condition or
results of operations.
The Company is from time to time subject to claims arising in the ordinary
course of business. While the outcome of the claims cannot be predicted with
certainty, management does not expect these matters to have a material adverse
effect on the results of operations and financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
There were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 2000.
Item 4A. Executive Officers of the Registrant
- ---------------------------------------------
The executive officers of the Company, the age of each, and the period during
which each has served in his present office are as follows:
Mr. David M. Sample (52) serves as President, Chief Executive Officer and a
Director. He joined Davox in a part time role in October 2000 and assumed the
role of President and Chief Executive Officer on November 7, 2000. Prior to
joining the Company, Mr. Sample was President, Chief Operating Officer and
Director of ABT Corporation from September 1998 through August 2000. In
addition, he was President, Chief Executive Officer and Chairman of the Board of
Directors of PSDI from March 1997 through May 1998. Mr. Sample was also Senior
Vice President at Hyperion Software from July 1986 until March 1997, and he held
various management positions at Control Data Corporation.
Mr. Jeffrey E. Anderholm (44) serves as Executive Vice President, Product Group.
Since joining Davox in January 1999, Mr. Anderholm has held positions of Vice
President of Marketing and Senior Vice President of Marketing. Prior to joining
Davox, Mr. Anderholm was the Vice President of Marketing for Art Technology
Group from February 1997 through November 1998, Vice President, Electronic
Channel Development at Fidelity Investments from January 1996 through January
1997 and a variety of marketing roles of increasing responsibility at Lotus
Development Corporation from March 1984 through December 1995.
Mr. Anthony A. Colangelo (52) serves as Executive Vice President, Worldwide
Sales and International Operations. Mr. Colangelo became Executive Vice
President of Davox in December 2000, and is responsible for worldwide sales and
international operations. Prior to joining Davox, Mr. Colangelo served as Senior
Vice President for ABT Corporation from February 1999 through August 2000, Vice
President of North American Sales and Global Sales Operations for Hyperion
Software from December 1987 through January 1999, and he held management
positions at Total Micro Solutions and Control Data Corporation.
Mr. Mark Donovan (46) serves as Senior Vice President, Operations and Customer
Services. Since joining Davox in 1983, Mr. Donovan has held management positions
including Vice President, Customer Service from June 1992 through June 1994.
Prior to joining Davox, Mr. Donovan held various management positions with
Applicon, Inc. and Raytheon Corporation.
Mr. Paul R. Lucchese (34) serves as Vice President, General Counsel and
Secretary. Since
12
joining Davox in October 1994, Mr. Lucchese has held positions including
director of contracts administration and legal counsel from June 1998 to
December 1998 and associate general counsel and contracts manager from October
1994 until June 1998. Prior to his position at Davox, Mr. Lucchese served as
legal counsel for Iris Graphics, Inc.
Mr. James F. Mitchell (54) serves as Chief Technical Consultant. He is a founder
of the Company and has served as Senior Vice President and Chief Technical
Officer since 1983. From September 1993 to August 1994, Mr. Mitchell managed the
domestic sales operations of the Company and from 1981 to 1983, he was Vice
President, Engineering of the Company. Prior to joining Davox in 1981, Mr.
Mitchell served as Manager of Systems Development at Applicon, Inc., a producer
of CAD/CAM products.
Mr. Michael J. Provenzano III (31) serves as Vice President of Finance, Chief
Financial Officer and Treasurer. Mr. Provenzano joined Davox in November 1999 as
corporate controller. Prior to joining Davox, Mr. Provenzano held positions of
increasing responsibility at Arthur Andersen LLP from September 1992 through
November 1999, including experienced audit manager in the high technology
practice.
Mr. Mark Zabroske (41) serves as Vice President of North American Sales. Mr.
Zabroske joined Davox in October 1997 as Vice President of Sales for the
Southern Region and also served as Director of North American Sales from January
2000 through July 2000. Prior to joining Davox, Mr. Zabroske held positions of
increasing responsibility over more than 15 years, including Regional Manager at
Bell South from July 1994 through September 1997.
Officers are elected by and serve at the discretion of the Board of Directors.
13
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Davox's common stock has been traded on the Nasdaq National Stock market
under the symbol "DAVX" since its initial public offering on April 28, 1987.
Prior to that date, there was no public market for Davox's common stock. The
following table sets forth the range of high and low closing sale prices per
share of common stock on the Nasdaq National Market for each quarter of the
years ended December 31, 2000 and 1999 as reported by the National Association
of Securities Dealers Automated Quotation System (NASDAQ). During 1997, the
Company effected a three for two stock split through the issuance of a 50% stock
dividend. All share and per share amounts affected by this split, that are
contained in this report on Form 10-K have been retroactively adjusted for all
periods presented.
Fiscal 2000
High Low
-------------------------
First Quarter $39.00 $19.00
Second Quarter $28.00 $ 9.63
Third Quarter $14.19 $ 7.75
Fourth Quarter $10.63 $ 6.13
Fiscal 1999
High Low
-------------------------
First Quarter $10.13 $5.94
Second Quarter $13.50 $6.00
Third Quarter $17.13 $9.75
Fourth Quarter $25.50 $12.38
As of March 7, 2001, there were approximately 380 holders of record of the
Company's common stock and approximately 4,378 beneficial shareholders of the
Company's common stock.
In January 1999, the Board of Directors authorized the purchase of up to
three million shares of the Company's common stock at such times when the
Company deems such purchases to be an effective use of cash. In October 2000,
the Company's Board of Directors increased the total number of shares authorized
to be repurchased under the repurchase program from three million to six
million. Shares that are repurchased may be used for various purposes including
the issuance of shares pursuant to the Company's stock option plans. Under the
stock repurchase program, shares may be repurchased, at management's discretion,
from time to time at prevailing prices in the open market. As of December 31,
2000, the Company had repurchased 2,261,700 shares under this repurchase
program.
14
The Company has never paid cash dividends on its common stock and has
no present intentions to pay cash dividends in the future. The Company intends
to retain any future earnings to finance the growth of the Company.
The Company has not sold any equity securities during the period covered by
this report that were not registered under the Securities Act of 1933, as
amended.
15
Item 6. Selected Financial Data
- --------------------------------
The following table sets forth certain condensed consolidated
financial data for each of the five years in the period ended
December 31, 2000:
Years Ended December 31,
--------------------------------------------------------------------------------------
2000 1999 1998 (a) 1997 (a) 1996 (a)
---- ----- -------- -------- --------
(In Thousands, Except Per Share Amounts)
Condensed Consolidated Statement of Operations Data:
Total revenue $ 94,256 $92,354 $88,948 $83,554 $57,098
Cost of revenue 32,817 30,710 30,114 28,029 22,230
-------- --------- -------- -------- ---------
Gross profit 61,439 61,644 58,834 55,525 34,868
Research, development and
engineering expenses 16,009 13,259 12,086 10,418 6,734
Selling, general and
administrative expenses 42,753 37,077 34,841 29,710 19,704
-------- --------- -------- -------- ---------
Non-recurring merger costs - - 1,926 - -
Income from operations 2,677 11,308 9,981 15,397 8,430
Other income, net 4,037 2,815 2,941 2,031 1,217
-------- --------- -------- -------- ---------
Income before provision
for income taxes 6,714 14,123 12,922 17,428 9,647
Provision for income taxes 2,081 2,118 4,393 2,507 1,014
-------- --------- -------- -------- ---------
Net income $ 4,633 $12,005 $ 8,529 $14,921 $ 8,633
======== ========= ======== ======== =========
Earnings per share:
Basic $ 0.35 $ 0.89 $ 0.60 $ 1.15 $ 0.72
======== ========= ======== ======== =========
Diluted $ 0.33 $ 0.85 $ 0.58 $ 1.05 $ 0.64
======== ========= ======== ======== =========
Weighted average shares outstanding:
Basic 13,236 13,531 14,130 12,940 11,947
======== ========= ======== ======== =========
Diluted 13,945 14,165 14,822 14,270 13,593
======== ========= ======== ======== =========
December 31,
----------------------------------------------------------------------------------
2000 1999 1998 (a) 1997 (a) 1996 (a)
----------------------------------------------------------------------------------
(In Thousands)
Condensed Consolidated Balance Sheet Data:
Working capital $66,585 $66,085 $62,756 $52,847 $21,129
Total assets 102,180 99,043 89,423 81,560 44,478
Long-term obligations - - - - - - - - - 297 - - -
Redeemable Preferred Stock - - - - - - - - - 13,911 8,480
Stockholders' equity 75,738 72,514 69,327 44,464 16,890
(a) Historical financial information has been restated to reflect the
combination of Davox and AnswerSoft in 1998 accounted for as a pooling of
interests and the 3-for-2 stock split effected in the form of a stock dividend
payable to shareholders of record on May 13, 1997.
16
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
All statements contained herein that are not historical facts, including, but
not limited to, statements regarding anticipated future capital requirements,
the Company's future development plans, the Company's ability to obtain debt,
equity or other financing, and the Company's ability to generate cash from
operations, are based on current expectations. These statements are
forward-looking in nature and involve a number of risks and uncertainties, as
more fully described under "Certain Factors That May Affect Future Results."
Actual results may differ materially.
The following table sets forth, for the periods indicated, the percentage of
revenue represented by items as shown in the Company's Consolidated Statements
of Income. This table should be read in conjunction with the Selected Financial
Data, Consolidated Financial Statements and Notes to Consolidated Financial
Statements contained elsewhere herein.
Percentage of Total Revenue For The
Years Ended December 31,
2000 1999 1998
--------------------------------------------
Product revenue 50.0% 58.2% 60.5%
Service revenue 50.0 41.8 39.5
--------------------------------------------
Total revenue 100.0 100.0 100.0
Cost of revenue 34.8 33.3 33.8
--------------------------------------------
Gross profit 65.2 66.7 66.2
Research, development
and engineering expenses 17.0 14.4 13.6
Selling, general and
Administrative expenses 45.4 40.1 39.2
Non-recurring merger costs - - 2.2
--------------------------------------------
Income from operations 2.8 12.2 11.2
Other income, net 4.3 3.1 3.3
--------------------------------------------
Income before provision
for income taxes 7.1 15.3 14.5
Provision for income taxes 2.2 2.3 4.9
--------------------------------------------
Net income 4.9% 13.0% 9.6%
=== ==== ===
17
Total revenue was approximately $94.3 million, $92.4 million and $88.9
million for the fiscal years ended December 31, 2000, 1999 and 1998,
respectively. Total revenue increased 2.1% for the year ended December 31, 2000
compared to the same period in 1999 and increased 4.0% in fiscal year 1999
compared to fiscal year 1998. Total cost of revenue as a percentage of total
revenue was 34.8% in fiscal year 2000, 33.3% in fiscal year 1999 and 33.8% in
fiscal year 1998.
Product revenue was approximately $47.1 million, $53.8 million and
$53.8 million in fiscal years 2000, 1999 and 1998, respectively. Product revenue
decreased 12.3% in 2000 due to a decrease in the number of product shipments as
a result of a slowdown of Unison system sales and a longer sales cycle for
Ensemble. Product revenue was unchanged in 1999 as compared to 1998.
Cost of product revenue as a percentage of product revenue was 17.0%,
18.2%, and 19.5% in fiscal years 2000, 1999 and 1998, respectively. The decrease
as a percentage of product revenue in 2000 and 1999 was due to the decrease in
the number of product shipments that included the Company's Digital
Communications Server Hardware as well as a continued decrease in the hardware
content of the Company's products.
Service revenue was approximately $47.1 million, $38.6 million, and
$35.1 million in fiscal years 2000, 1999 and 1998, respectively. Service revenue
increased 22.1%, 9.9% and 39.1% in 2000, 1999 and 1998, respectively. The
increase in 2000 was due primarily to an increase in maintenance revenue related
to the growth in the installed base of the Company's products in recent years
and increased professional services revenue in 2000 as compared to 1999.
Cost of service revenue as a percentage of service revenue was 52.6%,
54.2% and 55.8% in 2000, 1999 and 1998, respectively. The decreases as a
percentage of service revenue were attributable to the growth in service revenue
in 2000 and 1999, which exceeded the associated increases in the cost of
servicing a larger customer installed base.
In 2000, no single customer represented more than 10% of the Company's
total revenue. Revenue from the Company's largest single customer in 1999 and
1998 was approximately 12%, and 13% of total revenue, respectively. Total
revenue from the Company's three largest customers amounted to 16%, 24% and 24%
of total revenue in 2000, 1999 and 1998, respectively. The Company intends to
continue to broaden its base of existing and new customers by penetrating new
markets, expanding its direct international sales force and using alternate
channels of distribution, thereby decreasing its dependence on its largest
end-user customers.
Research, development and engineering expenses were approximately $16.0
million, $13.3 million and $12.1 million, representing 17.0%, 14.4% and 13.6% of
total revenue during 2000, 1999 and 1998, respectively. The increase in 2000 was
primarily attributable to an increase in employees and higher payroll and
related expenses compared to 1999.
Selling, general and administrative expenses were approximately $42.8
million, $37.1 million and $34.8 million, representing 45.4%, 40.1% and 39.2% of
total revenue during 2000, 1999 and 1998, respectively. The increases in 2000
were mostly attributable to increased headcount, payroll and related expenses
and the costs associated with the setup and expansion
18
of the Company's international subsidiaries. The increases in 1999 were mostly
attributable to increased bonus and commission expense and increased payroll and
related expenses.
For the year ended December 31, 1998, in connection with the merger
with AnswerSoft, Inc., the Company incurred non-recurring merger transaction
costs, primarily professional fees, of $1.3 million. In addition, the Company
incurred non-recurring costs, primarily severance and lease termination costs,
of $597,000 related to the integration of the two businesses.
Other income, derived primarily from investments in commercial paper,
corporate bonds, Eurodollar bonds, and money market instruments increased 43.4%
in 2000 and decreased 4.3% in 1999. The increase in 2000 was due primarily to
the significant increase in the average cash and cash equivalent and marketable
securities balances compared to the previous fiscal year. The decrease in 1999
was due to lower average cash balances as the Company repurchased approximately
1.3 million shares of its common stock at an aggregate cost of approximately
$10.2 million during 1999.
Income Taxes
The Company provided for income taxes at estimated annual effective
tax rates of 31.0%, 15.0% and 34.0% for 2000, 1999 and 1998, respectively. These
rates are lower than the combined federal and state statutory tax rates due
primarily to the utilization of net operating loss and tax credit carryforwards
and benefits derived from the Company's foreign sales corporation. The Company's
2000 and 1999 effective tax rates also reflect the utilization of net operating
losses resulting from the Company's acquisition of AnswerSoft, Inc. in 1998.
Liquidity and Capital Resources
As of December 31, 2000, the Company's principal sources of liquidity
were its cash and cash equivalent balances of approximately $61.8 million, and
its marketable securities of approximately $9.0 million. As of December 31,
1999, the Company's principal sources of liquidity were its cash and cash
equivalent balances of approximately $34.4 million, and its marketable
securities of approximately $30.8 million. The overall increase in cash and cash
equivalents and marketable securities was due primarily to operating activities
and sale and maturity of marketable securities.
The Company's primary investing activities were purchases of property
and equipment, and purchases and sales of marketable securities. Property and
equipment purchases were approximately $4.8 million in 2000 compared to
approximately $3.4 million and $3.4 million in 1999 and 1998, respectively.
Purchases and sales of marketable securities generated a net cash inflow of
approximately $21.8 million in 2000 compared to a net cash outflow of
approximately $3.1 million and $3.9 million in 1999 and 1998, respectively.
Cash used by financing activities in 2000 was approximately $2.7
million and resulted from the Company's repurchase of 935,300 shares of its
common stock at an aggregate cost of approximately $8.6 million, mostly offset
by proceeds generated from the exercise of stock options and shares purchased by
employees under the Company's employee stock purchase plan.
Cash used by financing activities in 1999 was approximately $9.2
million and resulted from the Company's repurchase of approximately 1.3 million
shares of its common stock at an aggregate cost of approximately $10.2 million,
partially offset by proceeds generated from the exercise of
19
stock options and shares purchased by employees under the Company's employee
stock purchase plan.
Working capital as of December 31, 2000 was approximately $66.6
million as compared to approximately $66.1 million as of December 31, 1999.
Total assets as of December 31, 2000 were approximately $102.2 million compared
to approximately $99.0 million as of December 31, 1999. These increases were
primarily attributable to increases in cash and cash equivalents due to the
Company's favorable operating results and prepaid expenses, which was partially
offset by decreases in marketable securities and accounts receivable.
Management believes, based on its current operating plan, that the
Company's existing cash and cash equivalents, marketable securities and cash
generated from operations will be sufficient to meet the Company's cash
requirements for the next twelve months.
Impact of Inflation
The Company believes that inflation did not have a material effect on
the results of operations in 2000, 1999 and 1998.
Item 7(A). Quantitative and Qualitative Disclosures About Market Risk
- ---------------------------------------------------------------------
Derivative Financial Instruments, Other Financial Instruments, and Derivative
Commodity Instruments.
As of December 31, 2000 and 1999, the Company did not participate in
any derivative financial instruments or other financial and commodity
instruments for which fair value disclosure would be required under SFAS No.
107. The Company's investments are primarily short-term, Euro dollar bonds,
investment-grade commercial paper, and money market accounts that are carried on
the Company's books at amortized cost, which approximates fair market value.
Accordingly, the Company has no quantitative information concerning the market
risk of participating in such investments.
Primary Market Risk Exposures
The Company's primary market risk exposures are in the areas of
interest rate risk and foreign currency exchange rate risk. The Company's
investment portfolio of cash equivalent and short-term investments is subject to
interest rate fluctuations, but the Company believes this risk is immaterial due
to the short-term nature of these investments.
The Company's exposure to currency exchange rate fluctuations has been
and is expected to continue to be modest due to the fact that the operations of
its international
20
subsidiaries are almost exclusively conducted in their respective local
currencies. International subsidiary operating results are translated into U.S.
dollars and consolidated for reporting purposes. The impact of currency exchange
rate movements on intercompany transactions was immaterial for the years ending
December 31, 2000, 1999, and 1998. Currently the Company does not engage in
foreign currency hedging activities.
21
Item 8. Consolidated Financial Statements and Supplementary Data
- -----------------------------------------------------------------
Index to Consolidated Financial Statements and Financial Statement Schedule
- --------------------------------------------------------------------------------
Page
----
Report of Independent Public Accountants 23
Consolidated Balance Sheets as of December 31,
2000 and 1999 24
Consolidated Statements of Income for the Years
Ended December 31, 2000, 1999 and 1998 25
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 2000, 1999
and 1998 26
Consolidated Statements of Cash Flows for the Years
Ended December 31, 2000, 1999 and 1998 27
Notes to Consolidated Financial Statements 28
Report of Independent Public Accountants on Financial
Statement Schedule 46
Schedule II - Valuation and Qualifying Accounts 47
22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Davox Corporation:
We have audited the accompanying consolidated balance sheets of Davox
Corporation (a Delaware corporation) and subsidiaries as of December 31, 2000
and 1999 and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Davox
Corporation and subsidiaries as of December 31, 2000 and 1999 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States.
/s/ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 19, 2001
23
DAVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Amounts)
December 31,
ASSETS 2000 1999
--------- ---------
Current assets:
Cash and cash equivalents $ 61,758 $ 34,433
Marketable securities, at amortized cost 8,999 30,770
Accounts receivable, net of reserves of
$2,255 and $1,631 in 2000 and
1999, respectively 14,195 20,320
Prepaid expenses and other current assets 4,564 2,280
Deferred tax assets 3,511 4,811
--------- ---------
Total current assets 93,027 92,614
Property and equipment, net 5,863 5,050
Other assets 3,290 1,379
--------- ---------
$ 102,180 $ 99,043
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,450 $ 5,733
Accrued expenses 8,092 11,815
Customer deposits 5,914 3,515
Deferred revenue 6,986 5,466
--------- ---------
Total current liabilities 26,442 26,529
Commitments and contingencies (Note 6)
Stockholders' equity:
Common stock, $0.10 par value -
Authorized - 30,000 shares
Issued - 14,556 shares 1,456 1,456
Additional paid-in capital 82,676 74,691
Accumulated foreign currency translation adjustments (299) (17)
Retained earnings 10,988 6,355
--------- ---------
94,821 82,485
Less - Treasury stock, 1,927 and 1,298 shares, at cost,
in 2000 and 1999, respectively (19,083) (9,971)
--------- ---------
Total stockholders' equity 75,738 72,514
--------- ---------
$ 102,180 $ 99,043
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
24
DAVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
For the Years Ended December 31,
2000 1999 1998
---- ---- ----
Product revenue $ 47,135 $ 53,757 $ 53,818
Service revenue 47,121 38,597 35,130
-------- -------- -------
Total revenue 94,256 92,354 88,948
-------- -------- -------
Cost of product revenue 8,012 9,809 10,510
Cost of service revenue 24,805 20,901 19,604
-------- -------- -------
Total cost of revenue 32,817 30,710 30,114
-------- -------- -------
Gross profit 61,439 61,644 58,834
-------- -------- -------
Operating expenses:
Research, development and engineering 16,009 13,259 12,086
Selling, general and administrative 42,753 37,077 34,841
Non-recurring merger related transaction costs - - 1,329
Non-recurring merger related integration costs - - 597
-------- -------- -------
Total operating expenses 58,762 50,336 48,853
-------- -------- -------
Income from operations 2,677 11,308 9,981
Other income (primarily interest), net 4,037 2,815 2,941
-------- -------- -------
Income before provision for income taxes 6,714 14,123 12,922
Provision for income taxes 2,081 2,118 4,393
-------- -------- -------
Net income $ 4,633 $ 12,005 $ 8,529
======== ======== =======
Earnings per share:
Basic $ $ 0.35 $ 0.89 $ 0.60
======== ========= =======
Diluted $ 0.33 $ 0.85 $ 0.58
======== ======== =======
Weighted average shares outstanding:
Basic 13,236 13,531 14,130
======== ======== =======
Diluted 13,945 14,165 14,822
======== ======== =======
The accompanying notes are an integral part of these consolidated
financial statements.
25
DAVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
Accumulated Note
Foreign Receivable
Additional Currency Retained Due Total
Common Stock Paid-in Translation (Deficit)/ From Treasury Stock Stockholders' Comprehensive
Shares $ 10 Par Value Capital Adjustments Earnings Offices Shares Amount Equity Income
-------- -------------- --------- ------------ ---------- ------- -------- ------ ----------- -------------
BALANCE, December
31, 1997 12,040 $ 1,204 $ 57,870 $ 7 $ (14,179) ($414) 3 ($24) $44,464
Proceeds from
exercise of stock
options, including
related tax benefit 452 45 1,507 ---- ---- ---- ---- ---- 1,552
Proceeds from
purchases under
employee stock
purchase plan 21 2 451 ---- ---- ---- ---- ---- 453
Conversion of
redeemable
preferred stock
into common stock 1,836 184 13,727 ---- ---- ---- ---- ---- 13,911
Repayment of note
receivable ---- ---- ---- ---- ---- 414 ---- ---- 414
Translation
adjustment ---- ---- ---- 4 ---- ---- ---- ---- 4 4
Net income ---- ---- ---- ---- 8,529 ---- ---- ---- 8,529 8,529
-------
Comprehensive
income for
the year ended
December 31, 1998 ---- ---- ---- ---- ---- ---- ---- ---- ---- 8,533
=======
------- -------- -------- -------- --------- ------ ------- ------- -------
BALANCE, December
31, 1998 14,349 1,435 73,555 11 (5,650) 0 3 (24) 69,327
Proceeds from
exercise of stock
options, including
related tax benefit 161 16 830 ---- ---- ---- (11) 100 946
Proceeds from
purchases under
employee stock
purchase plan 46 5 306 ---- ---- ---- (20) 170 481
Purchase of
treasury stock ---- ---- ---- ---- ---- ---- 1,326 (10,217) (10,217)
Translation
adjustment ---- ---- ---- (28) ---- ---- ---- ---- (28) (28)
Net income ---- ---- ---- ---- 12,005 ---- ---- ---- 12,005 12,005
-------
Comprehensive
income for
the year ended
December 31, 1999 ---- ---- ---- ---- ---- ---- ---- ---- ---- $11,977
=======
------- -------- -------- -------- --------- ------ ------- ------- -------
BALANCE, December
31, 1999 14,556 1,456 74,691 (17) 6,355 ---- 1,298 (9,971) 72,514
Proceeds from
exercise of stock
options, including
related tax benefit ---- ---- 4,207 ---- ---- ---- (405) 3,028 7,235
Proceeds from
purchases under
employee stock
purchase plan ---- ---- 71 ---- ---- ---- (20) 143 214
Settlement of
escrow shares ---- ---- 3,707 ---- ---- ---- 119 (3,707) ----
Purchase of
treasury stock ---- ---- ---- ---- ---- ---- 935 (8,576) (8,576)
Translation
adjustment ---- ---- ---- (282) ---- ---- ---- ---- (282) (282)
Net income ---- ---- ---- ---- 4,633 ---- ---- ---- 4,633 4,633
-------
Comprehensive
income for
the year ended
December 31, 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- $ 4,351
=======
------- -------- -------- -------- --------- ------ ------- --------- -------
BALANCE, December
31, 2000 14,556 $ 1,456 $ 82,676 $ (299) $ 10,988 $ - 1,927 $(19,083) $75,738
======= ======== ======== ======== ========= ====== ======= ======== =======
The accompanying notes are an integral part of these consolidated
financial statements.
DAVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For the Years Ended December 31,
2000 1999 1998
---- ---- -----
Cash Flows From Operating Activities:
Net income $ 4,633 $ 12,005 $ 8,529
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 3,968 3,606 3,356
Tax benefit from the exercise of stock options 1,649 438 394
Changes in current assets and liabilities -
Accounts receivable 6,158 (4,361) (3,360)
Prepaid expenses and other current assets (2,320) (565) (592)
Deferred tax assets 1,300 876 3,632
Accounts payable (283) 768 (282)
Accrued expenses (3,661) 2,354 (1,376)
Customer deposits 2,392 1,623 (126)
Deferred revenue 1,527 1,688 (830)
------- -------- ---------
Net cash provided by operating activities 15,363 18,432 9,345
------- -------- ---------
Cash Flows From Investing Activities:
Purchases of property and equipment (4,761) (3,358) (3,406)
Increase in other assets (1,911) (85) (464)
Purchases of marketable securities (68,121) (84,073) (82,400)
Sales and maturities of marketable securities 89,893 81,014 78,491
------- -------- ---------
Net cash provided by (used in) investing activities 15,100 (6,502) (7,779)
------- -------- ---------
Cash Flows From Financing Activities:
Proceeds from exercise of stock options 5,586 508 1,158
Proceeds from employee stock purchase plan 214 481 453
Purchases of treasury stock (8,576) (10,217) ----
Principal payments under long-term obligations ---- ---- (475)
Payment of note receivable from officer ---- ---- 414
------- -------- ---------
Net cash (used in) provided by financing activities (2,776) (9,228) 1,550
------- -------- ---------
Effect of exchange rate differences on cash (362) (28) 4
------- -------- ---------
Net increase in cash and cash equivalents 27,325 2,674 3,120
Cash and cash equivalents, beginning of year 34,433 31,759 28,639
-------- -------- ---------
Cash and cash equivalents, end of year $ 61,758 $ 34,433 $ 31,759
======== ======== =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for income taxes $ 2,508 $ 1,363 $ 1,487
======== ======== =========
Cash paid during the year for interest $ ---- $ ---- $ 21
======== ======== =========
Supplemental Disclosure of Non-Cash Investing and Financing
Activities:
Conversion of redeemable preferred stock into common stock $ ---- $ ---- $ 13,911
======== ======== =========
Recoupment of acquisition escrow shares $ 3,707 $ ---- $ ----
======== ======== =========
The accompanying notes are an integral part of these consolidated
financial statements
27
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(Amounts In Thousands)
(1) Operations and Significant Accounting Policies
Davox Corporation (the Company) is a leading developer of customer
interaction management solutions that help companies more effectively manage
customer interactions via telephone, e-mail and the Internet. These systems are
marketed directly, through joint marketing relationships and distribution
agreements. The Company markets its systems to financial institutions,
retailers, entertainment companies, telemarketing organizations,
telecommunications and transportation companies and utilities.
These consolidated financial statements reflect the application of certain
significant accounting policies as described below and elsewhere in the
accompanying consolidated financial statements.
(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
(b) Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(c) Revenue Recognition
The Company generates software revenue from licensing the rights to use
its software products. The Company also generates service revenues from the sale
of product maintenance contracts, implementation, education and consulting
services. The Company recognizes revenue in accordance with the provisions of
the American Institute of Certified Public Accountants Statement of Position
(SOP) No. 97-2, Software Revenue Recognition and SOP No. 98-9, Modification of
SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions.
Revenue from software license fees are generally recognized upon delivery
provided that there are no significant post delivery obligations, persuasive
evidence of an agreement exists, the fee is fixed or determinable and collection
of the related receivable is probable. If acceptance is required beyond the
Company's standard published specifications, software license revenue is
recognized upon customer acceptance.
28
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(Continued)
(Amounts In Thousands)
(1) Operations and Significant Accounting Policies (continued)
(c) Revenue Recognition (continued)
SOP 98-9 requires use of the residual method for recognition of revenues
when vendor-specific objective evidence exists for undelivered elements but does
not exist for the delivered elements of a multiple-element arrangement. In such
circumstances, the Company defers the fair value of the undelivered elements and
recognizes, as revenue, the remaining value for the delivered elements.
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial
Statements. This bulletin establishes guidelines for revenue recognition. The
Company's revenue recognition policy complies with this pronouncement and
accordingly there was no impact of adopting this new guidance in 2000.
Revenues for consulting implementation and educational services are
recognized over the period in which services are provided. Maintenance revenue
is deferred at the time of software license shipment and is recognized ratably
over the term of the support period, which is typically one year. Amounts
collected prior to satisfying the revenue recognition criteria are reflected as
deferred revenue.
(d) Cash, Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash equivalents
consist primarily of commercial paper. Marketable securities that the Company
has the positive intent and ability to hold to maturity are reported at
amortized cost and are classified as held-to-maturity. The Company's investments
consist of held-to-maturity securities that are investments in Euro dollar,
high-grade commercial paper instruments, corporate bonds and notes at December
31, 2000 and 1999. All of these investments are classified as current as they
mature within one year.
29
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(Continued)
(Amounts In Thousands)
(1) Operations and Significant Accounting Policies (continued)
(d) Cash, Cash Equivalents and Marketable Securities (continued)
At December 31, 2000 and 1999, marketable securities consisted of the
following:
2000 1999
---- ----
Market Amortized Market Amortized
Value Cost Value Cost
--------------------------------------------------------------------------
Euro dollar bond
(maturity 3-7 months) $------ $------ $4,204 $4,212
Commerical paper obligations
(maturity 3-6 months) ------ ------ 13,825 13,824
Corporate bonds
(maturity 3-7 months) 7,999 7,999 11,023 11,032
Medium & short-term notes
(maturity 5 months) 1,000 1,000 1,702 1,702
----- ----- ----- -----
$8,999 $8,999 $30,754 $30,770
====== ====== ======= =======
30
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(Continued)
(Amounts In Thousands)
(1) Operations and Significant Accounting Policies (continued)
(e) Property and Equipment
The Company provides for depreciation and amortization of property and
equipment using the straight-line method by charges to operations in amounts to
allocate the cost of the property and equipment over their estimated useful
lives. The cost of property and equipment and their useful lives are summarized
as follows:
December 31,
------------
Estimated
Asset Classification Useful Life 2000 1999
- -------------------- ----------- ----- ----
Office equipment and software 2-5 Years $20,965 $16,894
Rental and demonstration equipment 2-3 Years 316 316
Furniture and fixtures 5 Years 1,210 943
Leasehold improvements Life of Lease 711 289
------- -------
23,202 18,442
Less-Accumulated depreciation and amortization 17,339 13,392
------- -------
$ 5,863 $ 5,050
======= =======
(f) Research and Development and Software Development Costs
Research and development costs have been charged to operations as
incurred. Statement of Financial Accounting Standards (SFAS) No. 86, Accounting
for the Costs of Computer Software to Be Leased, Sold, or Otherwise Marketed,
requires the capitalization of certain computer software development costs
incurred after technological feasibility is established. Once technological
feasibility of a software product has been established, the additional
development costs incurred to bring the product to a commercially acceptable
level are not significant. Accordingly, all such software development costs have
been expensed.
(g) Foreign Currency Translation
The Company considers the functional currency of its foreign
subsidiaries to be the local currency and, accordingly their financial
information is translated into U.S. dollars using exchange rates in effect at
period-end for assets and liabilities and average exchange rates during each
reporting period for the results of operations. Adjustments resulting from
translation of foreign subsidiaries' financial statements are included as a
component of stockholders' equity.
31
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(Continued)
(Amounts In Thousands)
(1) Operations and Significant Accounting Policies (continued)
(h) Earnings Per Share
Basic earnings per share is computed using the weighted average number
of common shares outstanding. Diluted earnings per share is computed using the
weighted average number of common shares outstanding and the effect of dilutive
common stock equivalents using the treasury stock method.
A reconciliation of basic and diluted weighted averages shares
outstanding is as follows:
For the years ended December 31,
--------------------------------
2000 1999 1998
---- ---- ----
Basic weighted average shares outstanding 13,236 13,531 14,130
Effect of dilutive common stock equivalents 709 634 692
------ ------ ------
Diluted weighted average shares outstanding 13,945 14,165 14,822
====== ====== ======
In 2000, 1999 and 1998, 1,509, 1,657 and 1,484 common stock equivalent
shares, respectively, were not included in the diluted weighted average shares
outstanding, as their effect would be antidilutive.
(i) Concentration of Credit Risk
Financial instruments that potentially expose the Company to
concentrations of credit risk consist primarily of cash and cash equivalents,
marketable securities and trade accounts receivable. The Company places its cash
investments in several financial institutions. The Company has no significant
off-balance sheet concentrations such as foreign exchange contracts, options
contracts or other foreign hedging arrangements. The Company has not experienced
significant losses related to receivables from any individual customers or
groups of customers in any specific industry or by geographic area. Due to these
factors, no additional credit risk beyond amounts provided for collection losses
is believed by management to be inherent in the Company's accounts receivable.
The Company had one customer as of December 31, 2000 with amounts due of
approximately 11% and one customer as of December 31, 1999 with amounts due of
approximately 19% of total accounts receivable respectively.
32
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(Continued)
(Amounts In Thousands)
(1) Operations and Significant Accounting Policies (continued)
(j) Derivative Financial Instruments and Fair Value of Financial
Instruments
In June 1999, the Financial Accounting Standards Board (FASB) issued
SFAS No. 137, Accounting for Derivative Financial Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133, which
deferred the effective date of SFAS No. 133 to all fiscal quarters of all fiscal
years beginning after June 15, 2000. SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires entities to
recognize all derivatives as either assets or liabilities in the statement of
financial position and to measure those instruments at fair value. The adoption
of these statements did not have a material impact on the Company's financial
position or results of operations.
The Company's financial instruments consist of cash equivalents,
marketable securities, accounts receivable and accounts payable. The estimated
fair value of these financial instruments approximates their carrying value at
December 31, 2000 and 1999 due to the short-term nature of these instruments.
(k) Comprehensive Income
SFAS No. 130, Reporting Comprehensive Income, requires disclosure of
all components of comprehensive income on an annual and interim basis. The
Company has disclosed comprehensive income for all periods presented in the
accompanying consolidated statements of stockholders' equity.
33
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(Continued)
(Amounts In Thousands)
(2) Acquisition of AnswerSoft, Inc.
In May 1998, the Company acquired AnswerSoft, Inc. (AnswerSoft), a
Richardson, Texas, developer of inbound call center software solutions, in
exchange for the issuance of an aggregate of 2,384 shares of Davox common stock,
including shares that were subject to outstanding AnswerSoft stock options and
warrants. In December 2000, 119 shares of the Company's common stock held in
escrow in connection with the acquisition were returned to the Company in
settlement of a claim against AnswerSoft. The returned escrow shares were
recorded in the accompanying consolidated statement of stockholders' equity
using the book value price per share used to account for the acquistion. The
acquisition was accounted for as a pooling of interests under Accounting
Principles Board Opinion No. 16. Accordingly, the Company's historical
consolidated financial statements prior to the merger have been restated to
include the financial position, results of operations and cash flows of
AnswerSoft. In connection with the merger with AnswerSoft, the Company incurred
non-recurring merger transaction costs (primarily professional fees) of $1,329.
In addition, the Company incurred non-recurring costs (primarily severance and
lease termination costs) of $597 related to the integration of the two
businesses.
(3) Accrued Expenses
Accrued expenses consist of the following:
December 31
-----------
2000 1999
---- ----
Payroll and payroll related $3,951 $4,654
Income taxes 1,288 1,654
Sales and property taxes 829 1,419
Other 2,024 4,088
----- -----
$8,092 $11,815
====== =======
34
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(Continued)
(Amounts In Thousands)
(4) 401(k) Plan
The Company maintains the Davox Corporation 401(k) Retirement Plan (the
Plan), which is a deferred contribution plan that covers all full-time employees
over 21 years of age. Employees may join the Plan in the next quarterly
enrollment period following their date of hire. The participants may make pretax
deferred contributions to the Plan of up to 15% of the annual compensation, as
defined. Contributions to the Plan by the Company are discretionary and are
determined by the Board of Directors. The Company made discretionary
contributions to the Plan of approximately $917, $777 and $315 for the years
2000, 1999 and 1998, respectively.
(5) Income Taxes
The Company accounts for income taxes using the liability method in
accordance with SFAS No. 109, Accounting for Income Taxes. Under the liability
method, a deferred tax asset or liability is determined based on the difference
between the financial statement and tax bases of assets and liabilities, as
measured by the enacted tax rates assumed to be in effect when these differences
are expected to reverse.
The components of the provision for income taxes consist of the following:
For the Years Ended December 31,
-------------------------------
2000 1999 1998
---- ---- ----
Current:
Federal $1,281 $1,270 $3,199
State 337 1,108 994
------ ------ ------
Total current 1,618 2,378 4,193
------ ------ ------
Deferred:
Federal 379 (230) 153
State 84 (30) 47
------ ------ ------
Total deferred 463 (260) 200
------ ------ ------
$2,081 $2,118 $4,393
====== ====== ======
35
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(Continued)
(Amounts In Thousands)
(5) Income Taxes (continued)
The provision for income taxes for the years ended December 31, 2000,
1999 and 1998 does not reflect approximately $1,649, $438 and $394,
respectively, of tax benefits included in additional paid-in capital related to
disqualifying dispositions and the exercise of non-qualified stock options.
The approximate income tax effect of each type of temporary difference
comprising the deferred tax asset is approximately as follows:
December 31,
2000 1999
---- ----
Net operating loss carryforwards $ 152 $ 332
Depreciation 1,472 1,215
Tax credit carryforwards 2,445 1,762
Other temporary differences 3,511 3,967
------ ------
7,580 7,276
Less-valuation allowance 1,750 1,267
------ ------
$5,830 $6,009
====== ======
Approximately $3,511 and $4,811 of the deferred tax assets are classified as
current at December 31, 2000 and 1999, respectively. Approximately $2,319 and
$1,198 of the deferred tax assets are classified as long-term and included in
other assets as of December 31, 2000 and 1999, respectively.
At December 31, 2000, the Company has available net operating loss carryforwards
and tax credit carryforwards of approximately $447 and $2,445, respectively. The
operating loss carryforwards and tax credit carryforwards begin to expire in
fiscal years 2008 and 2005, respectively.
36
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(Continued)
(Amounts In Thousands)
(5) Income Taxes (continued)
The Company records a valuation allowance against its deferred tax
asset to the extent management believes it is more likely than not that the
asset will not be realized. As of December 31, 2000, the Company has provided a
valuation allowance against certain of the Company's tax credit carryforwards
due to the uncertainty of their realizability as a result of limitations on
their utilization in accordance with certain tax laws and regulations.
A reconciliation of the federal statutory tax rate to the Company's
effective tax rate is as follows:
Years Ended December 31,
------------------------
2000 1999 1998
---- ---- ----
Federal statutory tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal
income tax benefit 2.5 5.1 3.3
AnswerSoft merger expenses not
deductible for tax purposes --- --- 2.6
Change in valuation
allowance/utilization of net
operating loss and tax credit carryforwards (3.7) (24.9) (3.8)
Foreign sales corporation benefit (2.8) (1.7) (1.0)
Other 1.0 2.5 (1.1)
------ ------ ------
31.0% 15.0% 34.0%
====== ====== ======
37
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(Continued)
(Amounts In Thousands)
(6) Commitments and Contingencies
(a) Operating Lease Commitments
The Company leases its facilities and sales offices under operating
leases that expire at various dates through September 2008. Pursuant to the
lease agreements, the Company is responsible for maintenance costs and real
estate taxes. Total rental expense for all operating leases for the years ended
December 31, 2000, 1999 and 1998 amounted to approximately $2,203, $1,720 and
$1,771, respectively.
Future minimum lease payments at December 31, 2000 are approximately as
follows:
Years Ending December 31, Amount
------------------------- -------
2001 $ 2,691
2002 2,180
2003 2,047
2004 1,646
2005 1,418
Thereafter 3,718
-------
$13,700
=======
(b) Litigation
The Company is, from time to time, subject to claims arising in the
ordinary course of business. While the outcome of the claims cannot be predicted
with certainty, management does not expect these matters to have a material
adverse effect on the consolidated results of operations and financial condition
of the Company.
38
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(Continued)
(Amounts In Thousands)
(7) Stockholders' Equity
(a) 1986 Stock Plan
The Company's 1986 Stock Plan (the 1986 Plan), administered by the
Board of Directors, authorizes the issuance of a maximum of 3,696 shares of
common stock for the exercise of options in connection with awards or direct
purchases of stock. Options granted under the 1986 Plan may be either non-
statutory stock options or options intended to constitute incentive stock
options under the Internal Revenue Code. Stock options may be granted to
employees, officers, employee-directors or consultants of the Company and are
exercisable in such installments as the Board of Directors may specify. The
options granted currently vest over a four-year period and expire ten years from
the date of grant. As of December 31, 2000, there were options to purchase 463
shares of common stock outstanding under this 1986 Plan. The 1986 Plan
terminated pursuant to its terms in September 1996.
(b) 1994 Stock Plan
In 1994, AnswerSoft's Board of Directors approved the adoption of an
employee stock option plan (the AnswerSoft Plan), as amended, which authorized
the grant of options to purchase up to 4,200 shares of AnswerSoft's common
stock. The AnswerSoft Plan provided for the granting of options to eligible
employees to purchase AnswerSoft's common stock at an exercise price of not less
than 100% of the fair market value per share on the date of grant as determined
by AnswerSoft's Board of Directors. The AnswerSoft Plan was administered by its
Board of Directors, who determined the number of shares for which options will
be granted, the effective dates of the grants, the option price and vesting
schedules. All options under the AnswerSoft Plan have a ten year term and
typically vested over four years from the effective date of the grant. All
outstanding options became immediately and fully vested upon completion of the
merger with Davox. The Company no longer grants options under the AnswerSoft
Plan. As of December 31, 2000, there were options to purchase 0.7 shares of
common stock outstanding under the AnswerSoft Plan.
39
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(Continued)
(Amounts In Thousands)
(7) Stockholders' Equity (continued)
(c) 1996 Stock Plan
The Company's 1996 Stock Plan (the 1996 Plan), administered by the
Board of Directors, authorizes the issuance of a maximum of 2,700 shares of
common stock for the exercise of options in connection with awards or direct
purchases of stock. Options granted under the 1996 Plan may be either
nonstatutory stock options or options intended to constitute incentive stock
options under the Internal Revenue Code. Stock options may be granted to
employees, officers, employee-directors or consultants of the Company and are
exercisable in such installments as the Board of Directors may specify. The
options currently vest over a four-year period. As of December 31, 2000, there
were options to purchase 2,516 shares of common stock outstanding and 572 shares
available for future grants under the 1996 Plan.
(d) 2000 Stock Option Plan
The Company's 2000 Stock Option Plan (the 2000 Plan), administered by
the Board of Directors, authorizes the issuance of a maximum of 1,500 shares of
common stock for the exercise of non-statutory stock options in connection with
awards or direct purchases of stock. Stock options may be granted to employees
or consultants of the Company and are exercisable in such installments as the
Board of Directors may specify. The options currently vest over a four-year
period. As of December 31, 2000, there were options to purchase 556 shares of
common stock outstanding and 944 shares available for future grants under the
2000 Plan.
(e) Directors Stock Option Plan
The Company's 1988 Non-employee Director Stock Option Plan (the 1988
Plan), as amended, is administered by the Board of Directors and authorizes the
issuance of a maximum of 600 shares of common stock for the exercise of options.
The 1988 Plan provides for the automatic grant of options to purchase 60 shares
of common stock to each newly elected non-employee director and additional
option grants of 15 shares of common stock per biennial anniversary of election
to the Board of Directors. Options granted under the 1988 Plan vest 25% per year
beginning one year from the date of grant and expire five years from the date of
grant. As of December 31, 2000, there were options to purchase 110 shares of
common stock outstanding and 246 shares available for future grants under the
1988 Plan.
40
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(Continued)
(Amounts In Thousands)
(7) Stockholders' Equity (continued)
(f) Stock Option Plans Summary
The following is a summary of the stock option activity for all plans for
the years ended December 31, 2000, 1999 and 1998:
Weighted
Number of Exercise Average
Options Price Range Exercise Price
------- ----------- --------------
Outstanding, December 31, 1997 2,457 $0.77 - $34.13 $14.11
Granted 1,124 2.01 - 34.12 18.48
Exercised (452) 0.77 - 26.33 2.56
Canceled (593) 0.77 - 34.13 21.72
----- -------------- ------
Outstanding, December 31, 1998 2,536 0.77 - 34.13 16.33
Granted 931 8.50 - 21.75 11.87
Exercised (172) 0.77 - 20.75 2.95
Canceled (246) 0.77 - 34.13 16.23
----- -------------- ------
Outstanding, December 31, 1999 3,049 0.77 - 34.13 15.73
Granted 1,814 6.50 - 29.50 13.24
Exercised (405) 1.33 - 34.13 13.81
Canceled (805) 6.50 - 34.13 18.30
----- -------------- ------
Outstanding, December 31, 2000 3,653 $0.77 - $34.13 $14.14
===== ============== ======
Exercisable, December 31, 2000 1,518 $0.77 - $34.13 $15.94
===== ============== ======
Exercisable, December 31, 1999 1,410 $0.77 - $34.13 $14.88
===== ============== ======
Exercisable, December 31, 1998 1,124 $0.77 - $34.13 $11.09
===== ============== ======
The range of exercise prices for options outstanding and options exercisable at
December 31, 2000 are as follows:
Options Outstanding Options Exercisable
Remaining Number Weighted Number Weighted
Range of Contractual Life Of Average Exercise of Average Exercise
Exercise Prices (in years) Options Price Options Price
- -------------------------------------------------------------------------------------------------------------------
$ 0.77 - $ 1.67 3.39 213 $ 1.66 213 $ 1.66
2.00 - 2.33 3.74 156 2.33 156 2.33
3.25 - 4.75 3.47 37 3.57 37 3.57
6.17 - 9.00 9.30 1,320 7.72 138 8.06
9.56 - 13.06 9.38 325 10.47 13 13.06
14.63 - 21.75 7.60 556 17.05 312 16.97
24.33 - 34.13 7.09 1,046 26.52 649 25.85
----- ------ ----- ------
3,653 $14.14 1,518 $15.94
===== ====== ===== ======
41
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(Continued)
(Amounts In Thousands)
(7) Stockholders' Equity (Continued)
(g) Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan (the Purchase Plan)
under which a maximum of 0.8 shares of common stock may be purchased by eligible
employees on an annual basis. Substantially all full-time employees of the
Company are eligible to participate in the Purchase Plan. Shares are purchased
through accumulation of payroll deductions (of not less than 0.5% nor more than
10% of compensation, as defined) for the number of whole shares, determined by
dividing the balance in the employee's account by the purchase price per share,
which is equal to 85% of the fair market value of the common stock, as defined.
During 2000, 1999 and 1998, approximately 20, 66 and 21 shares, respectively,
were purchased under the Purchase Plan.
(h) Accounting for Stock-Based Compensation
The Company accounts for its stock-based compensation under APB Opinion No.
25, Accounting for Stock Issued to Employees, and FASB Interpretation No. 44,
Accounting for Certain Transactions Involving Stock Compensation - An
Interpretation of APB Opinion No. 25. In accordance with SFAS No. 123,
Accounting for Stock-Based Compensation, the Company has adopted the disclosure-
only alternative under SFAS No. 123, which requires the disclosure of the pro
forma effects on earnings and earnings per share as if the fair-value based
method had been adopted, as well as certain other information.
The Company has computed the pro forma disclosures required under SFAS No.
123 for all stock options granted and shares issued under the Purchase Plan as
of December 31, 2000, 1999 and 1998 using the Black-Scholes option pricing model
prescribed by SFAS No. 123.
42
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(Continued)
(Amounts In Thousands)
(7) Stockholders' Equity (Continued)
(h) Accounting for Stock-Based Compensation (continued)
The assumptions used and the weighted average information for the years
ended December 31, 2000, 1999 and 1998 are as follows:
Years ended December 31,
------------------------
2000 1999 1998
---- ---- ----
Risk-free interest rates 5.17%-6.69% 4.60%-6.19% 4.18%-5.61%
Expected dividend yield ----- ---- -----
Expected lives 5.27 years 5.28 years 4.85 years
Expected volatility 69% 68% 69%
Weighted average grant date fair value of
options granted during the period $8.49 $7.35 $11.45
Weighted average remaining contractual
life of options outstanding 7.78 years 7.51 years 7.75 years
The effect of applying SFAS No. 123 would be as follows:
Years ended December 31,
------------------------
2000 1999 1998
---- ---- ----
Net income as reported $ 4,633 $12,005 $8,529
======== ======= ======
Pro forma net income (loss) $ (4,412) $ 5,994 $3,674
======== ======= ======
Earnings per share as reported:
Basic $ 0.35 $ 0.89 $0.60
======== ======= =====
Diluted $ 0.33 $ 0.85 $0.58
======== ======= =====
Pro forma earnings (loss) per share:
Basic $ (0.33) $ 0.44 $0.23
======== ======= =====
Diluted $ (0.32) $ 0.42 $0.22
======== ======= =====
43
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(Continued)
(Amounts In Thousands)
(8) Segment and Geographic Information
In accordance with SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, the Company views its operations and manages
its business as principally one segment, software sales and associated services.
As a result, the financial information disclosed herein represents all of the
material financial information related to the Company's principal operating
segment.
Product revenue from international sources were approximately $8,400,
$10,800 and $9,700 in 2000, 1999 and 1998, respectively. The Company's revenue
from international sources were primarily generated from customers located in
Europe, Canada, Asia/Pacific and Latin America. Substantially all of the
Company's product sales for the years ended December 31, 2000, 1999 and 1998
were shipped from its headquarters located in the United States.
The following table represents the percentage of product revenue by
geographic region from customers for fiscal years 2000, 1999 and 1998:
2000 1999 1998
---- ---- ----
United States 82.2% 80.0% 82.0%
Europe 12.6 16.4 8.1
Asia/Pacific 3.1 2.7 3.5
Latin America 0.6 0.6 1.5
Canada 1.5 0.3 4.9
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====
Substantially all of the Company's assets are located in the United
States.
(9) Significant Customers
No single customer represented more than 10% of the total revenue in
2000. Revenue from the Company's largest single customer in 1999 was 12% and in
1998 the Company's largest single customer was 13% of total revenue
respectively.
44
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(Continued)
(10) Quarterly Results of Operations (Unaudited)
The following table presents a condensed summary of quarterly results of
operations for The years ended December 31, 2000 and 1999:
Year Ended December 31, 2000
----------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Total revenue $26,383 $21,573 $22,479 $23,821
Gross profit 18,576 13,835 13,960 15,068
Net income $ 3,607 $ 383 $ 231 $ 412
======= ======= ======= =======
Earnings per share:
Basic $ 0.27 $ 0.03 $ 0.02 $ 0.03
======= ======= ======= =======
Diluted $ 0.25 $ 0.03 $ 0.02 $ 0.03
======= ======= ======= =======
Year Ended December 31, 1999
----------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Total revenue $20,249 $22,008 $24,046 $26,051
Gross profit 12,778 14,500 16,205 18,161
Net income $ 1,699 $ 2,408 $ 3,476 $ 4,422
======= ======= ======= =======
Earnings per share:
Basic $ 0.12 $ 0.18 $ 0.26 $ 0.33
======= ======= ======= =======
Diluted $ 0.11 $ 0.17 $ 0.25 $ 0.32
======= ======= ======= =======
45
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To Davox Corporation:
We have audited, in accordance with auditing standards generally accepted
in the United States, the consolidated financial statements of Davox Corporation
and subsidiaries included in this Form 10-K and have issued our report thereon
dated January 19, 2001. Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule listed
in the index is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and regulations and is not part of the basic financial statements. This schedule
has been subjected to the auditing procedures applied in the audits of the basic
financial statements and in our opinion, fairly states, in all material
respects, the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
/S/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 19, 2001
46
DAVOX CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
Balance at Charged to Deductions Balance at
Beginning Costs and From End of
of Year Expenses Reserves Year
------- -------- -------- ----
Accounts Receivable Reserves:
December 31, 2000 $1,631 $1,018 $394 $2,255
December 31, 1999 1,175 958 502 1,631
December 31, 1998 1,134 315 274 1,175
47
Item 9. Changes In and Disagreements with Accountants on Accounting and
- -----------------------------------------------------------------------
Financial Disclosure
- --------------------
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
Directors
The information concerning directors of the Company required under this item
is incorporated herein by reference to the Company's definitive proxy statement
pursuant to Regulation 14A, to be filed with the Commission not later than 120
days after the close of the Company's 2000 fiscal year ended December 31, 2000
under the heading "Election of Directors."
Executive Officers
See Item 4A.
Item 11. Executive Compensation
- --------------------------------
The information required under this item is incorporated herein by reference
to the Company's definitive proxy statement pursuant to Regulation 14A, to be
filed with the Commission not later than 120 days after the close of the
Company's 2000 fiscal year ended December 31, 2000, under the heading
"Compensation and Other Information Concerning Directors and Officers."
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The information required under this item is incorporated herein by reference
to the Company's definitive proxy statement pursuant to Regulation 14A, to be
filed with the Commission not later than 120 days after the close of the
Company's 2000 fiscal year ended December 31, 2000, under the headings
"Principal Holders of Voting Securities" and "Election of Directors."
ITEM 13. Certain Relationships and Transactions
- ------------------------------------------------
The information required under this item is incorporated herein by reference
to the Company's definitive proxy statement pursuant to Regulation 14A, to be
filed with the Commission within 120 days after the close of the Company's 2000
fiscal year ended December 31, 2000, under the headings "Principal Holders of
Voting Securities" and "Election of Directors."
48
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
- ------------------------------------------------------------------------
(a) Financial Statements and Financial Statement Schedules
1. Financial Statements
The following financial information is incorporated in Item 8 above:
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Income for the Years Ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
2. Financial Statement Schedule
The following financial information is incorporated in Item 8 above:
Report of Independent Public Accountants on Financial Statement Schedule II
- Valuation and Qualifying Accounts.
All other schedules are not submitted because they are not applicable, not
required or because the information is included in the Consolidated
Financial Statements or Notes to Consolidated Financial Statements.
(b) Reports on Form 8-K
The Company did not file any Current Report on Form 8-K during the fourth
quarter of the fiscal year ended December 31, 2000.
49
(c) List of Exhibits
Exhibit
Number Description of Exhibit
------ ----------------------
3.01(2) Restated Certificate of Incorporation of the Registrant, as
amended.
3.02(2) By-laws of the Registrant, as amended.
4.01(2) Description of Capital Stock contained in the Registrant's
Restated Certificate of Incorporation, as amended, filed as
Exhibit 3.01.
10.01(2) Amended and Restated 1988 Non-Employee Director Stock Option
Plan of the Registrant.
10.02(2) Form of Option Agreement under the Registrant's 1988 Non-
Employee Director Stock Option Plan.
10.03(2) 1991 Employee Stock Purchase Plan, as amended.
10.04(1) 1996 Stock Plan of the Registrant, as amended.
10.05(1) Form of Incentive Stock Option Agreement under the
Registrant's 1996 Stock Plan.
10.06(1) Form of Non-Qualified Stock Option Agreement under the
Registrant's 1996 Stock Plan.
10.07 2000 Stock Option Plan of the Registrant.
10.08 Form of Non-Qualified Stock Option Agreement under the
Registrant's 2000 Stock Option Plan.
10.09 Executive Compensation Plan.
10.10(2) Lease agreement between Registrant and Michelson Farm
Westford Technology Park VI Limited Partnership for Westford
Technology Park Building Six.
10.11(4) First Amendment to Lease by and between the Registrant and
Michaelson Farm - Westford Technology Park Trust VI Limited
Partnership for Westford Technology Park Building Six.
10.12(4)(5) Third-party service provider agreement between the
Registrant and Grumman Systems Support Corporation.
50
10.13(4)(5) OEM Agreement by and between the Registrant and Kana
Communications, Inc. dated as of November 16, 1999.
10.14 Severance Agreement for David M. Sample, President and Chief
Executive Officer.
10.15 Severance Agreement for Jeffrey E. Anderholm, Executive Vice
President, Product Group.
10.16 Severance Agreement for Anthony A. Colangelo, Executive Vice
President, Worldwide Sales and International Operations.
10.17(4) Severance Agreement for Mark Donovan, Senior Vice President
Operations & Customer Service.
10.18(6) Transition and Retention Agreement for Alphonse M. Lucchese,
Chairman.
21. Subsidiaries of the Registrant.
23. Consent of Arthur Andersen LLP.
(1) Previously filed as an exhibit to Form 10-K for the fiscal year ended
December 31, 1996.
(2) Previously filed as an exhibit to Form 10-K for the fiscal year ended
December 31, 1997.
(3) Previously filed as an exhibit to Form 10-K for the fiscal year ended
December 31, 1998.
(4) Previously filed as an exhibit to Form 10-K for the fiscal year ended
December 31, 1999.
(5) Confidential treatment granted. Redacted version previously filed.
(6) Previously filed as an exhibit to Form 10-Q for the quarter ended September
30, 2000.
51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the Town of Westford,
Commonwealth of Massachusetts, on the 9th day of March 2000.
Davox Corporation
By: /s/ David M. Sample
-----------------------
David M. Sample
Chief Executive Officer
and President
POWER OF ATTORNEY
Each person whose signature appears below this Annual Report on Form 10-K hereby
constitutes and appoints David M. Sample and Paul R. Lucchese and each of them,
with full power to act without the other, his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him or her
and in his or her name, place and stead in any and all capacities (until revoked
in writing) to sign all amendments (including post-effective amendments) to this
Annual Report on Form 10-K of Davox Corporation, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary fully to all intents and purposes as
he might or could do in person thereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his or her substitute,
may lawfully do or cause to be done by virtue hereof.
52
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons in the capacities and on the date
indicated.
Signature Title Date
--------- ----- ----
/s/ David M. Sample Chief Executive
- -------------------- Officer and President
David M. Sample (Principal Executive
Officer) March 9, 2001
/s/ Michael J. Provenzano III Vice President of
- ----------------------------- Finance and Chief
Michael J. Provenzano III Financial Officer
(Principal Financial
Officer) March 9, 2001
/s/ Alphonse M. Lucchese Director March 9, 2001
- ------------------------
Alphonse M. Lucchese
/s/ Michael D. Kaufman Director March 9, 2001
- ----------------------
Michael D. Kaufman
/s/ R. Scott Asen Director March 9, 2001
- -----------------
R. Scott Asen
/s/ Peter Gyenes Director March 9, 2001
- ----------------
Peter Gyenes
53