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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 26, 2000
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 29, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER: 0-13616
INTERVOICE-BRITE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 75-1927578
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
17811 WATERVIEW PARKWAY
DALLAS, TEXAS 75252
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(972) 454-8000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS
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COMMON STOCK, NO PAR VALUE
PREFERRED SHARE PURCHASE RIGHTS
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 THE 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. [ ]
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AGGREGATE MARKET VALUE OF COMMON STOCK HELD BY
NONAFFILIATES AS OF MAY 22, 2000: $459,001,214
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NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING AS OF MAY 22, 2000: 32,785,801
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DOCUMENTS INCORPORATED BY REFERENCE
LISTED BELOW ARE DOCUMENTS PARTS OF WHICH ARE INCORPORATED HEREIN BY REFERENCE
AND THE PART OF THIS REPORT INTO WHICH THE DOCUMENT IS INCORPORATED:
(1) PROXY STATEMENT FOR THE 2000 ANNUAL MEETING OF SHAREHOLDERS - PART III.
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TABLE OF CONTENTS
PAGE
PART I ----
ITEM 1. Business........................................................................................1
Call Automation Industry........................................................................7
Markets........................................................................................11
Product Strategy...............................................................................13
Products and Services..........................................................................16
Competition....................................................................................21
Distribution...................................................................................21
Backlog........................................................................................24
Research and Development.......................................................................25
Proprietary Rights.............................................................................25
Manufacturing and Facilities...................................................................27
Employees......................................................................................29
ITEM 2. Properties.....................................................................................32
ITEM 3. Legal Proceedings..............................................................................32
ITEM 4. Submission of Matters to a Vote of Security Holders............................................33
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters..........................34
ITEM 6. Selected Financial Data........................................................................35
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................................37
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk.....................................62
ITEM 8. Financial Statements and Supplementary Data....................................................63
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..........................................................................101
PART III
ITEM 10. Directors and Executive Officers of the Registrant............................................102
ITEM 11. Executive Compensation........................................................................102
ITEM 12. Security Ownership of Certain Beneficial Owners and Management................................102
ITEM 13. Certain Relationships and Related Transactions................................................102
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..............................103
(i)
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PART I
ITEM 1. BUSINESS
InterVoice-Brite, Inc. (together with its subsidiaries, collectively
referred to as the "Company") develops, sells and services call automation
systems. The Company's historical emphasis has been on interactive voice
response ("IVR") systems providing automated customer service and self-help
applications which permit individuals using the touchtone pad on their
telephones; personal computers connected to telephone networks or the internet;
or voices over telephone networks or the internet to access and/or provide
information to computer data bases utilized by businesses. The Company recently
has expanded its product line to include customer relationship management
("CRM") systems which combine telemarketing capabilities and the ability to
generate sales without human interaction, (i.e. e-commerce), in addition to
automated customer service and self-help applications.
The Company also has focused on systems marketed to telecommunications
service providers which use them to provision a variety of automated services to
reduce costs, such as processing collect, debit and credit card calls, and to
provision advanced revenue generating calling features, such as prepaid calling
services, voice and text messaging, internet connectivity and voice dialing.
Consistent with this focus, the Company merged with Brite Voice Systems, Inc.
("Brite") during the second quarter of fiscal 2000. The majority of Brite's
sales were to telecommunication service providers, providing call automation
systems and services which incorporated prepaid/postpaid applications, voice
response, voice recognition, voice/facsimile messaging, audiotex and interactive
computer applications into both standard products and customized market
solutions. As a result of the merger, the Company has become a leading supplier
of, and generates the majority of its revenues from, the sale of enhanced
telecommunications systems and services. The Company expects to continue to
evaluate merger and acquisition prospects and pursue other corporate development
activities to supplement its internal technology and product development.
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The Company's products can be divided into two categories: (i) IVR and
CRM systems that reduce customers' costs or improve the efficiency of services
provided to end-user customers, and (ii) enhanced telecommunications services
systems that increase customers' revenues through increased subscription or user
fees. Typical IVR systems that reduce customers' costs or improve efficiency are
found in automated customer service and self-help applications. Callers using
such systems can access personalized account balances for bank, credit card or
mutual fund accounts; order products or product literature for delivery by mail
or by facsimile; pay bills; enroll for college courses; apply for credit cards
and receive stock quotes or other personalized information. The use of the
Company's systems to respond to routine requests for information reduces
customers' direct labor costs, and allows live agents to handle more complex
questions and problems, thereby improving customer service. CRM systems improve
call center efficiency by automating routine customer service requests and by
providing telemarketing capabilities by automatically dialing phone numbers and
only transferring a call to a live agent if the call is answered and the called
party remains on the phone. Such systems also are being utilized in internet
e-commerce environments to automate order processing and fulfillment. IVR and
CRM systems are generally marketed to businesses, and are generally installed at
the customer premises.
Examples of services provisioned or developed for telecommunications
network service include prepaid calling services, voice messaging/voicemail,
voice activated dialing and wireless internet connectivity. Such systems are
generally installed within the service providers' networks, increasing their
revenues through increased network usage.
Systems
The Company's IVR and CRM systems are sold under the trade names
"OneVoice" and "AgentConnect", respectively. OneVoice systems sell at list
prices ranging from approximately twenty five thousand to millions of dollars
and support from two to thousands of voice and data channels. Scalability is a
distinguishing factor for all OneVoice systems. Such systems can incorporate
either multiple voice processing modules of up to 96 voice and data channels per
module or multiple units of the
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Company's NSP 5000 platform, which can provide up to 1400 voice and data
channels per platform. The Company's voice processing modules and/or NSP 5000
platforms can be connected by local or wide area networks for a single point of
management, control and redundancy. AgentConnect systems sell at list prices
ranging from approximately two hundred fifty thousand to millions of dollars and
support from four to 40 agent positions on a single voice processing module.
Multiple AgentConnect modules can be connected via a node adapter to form
systems to support up to a total of 128 agents.
Systems sold to telecommunications service providers enable the
providers to deploy a variety of revenue generating services, including:
Debit /Prepaid Calling. The Company's Brite-Debit(R)
applications deliver the ability for telecommunications companies to
provide services to subscribers extending beyond traditional monthly
billed service. This capability allows wireless and wireline companies
to provide service through the use of credit cards and debit cards.
Services can also be provided on a prepaid basis, requiring credit
cards or purchase vouchers to initialize or "re-charge" an account.
Unlike traditional telephone company services where service usage
measurements are collected and bills are generated offline at the end
of the billing cycle, prepaid or debit services require that this
billing function occur as part of the call processing system and in
"real time" to allow the user to always have access to a current
balance record. Further, the system must have the ability to "tell" the
user the balance in the account. This ability to perform not only voice
processing and call processing, but also call costing and customer
account adjustment, is a technical task similar to the functionality
provided by telecommunications switches and billing systems operating
simultaneously and in real-time.
The Company's BriteStar(TM) product line, developed during
1998, is a unique handset-based prepaid solution, specifically for
wireless providers. BriteStar uses powerful
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encryption technology to store the user's credit within the handset
itself, and allows the handset to securely monitor the value of all
calls made, so that the user credit level is never exceeded. It allows
network operators to launch a prepaid service with a very short time to
market, to simplify network integration and to use network resources in
a highly efficient manner. BriteStar also offers key subscriber
benefits, such as credit display on the handset, and is the first
prepaid solution capable of full international roaming. BriteStar was
developed jointly with Telemac Corporation and Philips Consumer
Communications, combining the Company's expertise in system delivery
and network integration with Telemac's leadership in switch independent
handset-based prepaid wireless technology and Philips' expertise in
handset production.
Wireless Internet Connectivity. The Company provisions
wireless telecommunications network services providers with systems
which interface wireless telephones to the internet. With internet
connectivity, wireless telephones can be used to access internet and
corporate intranet based services, such as Email and stock quotes.
Additionally, wireless telephone subscribers can access services
provided by their network service providers' intranet, such as billing
records and subscription information for new services.
Unified Messaging. Unified Messaging allows users to store,
send and receive voice messages, Email messages and facsimiles over the
telephone or internet. Users can use wireline or wireless telephones to
access voice mail functions and can have Email messages and facsimiles
read to them by such systems using text-to-speech technology. Users can
also use devices connected to the internet to access Email and
facsimile functions and, through voice over internet protocol (VOIP),
can access voice mail functions. Unified
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messaging systems are marketed by the Company to telecommunications
network service providers throughout the world.
Voice Messaging. Voice messaging (or voice mail) allows users
to store, send and receive information over the telephone or Internet.
In addition to voice mail, the systems provide call answering, call
routing, paging, short message delivery, dictation and automated
attendant features. The Company's range of voice messaging services can
be combined to offer a wide range of value-added services for network
service providers.
Voice Activated Dialing. This application allows wireless
carriers to provide a cellular telephone user access to telephone
numbers using spoken commands rather than the keys on the cellular
telephone. The use of voice activated dialing permits drivers to keep
their hands on the wheel and eyes on the road, promoting safety and
convenience of use. VoiceSelect(R) and BriteTalk(TM) are marketed to
cellular providers around the world.
Enhanced Calling Card. BriteCall(TM), developed in 1998, and
ECC(TM) offer postpaid and enhanced calling card capabilities,
including voice activated dialing and speed dialing. Both are robust,
distributed and network grade products integrating multiple services on
a single platform.
Systems marketed to telecommunications service providers sell at list
prices ranging from approximately two hundred fifty thousand to millions of
dollars and support from 96 to thousands of lines per system. These systems
share the scalability attributes of the Company's OneVoice and AgentConnect
Systems as they are based on the Company's NSP 5000 platform. Multiple NSP 5000
platforms can be connected by local or wide area networks to provide single
system appearance, management control and redundancy.
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Managed Services
As a complement to its systems sales, the Company provides certain
automated call processing services on a managed services basis. In a typical
managed service relationship, the Company provides all necessary equipment and
operational personnel, allowing the customer to avoid both the front-end cost of
purchasing equipment, and the continuing cost of adding personnel to staff a
function outside of its expertise. Charges for these services may be based on
fixed rates per month, per call or per minute, or may consist of a share of the
revenue or profits generated by the service.
The Company provides its prepaid calling applications (BriteDebit and
BriteStar) to network operators on a managed service basis, in addition to
offering a system purchase option. Under these arrangements, the Company
provides the hardware platform which carries traffic on the prepaid network,
rates calls and keeps track of individual subscriber balances, processes account
replenishment and provides customer support representatives to assist
subscribers with problems. The Company's platform can be easily expanded to meet
increased demand and combines many features in a manner that the Company
believes are unmatched in the industry. The advantage to the network provider is
a completely bundled service, which requires no front-end purchase of equipment,
a fixed cost to provide the service, and the avoidance of continuing costs of
operational personnel on staff.
The Company's TeleRent(R) service provides readers of apartment rental
guides access to information concerning rental properties in the local area.
Callers to the system may receive more detailed information about an apartment
or complex than can be conveyed in a printed ad. Callers can direct connect to
the leasing agent, leave messages, or receive a fax of a floor plan or contract.
The Company receives a monthly fee for each listing sold in the rental guide.
The Company sells its IVR and CRM products directly and through more
than 130 domestic and international distributors. The Company generally sells
its products directly to telecommunications network service providers. Since the
Company's inception in 1984, the number of worldwide installations of the
Company's systems has grown to nearly 18,000 located in 70 countries. The
customers to which
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the Company has sold systems include Aetna, Bank of America, BankOne, California
Federal Bank, Chase-Manhattan Bank, CitiBank, Fidelity Investments, First Union
Corporation, J.C. Penney, J. P. Morgan, Martin Marietta, Merrill Lynch,
Microsoft, National Data Corporation, National Westminster Bank U.K., Sears
Roebuck and Co., Social Security Administration, the Internal Revenue Service,
TU Electric, USAA and Wachovia Bank. The Company's telecommunications service
provider end-users include AT&T, Ameritech, Avantel (Mexico), Bell Canada,
British Telecom (including BTCellnet), CANTV (Venezuela), Cellular One, Codatel
(Dominican Republic), CTC (Chile), CTI (Argentina), Guatel (Guatemala), GTE,
Hutchison Telecom (Hong Kong), Iusacel (Mexico), MCI/Worldcom, Mannesmann
(Germany), Movilnet (Venezuela), NPT (People's Republic of China), Qwest/LCI
International, RadioFone, Rogers/Cantel (Canada), Singtel (Singapore), Sprint
(including Sprint PCS), Telcel (Venezuela), Telefonica (Spain), Telecom Asia
(Thailand), Tella Nara (Sweden), Turkcell, Unicom (People's Republic of China)
and US West. British Telecom accounted for 16% of the Company's total sales
during fiscal 2000. There were no other customers accounting for 10% or more of
the Company's sales during fiscal 2000, nor did any customer account for 10% of
the Company's sales during fiscal 1999 or 1998.
CALL AUTOMATION INDUSTRY
The number of telephone calls and, more recently, internet inquiries
(whether voice-based or HTML-based) requesting information or requiring operator
assistance that must be handled by businesses, telecommunications network
service providers and other organizations has increased dramatically in recent
years. Traditionally, consumers obtained information or services from
organizations such as banks, insurance companies, or telephone companies by
phoning a customer service representative, agent, or operator who used a
terminal linked to a computer to process the data or service request. The major
disadvantage of this procedure is the high cost of providing a large number of
individuals to answer calls and provide service, which imposes practical limits
on access frequency and the amount of information
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and level of service that can be given to each caller. Another disadvantage is
that, if the volume of calls increases or substantially varies with the time of
day or other factors, the potential for service delays and errors may increase.
As a result of these high costs and inefficiencies, organizations have
increasingly turned to various methods of automation to process such calls. With
IVR systems, callers receive accurate responses to routine service requests
allowing customer service representatives to work on other important tasks
requiring their personal expertise. In certain system applications, such as
credit limit requests, callers may prefer dealing with an IVR system rather than
an individual in order to preserve privacy and confidentiality. The Company
believes that such systems provide better service to more customers without
additional staff, improve customer and employee retention, and can result in
significant cost savings to the Company's customers.
Businesses also have begun to employ CRM systems to enhance customer
retention through improved customer interaction. Such systems enhance customer
service, facilitate focused telemarketing initiatives and support internet
e-commerce capabilities to automate order processing and fulfillment.
Telecommunications service providers utilize IVR systems at a significant cost
savings to automate calls which formerly required operator assistance.
IVR systems traditionally have been interfaced to public telephony
networks. Recently, the internet has evolved to become a voice and data
communications network similar to public telephony networks. As a natural
extension of its product strategy, the Company has adapted its products to
permit customers to interface their IVR systems to the internet in addition to,
or simultaneously with, public telecommunications networks. The Company's
products, in conjunction with the internet and public switched
telecommunications networks, make it possible for users of multimedia personal
computers and certain handheld, wireless devices to access information and data
in any combination of voice, graphic and image formats.
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IVR systems also have traditionally relied upon the touchtone pad of a
telephone as an input device. As another natural extension of its product
strategy, the Company has focused on enabling its products with speech
recognition capabilities as a replacement or complement to the touchtone pad.
This allows the Company to broaden its marketing efforts into vertical markets
where data input via the touchtone pad is not end-user friendly, such as systems
providing airline flight information, discount brokerage services and travel
reservations. Speech recognition is also an important feature in the
telecommunications service features made possible by the Company's wireless
internet product offerings.
Call automation systems also provide new, high margin services which
telecommunications companies market to their subscribers to increase network
usage and, thus, revenues. Such services include prepaid or calling card
billing, wireless internet connectivity, voice dialing, voice messaging, pager
capabilities and short message services. Unlike traditional telephony services
where service usage measurements are collected and bills generated offline at
the end of a billing cycle, many of these services require that the billing
function occurs in real-time as part of the call. This technical task is similar
to the functionality of telecommunications switches and billing systems,
operating simultaneously.
The Company's call automation systems address the markets below:
Network-based enhanced services systems allow telecommunications
service providers to automate calls formerly requiring operator assistance and
to provide revenue generating, advanced calling features such as voice and text
messaging, prepaid and postpaid calling cards, wireless internet connectivity,
one number personal numbering plans and voice dialing. The Company's sales of
such systems accounted for approximately 53% of the Company's total systems
sales in fiscal 2000.
Interactive voice response (IVR) systems allow the use of a wide
variety of devices, such as telephones, facsimiles or personal computers in
conjunction with public and private telecommunication networks and/or the
internet to input or retrieve information or request services from a computer
data base. Applications include checking account balances, credit card
authorizations, insurance claims
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and automating telephone calls formerly requiring operator assistance. The
Company's sales of such systems accounted for approximately 36% of the Company's
total systems sales in fiscal 2000.
Outbound call processing involves the automatic dialing of telephone
numbers and the use of computerized voice messages and live agents to
communicate with customers and prospects. Applications include customer
notification, delinquent bill collecting and the telemarketing of goods and
services. The Company's sales of such systems accounted for approximately 2% of
the Company's total systems sales in fiscal 2000.
Businesses have begun to experience a demand for customer relationship
management (CRM) that must simultaneously address customer needs in the IVR and
outbound call processing markets. Larger enterprises, for example, are beginning
to consolidate their customer service and telemarketing functions into
multi-purpose call centers which handle both in-bound and out-bound calls. This
consolidation has created a need for the Company's multi-purpose AgentConnect
product which supports individuals who may simultaneously serve as customer
service and telemarketing representatives. AgentConnect systems deployed in such
a manner accounted for approximately 9% of the Company's total systems sales in
fiscal 2000.
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MARKETS
The general public has become increasingly receptive to business
related call automation systems, having become familiar with such technology
from early adopters in the banking industry. IVR systems are becoming more
pervasive in a wide variety of industries and applications as indicated below:
INDUSTRY APPLICATION
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Banking/Financial Services Customer Service
Bill Payment
401(k)/Administration
Stock/Mutual Fund Trading
Health Care Plan Enrollment
Test Results
Claims Status
Cable TV Service Requests
Event Ordering
Education Enrollment
Grade Reporting
Financial Aid
Housing
Electronic Benefits Transfer Child Support
Welfare Payments
Food Subsidies
Travel / Hospitality Arrival/Departure Information
Reservations
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The Company initially focused on the banking and financial services market and
continues to evaluate a wide variety of potential industry specific or
"vertical" markets based on their potential for rapid acceptance of call
automation technology.
Additionally, wireline and wireless telecommunications service
providers rely on call automation systems to provision new services to improve
network utilization, to aid in subscriber retention, and to provide product
differentiation, all of which increase the provider's revenues. Such services
include: voice messaging/voice mail; prepaid, credit and debit calling; wireless
internet connectivity; and voice activated dialing.
NETWORK SERVICE PROVIDER SERVICES
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Local Exchange Carriers (LEC's) Voice messaging/mail
Unified messaging
Competitive Local Exchange Carriers (CLEC's) Voice messaging/mail
Unified messaging
Interexchange Carriers (IXC's) Prepaid, credit call and
debit card calling
Voice activated dialing
Wireless Network Operators Voice messaging/mail
Prepaid, credit call and
debit card calling
Internet connectivity
Voice activated dialing
Unified messaging
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PRODUCT STRATEGY
The Company's products are designed to assist its customers in
achieving the following objectives:
o Increase revenues
o Reduce costs
o Improve customer and/or employee service
o Provide product and service differentiation
The Company believes that its OneVoice, AgentConnect and enhanced
telecommunications services systems enable the Company's customers to handle
more calls with fewer delays and errors at a lower cost than through use of
customer service representatives, agents or operators while preserving callers'
privacy and confidentiality. AgentConnect allows the Company's customers to
contact a large number of people in applications such as collections and
telemarketing while improving the productivity of their agents. Both OneVoice
and AgentConnect operate on the Company's NSP 5000 call automation platform
which can simultaneously host both systems, each of which, in turn, can
simultaneously host multiple applications. This allows the Company's customers
to leverage and cost effectively expand their investments in their OneVoice
and/or AgentConnect systems.
The Company also has adapted its NSP 5000 call automation platform to
host its systems which address the growing telecommunications market. The
Company's telecommunication systems provide network based automated operator
services and high margin, revenue generating applications such as voice
messaging/voice mail, prepaid, credit and debit card calling, wireless internet
connectivity and voice activated dialing.
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The Company focuses its development efforts on call automation
technology. Industry standard computer platforms and operating systems are
leveraged to allow the Company to take advantage of third party hardware and
software technology advances. This strategy offers customers the option to
select the computer platform and operating system of their preference should
they wish compatibility with other computer hosted systems.
The Company has developed a variety of call processing functions
featuring the following characteristics:
Host Computer Platform Independence. The Company's hardware and
software are designed to be independent of the host computer platform
through compliance with industry standards. The same hardware and
software can operate on computer platforms produced by a variety of
manufacturers, allowing the Company to deliver its systems integrated
with the computer platform of its customers' choice instead of
dictating a specific computer platform. This is an important factor in
vendor selection for many of the Company's current and potential
customers and allows the Company to avoid the expense of maintaining
multiple versions of the Company's hardware and software.
Operating Software Independence. The Company's InterSoft run time
software, which is utilized by the Company's OneVoice, AgentConnect and
enhanced telecommunications services systems, is simultaneously
compatible with all popular operating systems, such as Windows NT,
UNIX, Linux and OS/2. This operating software independence allows the
Company to give its customers freedom to choose an operating system, an
important factor in vendor selection for many of the Company's current
and potential customers. This operating software independence also
allows the Company to avoid the expense of maintaining multiple
versions of the Company's InterSoft run time software.
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Flexible Programming. The Company offers its customers a wide variety
of software features that can be included in OneVoice, AgentConnect and
enhanced telecommunications services systems in a number of diverse
product applications. The Company recently introduced a graphical user
interface (GUI) software development tool, InVision, which simplifies
the generation and customization of customer applications.
System Expandability/Networking. The Company's basic OneVoice system
can be expanded from two up to 96 voice and data channels per module.
OneVoice and enhanced telecommunications services systems which utilize
the NSP 5000 platform can be expanded from 24 to 1400 voice and data
channels per platform by adding expansion cards without software
changes. Platforms can be interconnected via a local or wide area
network to provide simultaneous access for thousands of callers while
maintaining control from a single, networked workstation. AgentConnect
modules are expandable from 4 to 40 voice and data channels per system
and multiple AgentConnect modules can be connected via a node adapter
to support up to a total of 128 agents.
Voice and Data Connectivity: Systems can be connected to most digital
and analog PBX's, central office switches and to a wide variety of host
computers and enterprise systems.
The Company's products are designed and manufactured to be highly
reliable and to require minimum maintenance, most of which can be handled from
the Company's headquarters using on-line remote diagnostic and test
capabilities. The Company utilizes an independent service company with local
offices throughout the United States to perform domestic on-site service. The
Company electronically
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dispatches service technicians when customer maintenance or repair is required.
The Company uses a combination of its own staff as well as distributors to
provide international system maintenance and service.
PRODUCTS AND SERVICES
Systems sales made up approximately 75% of the Company's sales during
fiscal 2000.
OneVoice Systems
OneVoice systems are primarily focused on the customer premise
equipment market and comprised approximately 36% of the Company's systems sales
in fiscal 2000. These systems combine a variety of standard computer platforms
and standard operating systems with the Company's proprietary run-time software,
InterSoft, and Company developed and third party developed voice processing
boards to perform call automation functions. Each OneVoice system utilizes the
same proprietary InterSoft run time software, allowing the Company's customers
to expand their OneVoice systems via the addition of expansion cards or via the
linkage of multiple modules or systems through a local or wide area network, as
capacity and other requirements grow. OneVoice systems can be configured using a
variety of computer platforms and operating systems depending on the customer's
preferences and processing requirements.
The Company integrates compatible programmable add-in cards with
InterSoft run time software to interface OneVoice and AgentConnect (see below)
systems with enterprise systems predicated on host computers produced by IBM,
Unisys, NCR, DEC, and others, using standard communications protocols and native
terminal emulation via the Internet; local area networks, including the IBM
Token Ring, Ethernet and Arcnet; advanced wide area networks, including ISDN-PRI
and X.25; and customer private networks.
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AgentConnect Systems
AgentConnect systems are ideal for regional or branch offices of large
businesses for provisioning integrated inbound and outbound CRM systems. These
systems combine PBX functionalities with ISDN-PRI capabilities to enable the
transmission of both voice and data on a single line to support agent query in
both customer service and telemarketing environments. Internet connectivity also
supports the automation of internet-based order processing and fulfillment.
AgentConnect systems deployed as CRM solutions accounted for 9% of the Company's
systems sales in fiscal 2000.
AgentConnect systems also can be utilized to provide outbound call
processing. AgentConnect systems deployed in such a manner accounted for 2% of
the Company's systems sales in fiscal 2000. A typical application of such a
system permits the Company's customers to improve the productivity of their
telemarketing operations by automatically dialing phone numbers and only
transferring a call to an agent if the call is answered and the called party
remains on the phone. Patented advanced call processing monitoring and automatic
call pacing algorithms also improve productivity by transferring a caller to a
telemarketing agent immediately upon completion of the agent's previous call.
Enhanced Telecommunication Services Systems
The Company's enhanced telecommunications services systems are similar
in design to the OneVoice system and utilize much of the same proprietary
hardware and software. These systems provide telecommunications network
operators with automated operator services (such as processing prepaid and
credit card calls) and revenue generating enhanced telecommunication features
(such as wireless internet connectivity, voice mail, short voice and text
message delivery, "one number" services
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and voice activated dialing). These systems accounted for 53% of the Company's
systems sales in fiscal 2000.
Enhanced telecommunications services systems are comprised of the
Company's suite of telecommunications applications running on the Company's NSP
5000 Platform (see below). Initial deployment of services and features as well
as system expansions are accomplished cost-effectively as a result of the NSP
5000 platform's scalability attributes. The Company's enhanced
telecommunications services systems incorporate standards based signaling
protocols, such as signaling system seven (SS7), and can be linked together via
local or wide area networks to provide application control from a single
workstation.
Services
Services sales made up 25% of the Company's total sales during fiscal
2000. Services include managed services, maintenance and other services, such as
installation and training. Other services were less than 1% of the Company's
total services sales.
Managed Services. Managed Services constituted 59% of the Company's
services sales during fiscal 2000. As a complement to its system sales,
the Company provides certain voice and call processing services on a
managed services basis. In a typical managed service relationship, the
Company provides all necessary equipment and operational personnel,
allowing the customer to avoid both the front-end cost of purchasing
equipment, and the continuing cost of adding personnel to staff a
function that is outside its expertise. Charges for these services may
be based on fixed rates per month, per call or per minute, or may
consist of a share of the revenue or profits generated by the service.
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The Company provides its prepaid calling applications
(BriteDebit and BriteStar) to network operators on a managed service
basis in addition to offering a system purchase option. Under these
arrangements, the Company provides the hardware platform which carries
traffic on the prepaid network, rates calls and keeps track of
individual subscriber balances, processes account replenishment and
provides customer support representatives to assist subscribers with
problems. The Company's platform can be easily expanded to meet
increased demand and combines many features in a manner that the
Company believes are unmatched in the industry. The advantage to the
network provider is a completely bundled service, which requires no
front-end purchase of equipment, a fixed cost to provide the service,
and the avoidance of continuing costs of operational personnel on
staff.
The Company's TeleRent(R) service provides readers of
apartment rental guides access to information concerning rental
properties in the local area. Callers to the system may receive more
detailed information about an apartment or complex than can be conveyed
in a printed ad. Callers can direct connect to the leasing agent, leave
messages, or receive a fax of a floor plan or contract. The Company
receives a monthly fee for each listing sold in the rental guide.
Systems Maintenance. Systems maintenance made up 41% of the Company's
services sales during fiscal 2000. The Company offers its customers
system maintenance programs which combine on-line remote diagnostic and
test capabilities with nationwide on-site repair performed, in part, by
independent service providers. These programs enable customers to
access the Company's help desk, to receive diagnostic tests, and, if
necessary, to receive software modifications. When on-site repair is
required, the Company may electronically dispatch its independent
service providers or company service technicians while monitoring and
directing repair activities. The Company uses a
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combination of its own staff as well as distributors to provide
international system maintenance and services.
InterSoft
The Company's InterSoft run time software offers customers a variety of
call automation features that can be included in customer applications utilizing
the interfaces to the internet and public and private switched telephone
networks; interfaces to most PBX's and network switching elements; all telephony
signaling protocols; and speech recognition capabilities.
InVision
InVision is the Company's proprietary, next-generation software tool
which aids in the development and testing of custom call automation
applications. InVision is based on a graphical user interface and allows
developers to visualize and hear the interaction between users and the Company's
systems while developing custom applications. This user-friendly development
tool allows the Company's customers to expand the scope and use of its systems.
InterForm is the Company's proprietary, forms based software program which also
can be used by developers to generate and maintain custom applications.
Network Services Platform (NSP) 5000
The NSP 5000 platform is a Company proprietary design which utilizes a
standards-based, compact, modular, passive backplane allowing high port density
per system, a critical factor for call center and telecommunications
applications. The passive backplane design allows for easy system expansion and
for the upgrade of standards-based system components, such as CPU's, as third
party
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technologies advance. The NSP 5000 can utilize any one of the following
operating systems: Windows NT, Unix, Linux, or OS/2.
COMPETITION
The call automation industry is fragmented and highly competitive.
Based on industry surveys, InterVoice-Brite is the only company participating in
the IVR market with more than a 10% market share. The Company believes it is
second in market share in the enhanced telecommunications services systems
market.
Technological advances are critical to industry leadership and the
Company competes primarily on the basis of a broad range of product capabilities
and features, professional services (such as system customization), and customer
support services. The principal competitors for the Company's IVR systems
include Lucent Technologies and Nortel Networks. The principal competitors for
the Company's CRM systems include Davox, EShare and Lucent Technologies. The
principal competitors for the Company's telecommunications products include
Lucent Technologies, Comverse Technology and Glenayre Technologies. The Company
anticipates that competition from existing competitors will continue to
intensify. The Company may also face market entry from non-traditional
competitors, including digital telephone switching equipment manufacturers and
independent call automation service bureaus. Some of these competitors have
greater financial, technological and marketing resources than the Company.
DISTRIBUTION
The Company markets its IVR and CRM products through both direct and
indirect sales channels. During fiscal 2000, approximately 58% and 42% of such
total sales were attributable to direct sales to end-users and to sales to
distributors, respectively. The Company provides discounts to volume end-user
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purchasers and its distributors reflecting decreased costs associated with such
sales. The Company's telecommunications products are generally marketed through
direct sales channels. During fiscal 2000, sales to existing customers, as a
percentage of the Company's total sales, were 65%, the same as in fiscal year
1999, as the Company's customers continued to expand their systems and to add
new and/or enhanced applications. The Company anticipates that sales to existing
customers, as a percentage of the Company's total sales, will continue to be a
significant percent of its total sales as it focuses additional marketing
efforts on its installed base. British Telecom accounted for 16% of total sales
in fiscal 2000. Otherwise, no company accounted for 10% or more of total sales
during fiscal 2000, 1999 or 1998.
United States Distribution
The Company sells its IVR and CRM products directly to end-users and
more than 85 distributors in the United States. This distributor network allows
the Company to leverage an indirect sales force numbering in excess of 1,700 in
addition to its domestic direct sales force of approximately 90. During fiscal
2000, approximately 71% and 29% of the Company's domestic sales of such systems
were attributable to end-users and distributors, respectively. The Company's
telecommunications products are generally sold by a direct sales force of
approximately 15. Marketing efforts by the Company include advertising, trade
shows, direct mail campaigns and telemarketing, implemented by a field sales
force.
The Company enters into arrangements with distributors to broaden
distribution channels, to increase its sales penetration to specific markets and
industries and to provide certain customer services relating to the Company's
products on the Company's behalf. Distributors are selected based on their
access to markets, industries and customers that are candidates for the
Company's products. The Company's major domestic distributors include EDS,
Fiserv, GTE, Norstan, Siemens Business Communications, Sprint, Symitar Systems
and Wiltel.
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International Distribution
The Company's products are currently sold in 70 countries. The Company
offers its products outside the United States through a direct sales force as
well as through a network of more than 45 distributors, which allows it to
leverage an indirect sales force numbering in excess of 1,000 in addition to its
international direct sales force of approximately 25. The Company's
international telecommunications products are sold by its international sales
force of approximately 40. International distributors include Information
Technology & Data (Turkey), IVRS Ltd. (Hong Kong), Loxbit (Australia), OLTP
Voice (Venezuela), Norstan (Canada), Minacs (Canada), Promotora Kranon (Mexico),
Siemens AG (Worldwide) and Switch (Chile). Subsidiaries of the Company maintain
offices in the UK, Germany, Switzerland, Italy, the Netherlands and South Africa
to support sales throughout the European Community, the Middle East and Africa.
Company offices in Singapore and Sydney support sales by distributors throughout
the Pacific Rim. The majority of the Company's sales to Latin America are
conducted from the Company's Dallas offices. Recently a subsidiary of the
Company was organized in Brazil to support Latin American sales. The Company
also maintains an office in Toronto to support its Canadian distributors.
Many countries lag the United States in the acceptance of IVR and CRM
technology. Government regulation of telecommunications equipment and services,
and the low penetration of digital switches and touch-tone telephones, have
limited sales of IVR and CRM systems in many countries. Subject to differences
in culture and business practices, the Company anticipates that the
international market for IVR and CRM systems will grow as other countries
overcome regulatory, technological and other barriers which limit the use of
such systems. The Company has seen an accelerated demand for its enhanced
telecommunications services systems as a result of increased competition among
international network operators, particularly for systems providing prepaid
wireless calling and voice messaging/voice mail services.
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The Company believes that international buyers are attracted to its
products for a number of reasons including: its digital technology; the ease
with which buyers can customize applications in foreign languages; the ability
of the Company's systems to support multiple languages concurrently, to interact
with rotary telephones, and to support voice recognition when touchtone
telephones are unavailable; and the Company's efforts in obtaining the required
approvals for connectivity to the telephone networks in numerous international
markets.
International sales increased 434% and 13% in fiscal 2000 and 1999,
respectively, and decreased 14% in fiscal 1998 and, as a percentage of total
sales, were 45% in fiscal 2000, 18% in fiscal 1999 and 21% in fiscal 1998. Sales
to the Americas (excluding the United States) constituted 19%, 55% and 54% of
international sales in fiscal 2000, 1999 and 1998, respectively. Sales to the
Europe, Middle East and Africa region constituted 69%, 19% and 25% of
international sales in fiscal 2000, 1999 and 1998, respectively. Sales to the
Pacific Rim constituted 12%, 26% and 21% of international sales in fiscal 2000,
1999, and 1998, respectively. A presentation of the Company's sales by
geographical area for fiscal 2000, 1999 and 1998 is found in Note M to the
Consolidated Financial Statements located in Item 8 of this report.
BACKLOG
The Company's backlog at February 29, 2000 and February 28, 1999 and
1998 was approximately $78 million, $17 million and $11 million, respectively.
The Company expects all existing backlog to be delivered within the next fiscal
year. The increase in backlog during fiscal 2000 was attributable to the
Company's merger with Brite. Due to customer demand, many of the Company's sales
are completed in the same fiscal quarter as ordered. Thus, the Company's backlog
at any particular date may not be indicative of actual sales for any future
period.
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RESEARCH AND DEVELOPMENT
Research and development expenses during fiscal 2000 were approximately
$61 million. Such expenses include a $30.1 million charge for in-process
research and development, (see "In-Process Research and Development" below under
"Item 7 - Management Discussion and Analysis of Financial Condition and Results
of Operations"), incurred during the second quarter in connection with the Brite
merger. Net of this charge, research and development expenses were approximately
$30.9 million during fiscal 2000. Such expenses were $13.3 million and $14.4
million in fiscal 1999 and 1998, respectively. The increase in fiscal 2000 in
such expenses is the result of the Company's merger with Brite. Such recurring
expenses during fiscal 2000, 1999 and 1998 included the design of new products
and the enhancement of existing products. The Company expects to maintain its
strong commitment to research and development to remain at the forefront of
technology development in its business segments, which is essential to the
continued improvement of the Company's position in the industry.
PROPRIETARY RIGHTS
The Company believes that its existing patent, copyright, license and
other proprietary rights in its products and technologies are material to the
conduct of its business. To protect these proprietary rights, the Company relies
on a combination of patent, trademark, trade secret, copyright and other
proprietary rights laws, nondisclosure safeguards and license agreements. As of
February 29, 2000, the Company owned 46 patents. In addition, the Company has
registered "InterVoice" as a trademark in the United States and in certain
foreign countries. The Company has also registered 34 trademarks and
servicemarks in the United States for other product and service names and has
registrations pending in the United States for various product and service
names. The Company's software and other products are
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generally licensed to customers pursuant to a nontransferable license agreement
that restricts the use of the software and other products to the customer's
internal purposes. Although the Company's license agreements prohibit a customer
from disclosing proprietary information contained in the Company's products to
any other person, it is technologically possible for competitors of the Company
to copy aspects of the Company's products in violation of the Company's rights.
Furthermore, even in cases where patents are granted, the detection and policing
of the unauthorized use of the patented technology is difficult. Moreover,
judicial enforcement of copyrights may be uncertain, particularly in foreign
countries. The occurrence of the unauthorized use of the Company's proprietary
information by the Company's competitors could have a material adverse effect on
the Company's business, operating results and financial condition. See "Item 3.
Legal Proceedings."
From time to time various owners of patents and copyrighted works send
the Company letters alleging that its products do or might infringe upon the
owners' intellectual property rights, and/or suggesting that the Company should
negotiate a license or cross-license agreement with the owner. The Company's
policy is to never knowingly infringe upon any third party's intellectual
property rights. Accordingly, the Company forwards any such allegation or
licensing request to its outside legal counsel for their review and opinion. The
Company generally attempts to resolve any such matter by informing the owner of
its position concerning non-infringement or invalidity, and/or, if appropriate,
negotiating a license or cross-license agreement. Even though the Company
attempts to resolve these matters without litigation, it is always possible that
the owner of the patent or copyrighted works will institute litigation. Owners
of patent(s) and/or copyrighted work(s) have previously instituted litigation
against the Company alleging infringement of their intellectual property rights,
although no such litigation is currently pending against the Company. The
Company has accelerated its program for applying for and receiving patents to
reflect its technological innovations. The Company currently has a portfolio of
46 patents, and has applied and will continue to apply for a number of
additional patents. The Company believes that its patent portfolio could allow
it to assert counterclaims for infringement against certain owners of
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intellectual property rights if those owners were to sue the Company for
infringement. In certain situations, it might be beneficial for the Company to
cross license certain of its patents for other patents which are relevant to the
call automation industry.
The Company believes that software companies and technology companies,
including the Company and other companies in the Company's industry, may become
increasingly subject to infringement claims. Such claims may require the Company
to enter into costly license agreements, or result in even more costly
litigation. To the extent the Company requires a licensing arrangement, the
arrangement may not be available at all, or, if available, may be very expensive
or even prohibitively expensive. As with any legal proceeding, there is no
guarantee that the Company will prevail in any litigation instituted against the
Company asserting infringement of intellectual property rights. To the extent
the Company suffers an adverse judgment, it might have to pay substantial
damages, discontinue the use and sale of infringing products, repurchase
infringing products from the Company's customers pursuant to indemnity
obligations, expend significant resources to acquire non-infringing
alternatives, and/or obtain licenses to the intellectual property that has been
infringed upon. As with licensing arrangements, non-infringing substitute
technologies may not be available, and if available, may be very expensive, or
even prohibitively expensive, to implement. Accordingly, for all of the
foregoing reasons, a claim of infringement could ultimately have a material
adverse effect on the Company's business, financial condition and results of
operations.
MANUFACTURING AND FACILITIES
The Company's manufacturing operations consist primarily of the final
assembly, integration and extensive testing and quality control of
subassemblies, host computers platforms, operating software and the Company's
run time software. The Company currently uses third parties to perform printed
circuit board assembly, sheet metal fabrication and customer-site service and
repair. Although the Company
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generally uses standard computer platform parts and components for its products,
some components, including certain semiconductors, and more specifically,
digital signal processors and static random access memories, are presently
available only from limited suppliers. To date, the Company has been able to
obtain adequate supplies of such components in a timely manner. However, the
Company's operating results could be adversely affected if the Company were
unable to obtain such components from such sources in the future.
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EMPLOYEES
As of May 22, 2000, the Company had 1,375 employees.
MERGER WITH BRITE VOICE SYSTEMS, INC. AND RELATED FINANCING
The Merger
On May 3, 1999, the Company, through a wholly-owned subsidiary,
commenced an all cash tender offer (the "Offer") for the purchase of 9,158,155
shares, or appropriately 75%, of the outstanding common stock of Brite Voice
Systems, Inc. ("Brite"), at a price of $13.40 per share. The Offer was fully
subscribed and expired on June 1, 1999. On August 12, 1999 the remaining
3,113,773 shares of Brite were exchanged for 2,985,792 of the Company's shares
to complete the merger.
Debt Financing
The Company entered into a term loan facility in the amount of $125
million and a $25 million revolving credit facility, of which only $10 million
was drawn, to finance the merger. At February 29, 2000, the Company had repaid
the $10 million drawn under the revolving credit facility and had prepaid $25
million of the principal balance of the term loan facility, reducing such
balance to $100 million. On March 10, 2000, the Company prepaid another $15
million of the principal balance of the term loan facility, reducing such
balance to $85 million.
The following is a summary of the principal terms of the loan
facilities, a copy of which has been filed as an exhibit to Schedule 14D-1 filed
with the Commission.
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The facilities mature on August 31, 2003, and the term loan facility is
subject to quarterly amortization with the first payment due on May 31, 2000. In
addition, the facilities are subject to certain mandatory prepayments and
commitment reductions tied to the sale of assets, the issuance of debt, the
issuance of equity and the generation of excess cash flow for a fiscal year.
Certain of these prepayment and commitment reduction requirements are limited by
the satisfaction of certain financial ratios.
The amounts borrowed pursuant to the revolving credit facility and the
term loan facility bear interest at a rate equal to either the London Interbank
Offer Rate ("LIBOR") plus an applicable margin or the alternate base rate (the
higher of (i) the prime rate or (ii) the federal funds rate plus 0.50%) plus the
applicable margin. The applicable margin is determined in accordance with a
schedule to the related credit agreement and is determined by reference to a
ratio of the Company's funded debt to EBITDA (as defined in the facilities).
The facilities contain certain representations and warranties, certain
negative and affirmative covenants, certain conditions and events of default
which are customarily required for similar financing. Such covenants include,
among others, restrictions and limitations on liens and negative pledges;
limitations on mergers, consolidations and sales of assets; limitations on
incurrence of debt; limitations on dividends, stock redemptions and the
redemption and/or prepayment of other debt; limitations on investments and
acquisitions (other than the acquisition of the Company); and limitations on
capital expenditures. Key financial covenants based on the Company's
consolidated financial statements include minimum net worth, maximum leverage
ratio and minimum fixed charges coverage ratio.
The facilities also require a first priority perfected security
interest in (i) all of the capital stock of each of the domestic subsidiaries of
the Company, and 65% of the capital stock of each first tier foreign subsidiary
of the Company, which capital stock shall not be subject to any other lien or
encumbrance and (ii) subject to permitted liens, all other present and future
material assets and properties of the Company
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and its material domestic subsidiaries (including, without limitation, accounts
receivable and proceeds, inventory, real property, machinery and equipment,
contracts, trademarks, copyrights, patents, license rights and general
intangibles).
The Company anticipates that the remaining indebtedness under the term
loan facility will be repaid from a variety of sources, which may include funds
generated internally by the Company, bank financing, and the public or private
sale of debt or equity securities. No decision has been made concerning the
method the Company will employ to repay such indebtedness.
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ITEM 2. PROPERTIES
The Company owns 225,000 square feet and leases 48,000 square feet of
manufacturing and office facilities in Dallas, Texas and Manchester (UK),
respectively. The Company also leases approximately 12,000, 4,000, 3,000, 4,000,
2,000 and 9,000 square feet of office space in Cambridge (UK), Orlando,
Singapore, Sao Paulo, Jacksonville (Florida), and Chicago, respectively. The
Company has also entered into a two and one half year lease agreement commencing
April, 2000 for approximately 100,000 square feet of additional manufacturing
and office space in Allen, Texas (a suburb of Dallas).
The Company has suitable properties and productive capacity for its
near-term requirements. Should additional office and/or manufacturing capacity
be required, the Company owns land adjacent to its Dallas facility
ITEM 3. LEGAL PROCEEDINGS
The Company provides certain automated call processing services on a
managed services basis for a large domestic telecommunications company. The
telecommunications company has alleged that the Company should pay monetary
penalties under the managed services contract for failing to achieve certain
representations, covenants and specified levels of service. The Company has
acknowledged that it may owe the telecommunications company an immaterial amount
as a monetary penalty for failing to adhere to a specific service level, and has
denied all other alleged failures under the contract. A reserve has been
established to cover the immaterial amount the Company has acknowledged it might
owe. The parties are in the process of attempting to negotiate mutually
satisfactory agreements to resolve their dispute, and to extend the managed
services contract. There is no assurance that the parties will negotiate
mutually acceptable agreements. The telecommunications company has not
threatened litigation against the Company. In the event litigation is instituted
against the Company concerning the dispute under the
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contract, the Company intends to vigorously contest the claims and to assert
appropriate defenses. As with any legal proceeding, there is no guarantee that
the Company will prevail in any litigation asserted against the Company in
connection with the managed services contract.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
COMMON STOCK
The Company's outstanding shares of common stock are quoted on the
Nasdaq National Market and the Chicago Stock Exchange under the symbol INTV. The
Company has not paid any cash dividends since its incorporation and does not
anticipate paying cash dividends in the foreseeable future. The definitive loan
documentation evidencing the Company's debt facilities contains a contractual
limitation on the Company restricting its ability to pay a dividend in cash or
property, although the Company is permitted to pay stock dividends.
High and low share prices as reported on the Nasdaq National Market are
shown below for the Company's fiscal quarters during fiscal 2000 and 1999. Share
prices have been restated to reflect a two for one stock split in the form of a
100% stock dividend paid January 11, 1999.
Fiscal 2000 Fiscal 1999
----------- -----------
Quarter High Low Quarter High Low
------- ------- ------- ------- ------- -------
1st $ 13.50 $ 9.06 1st $ 7.44 $ 4.38
2nd $ 15.81 $ 11.88 2nd $ 11.94 $ 6.50
3rd $ 16.44 $ 9.50 3rd $ 15.09 $ 7.25
4th $ 37.44 $ 14.75 4th $ 18.12 $ 10.19
There were approximately 1,000 shareholders of record and approximately 12,500
beneficial shareholders of the Company at May 22, 2000. On May 22, 2000 the
closing price of the Common Stock was $14.00.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's consolidated financial statements and related
notes included elsewhere herein and in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" set forth below.
The selected consolidated financial data presented below for each of the years
in the five-year period ended February 29, 2000 are derived from the
consolidated financial statements of the Company, which financial statements
have been audited by Ernst & Young LLP, independent auditors. The consolidated
financial statements as of February 29, 2000 and February 28, 1999, and for each
of the three years in the period ended February 29, 2000 and the report of Ernst
& Young LLP thereon, are included elsewhere herein.
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FISCAL YEAR ENDED FEBRUARY 29/28
------------------------------------------------------------------------------------
2000* 1999 1998** 1997*** 1996
-------------- -------------- -------------- -------------- --------------
Net Sales $ 286,226,519 $ 136,904,131 $ 102,307,713 $ 104,845,692 $ 97,103,054
Income (Loss)
from Operations 271,557 29,148,484 (8,427,179) 17,548,615 25,054,742
Net Income (Loss) (14,845,728) 20,192,916 (5,139,846) 12,760,481 17,259,358
Total Assets 303,022,716 111,529,501 84,893,475 109,239,759 89,726,806
Long Term Debt 75,000,000 5,000,000 -- -- --
Per Diluted Common Share:
Net Income (Loss) (.49) .68 (.17) .39 .53
Shares used in Per
Diluted Common
Share Calculation 30,510,408 29,772,504 31,032,672 33,182,320 32,798,866
*Fiscal 2000 income from operations and net loss were impacted by special
charges of $15.0 million including: $9.1 million reported in cost of goods sold
relating to a comprehensive cross-license agreement with an affiliate of Lucent
Technologies, Inc. and provisions for inventories and certain intangible assets
made obsolete by the Company's merger with Brite; and $5.9 million reported in
selling, general and administrative expenses relating to severance payments to
employees of the Company made redundant as a result of the merger with Brite,
and charges to bad debts relating to the impairment of certain foreign accounts
receivables and the cancellation of certain customer trade-in obligations. The
Company also wrote off $30.1 million of the acquisition cost for Brite as
in-process research and development. Without these
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items, fiscal 2000 income from operations would have been $45.4 million and net
income would have been $25.1 million, or $0.77 per diluted share.
**Fiscal 1998 net sales, loss from operations and net loss were impacted by
adoption of the American Institute of Certified Public Accountants' Statement of
Position 97-2 (SOP 97-2), tightening of certain of the Company's credit
practices, and special charges of $7.4 million. Special charges of $1.6 million
reported in selling, general and administrative expenses include severances
expenses associated with certain personnel matters, including the resignation of
the Company's former President and Chief Operating Officer, and accounts
receivable write-offs related to certain cancellations of service contracts.
Special charges reported in cost of goods sold totaled $4.0 million of asset
write-offs, including provisions for inventory obsolescence in light of a
migration of the Company's customers to its NSP-5000 platform and provisions for
the impairment of certain intangible assets. The Company also expensed, as
in-process research and development, $1.8 million of the purchase price of the
ESP product line purchased from Integrated Telephony Products, Inc. Without
these items, net sales in fiscal 1998 would have been $107.8 million, income
from operations would have been $2.6 million, and net income would have been
$2.4 million, or $0.08 per diluted share.
***Fiscal 1997 income from operations and net income were impacted by charges
totaling approximately $1.8 million and $1.3 million, respectively, or $0.04 per
share, resulting from a non-recurring litigation settlement. Without these
charges, net income for fiscal 1997 would have been $0.43 per share.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS
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This report on Form 10-K includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical facts included in this Form 10-K, including,
without limitation, statements contained in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and under "Business -
Product Strategy," "Business - Distribution," and "Notes to Consolidated
Financial Statements" located elsewhere herein regarding the Company's financial
position, business strategy, plans and objectives of management of the Company
for future operations, and industry conditions, are forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to be correct. In addition to important factors
described elsewhere in this report, the following significant factors, among
others, sometimes have affected, and in the future could affect, the Company's
actual results and could cause such results during fiscal 2001, and beyond, to
differ materially from those expressed in any forward-looking statements made by
or on behalf of the Company:
o The Company faces intense competition based on product capabilities and
experiences ever increasing demands from its actual and prospective
customers for its products to be compatible with a variety of rapidly
proliferating computing, telephony and computer networking technologies
and standards. The ultimate success of the Company's products is
dependent, to a large degree, on the Company allocating its resources
to developing and improving products compatible with those
technologies, standards and functionalities that ultimately become
widely accepted by the Company's actual and prospective customers. The
Company's success is also dependent, to a large degree, on the
Company's ability to implement arrangements with other vendors with
complementary product offerings to provide actual and prospective
customers greater functionality and to
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ensure that the Company's products are compatible with the increased
variety of technologies and standards.
o Continued availability of suitable non-proprietary computing platforms
and system operating software that are compatible with the Company's
products.
o Certain of the components for the Company's products are available from
limited suppliers. The Company's operating results could be adversely
affected if the Company were unable to obtain such components in the
future.
o Increasing litigation with respect to the enforcement of patents,
copyrights and other intellectual property.
o The ability of the Company to retain its customer base and, in
particular, its more significant customers, such as British Telecom,
which accounted for approximately 16% of the Company's total sales
during fiscal 2000, since such customers generally are not
contractually obligated to place further orders with the Company.
o Legislative and administrative changes and, in particular, changes
affecting the telecommunications industry, such as the
Telecommunications Act of 1996. While many industry analysts expect the
Telecommunications Act of 1996 ultimately to result in at least a
temporary surge in the procurement of telecommunications equipment and
related software and other products, there is no assurance that the
Company can estimate with sufficient accuracy those products which will
ultimately be purchased, the timing of any such purchases or the
quantities to be purchased.
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o Risks involved in the Company's international distribution and sales of
its products, including unexpected changes in regulatory requirements,
unexpected changes in exchange rates, the difficulty and expense of
maintaining foreign offices and distribution channels, tariffs and
other barriers to trade, difficulty in protecting intellectual property
rights, and foreign governmental regulations that may limit or restrict
the sales of call automation systems. Additionally, changes in foreign
credit markets and currency exchange rates may result in requests by
many international customers for extended payment terms and may have an
adverse impact on the Company's cash flow and its level of accounts
receivable.
o The quantity and size of large sales (sales valued at approximately $4
million or more) during any fiscal quarter, which can cause wide
variations in the Company's sales and earnings on a quarter to quarter
basis. Many of the Company's contracts, particularly for managed
services, foreign contracts and contracts with telecommunications
companies, include liquidated damages provisions.
o Ability of the Company to properly estimate costs under fixed price
contracts in developing application software and otherwise tailoring
its systems to customer-specific requests.
o The Company's ability to hire and retain, within the Company's
compensation parameters, qualified technical talent and outside
contractors in highly competitive markets for the services of such
personnel.
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o Mergers and acquisitions between companies in the telecommunications
and financial industries which could result in fewer companies
purchasing the Company's products for telecommunications and banking
applications, and/or delay such purchases by companies that are in the
process of reviewing their strategic alternatives in light of a merger
or acquisition.
o Extreme price and volume trading volatility in the U.S. stock market,
which has had a substantial effect on the market prices of securities
of many high technology companies, frequently for reasons other than
the operating performance of such companies. These broad market
fluctuations could adversely affect the market price of the Company's
common stock.
o The ability of the Company to successfully integrate the products,
customers, employees and other business components of the former
InterVoice and the former Brite in an efficient fashion.
o The Company's business transactions in foreign currencies are subject
to adverse movements in foreign currency exchange rates.
RESULTS OF OPERATIONS
The following table presents certain items as a percentage of sales for the
Company's last three fiscal years.
Year ended February 29/28
----------------------------------
2000* 1999 1998**
-------- -------- --------
Sales 100.0% 100.0% 100.0%
Cost of goods sold 47.3 39.6 51.7
Gross margin 52.7 60.4 48.3
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Research and development expenses 21.3 9.7 12.4
Selling, general and administrative expenses 27.6 29.4 41.4
Amortization of goodwill 3.7 -- --
Non-recurring expenses -- -- 2.7
Operating income 0.1 21.3 (8.2)
Other income - net (2.3) (0.3) 0.8
Income (loss) before taxes (2.2) 21.0 (7.4)
Income taxes (benefit) 3.0 6.3 (2.4)
Net income (loss) (5.2)% 14.7% (5.0)%
*See discussion of fiscal 2000 in Item 6, "Selected Financial Data". Had it not
been impacted by merger related charges totaling $41.6 million, net of tax, cost
of goods, gross margin, research and development expenses, selling, general and
administrative expenses, operating income and net income as a percentage of
sales would have been 44.1%, 55.9%, 10.8%, 25.6% 15.9% and 8.8%, respectively.
**See discussion of fiscal 1998 in Item 6, "Selected Financial Data". Had it not
been impacted by adoption of SOP 97-2, tightened credit practices, and special
charges items (including a charge for in-process research and development), cost
of goods sold, gross margin, research and development expenses, selling, general
and administrative expenses, operating income and net income as a percentage of
sales would have been 45.3%, 54.7%, 11.8% 38.7%, 2.3% and 2.2%, respectively.
SALES
Sales are derived primarily from the shipment of call automation
systems to both new and existing customers in two major market categories: (i)
IVR and CRM systems and (ii) enhanced
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telecommunications services systems. Due to customer demand, many of the
Company's transactions are completed in the same fiscal quarter as ordered. The
size and timing of some transactions have historically resulted in sales
fluctuations from quarter to quarter. In the past, the impact of these
fluctuations has been mitigated to some extent by vertical markets and by the
geographic location of the Company's existing and prospective customers.
However, the Company has become more prone to quarterly sales fluctuations due
to its sales to the enhanced telecommunications services systems market which
are generally large in dollar amount and unevenly distributed throughout the
fiscal year.
Effective December 1, 1997 the Company adopted the American Institute
of Certified Public Accountants' Statement of Position 97-2 (SOP 97-2). Prior to
the adoption of SOP 97-2, the Company's policy provided for the recognition of
revenue upon shipment, provided that the Company's remaining obligations
relating to system installation and testing were not significant. With SOP 97-2,
contract accounting was adopted for systems that require significant
customization or modification by the Company. Revenue for contracts for large
systems, generally greater than $500,000 in sales value, is recognized on the
percentage of completion method. Revenue for smaller systems is recognized on
the completed contract method, i.e., when all the Company's obligations have
been met. The adoption of SOP 97-2 resulted in the Company not recognizing
revenue in the same fiscal quarter that certain systems are shipped. The
adoption of SOP 97-2 also resulted in the Company recognizing revenue during a
fiscal quarter from systems shipped in previous fiscal periods. Accordingly, the
adoption of SOP 97-2 delayed by 60 to 90 days the Company's recognition of
approximately $3 million in sales during the fourth quarter of fiscal 1998, the
first fiscal quarter of adoption. The adoption of SOP 97-2 did not result in a
material increase or decrease in the Company's aggregate sales during fiscal
1999.
From time to time, the Company has agreed to amend customer purchase
orders to extend normal payment terms in exchange for accelerating delivery and
installation of systems, particularly systems not requiring customization. The
Company tightened this practice in its fourth quarter of fiscal 1998 to
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improve cash flow. This decision resulted in an approximate $2.5 million
decrease to revenues during the quarter and fiscal year. The Company continued
its tightened practices during its fiscal 1999. With the merger with Brite in
fiscal 2000, the Company now generates a significant percentage of its sales
outside the United States, particularly sales of enhanced telecommunications
services systems. Customers outside the United States are accustomed to vendor
financing in the form of extended payment terms. To remain competitive in
markets outside the United States, the Company may offer its most credit worthy
customers such payment terms. In fiscal 2000, customer extended payment terms
had no material adverse impact on the Company's days sales outstanding (DSO's)
of accounts receivable. However, there is no assurance such extended payment
terms will not adversely impact DSO's in fiscal 2001 and beyond.
During December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements". SAB 101 provides guidance on the recognition, presentation and
disclosure of revenue in the financial statements. Implementation of guidance
prescribed in the Bulletin and which all registrants are expected to apply, may
result in a change in the Company's revenue recognition policy as applied to a
portion of the Company's system sales from the date of shipment to the date of
transfer of title or final acceptance which may therefore have the effect of
later revenue recognition. Because the Company has complied with generally
accepted accounting principles for its historical revenue recognition, the
change in its revenue recognition policy resulting from SAB 101 will be reported
in the second fiscal quarter of fiscal 2001 which ends August 31, 2000. Any
consequent deferral of revenue for shipments previously reported as revenue
which had not been accepted by customers as of February 29, 2000 would result in
a cumulative adjustment in the first quarter of fiscal 2001. This adjustment
might have a material adverse effect on reported net income for periods reported
after February 29, 2000. The Company is still in the process of assessing the
detailed impact of SAB 101 on its financial statements. However, implementation
of SAB 101 will not affect the fundamental aspects of the Company's operations
as measured by its shipments and cash flows. The
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Company is also considering potential changes to its standard contracts for
equipment sales that could mitigate the impact of SAB 101 with respect to future
sales.
Worldwide sales in fiscal 2000 and 1999 increased 109% and 34%,
respectively and declined 2% in fiscal 1998. The increase in fiscal 2000 sales
is primarily due to the Company's merger with Brite which was accounted for
using the purchase method of accounting. Results of Brite's operations have been
consolidated with those of InterVoice effective June 1, 1999, the first day of
the Company's second fiscal quarter. The increase in fiscal 1999 sales was
primarily the result of a 35% increase in IVR/CRM system sales, which made up
71% of the Company's total sales, and a 53% increase in enhanced
telecommunications services systems sales, which made up 19% of the Company's
total sales. Sales of services during fiscal 1999 grew at a slower rate and made
up 10% of the Company's total sales. The decline in fiscal 1998 sales was
primarily the result of a 1% decrease in IVR/CRM system sales, which made up 70%
of the Company's total sales and a 15% decrease in enhanced telecommunications
services systems, which made up 17% of the Company's total sales. Sales of
services during fiscal 1998 grew slightly and made up 13% of the Company's total
sales.
To enhance comparability of the Company's sales for fiscal 2000, 1999
and 1998, the information below is also presented on an "as adjusted" basis as
though the merger with Brite had occurred at the beginning of the respective
period presented (in millions).
As Adjusted As Reported
----------- -----------
2000* 1999* 1998* 2000 1999 1998
---------- ---------- ---------- ---------- ---------- ----------
IVR/CRM Systems $ 112.2 $ 129.9 $ 97.7 $ 109.0 $ 97.4 $ 71.9
Enhanced Telecommunications
Services Systems 124.5 90.1 60.6 104.7 26.2 17.1
Services** 86.1 52.2 42.5 72.5 13.3 13.3
---------- ---------- ---------- ---------- ---------- ----------
Total $ 322.8 $ 272.2 $ 200.8 $ 286.2 $ 136.9 $ 102.3
========== ========== ========== ========== ========== ==========
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*InterVoice-Brite's fiscal year ends the last day of February. Brite's
fiscal year ended December 31. No adjustment has been made to account for the
two companies' different fiscal year ends.
**As adjusted amounts do not include sales by Brite's TSL and BEP
divisions, which were sold December, 1998 and October, 1997, respectively.
The following discussion compares sales performance on an "as adjusted"
basis:
IVR/CRM system sales decreased 14% in fiscal 2000. The decline in such
sales was attributable to a sluggishness in demand for the former Brite customer
base as those companies evaluated the Company's product roadmap resulting from
the merger with Brite. Additionally, these sales were impacted by a sluggish
fourth quarter demand as the Company's existing and prospective customers
deferred purchase decisions until after the turn of the century (Y2K). Such
sales increased 33% in fiscal 1999 as a result of the Company's continued
investment in product development, expansion of its distribution channels and
its marketing and advertising programs, and in the hiring and training of new
and existing sales, service and support personnel. IVR/CRM sales decreased 4% in
fiscal 1998 as a result of a poor Pacific Rim environment and a concentration of
the Company's Latin American sales efforts on telecommunications opportunities.
International IVR/CRM system sales constituted 22%, 18% and 20% of the Company's
total IVR/CRM system sales in fiscal 2000,1999 and 1998, respectively.
Enhanced telecommunications services systems sales increased 38%, 49%
and 11% in fiscal 2000, 1999 and 1998, respectively. The increases were
attributable to the Company's investments in product development, expansion of
its distribution channels and its marketing and advertising programs, and hiring
and training of new and existing sales, service and support personnel.
International enhanced
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telecommunication services system sales constituted 73%, 55% and 68%, of the
Company's total enhanced telecommunications services systems sales in fiscal
2000, 1999 and 1998, respectively.
Services sales increased 65%, 23% and 17% in fiscal 2000, 1999 and
1998, respectively. The large increase in fiscal 2000 was attributable to the
Company's managed services sales. The Company provides certain voice and call
processing services to its customers on systems owned and operated by the
Company. In return, the Company charges its customers in one of many ways
including fixed rates per month or per transaction or/and share of the revenue
generated by the Company's customers based on such services. During fiscal 2000,
managed services sales increased as a result of increased call volumes by
customers offering prepaid cellular calling services in Europe and North
America. Generally, the Company receives a portion of the prepaid cellular
calling revenues generated by its customers. International services sales
constituted 41%, 34% and 11% of the Company's total services sales in fiscal
2000, 1999 and 1998, respectively.
Prices for the Company's products have remained stable, as measured by
price per line shipped, during fiscal 2000, 1999 and 1998 although the features
and functions per line shipped have become more robust. The Company's exposure
to foreign currency fluctuations is minimal as less than 10% of total sales are
denominated in foreign currencies.
COST OF GOODS SOLD
Fiscal 2000 cost of goods sold was 47.3% of total sales. During the
second fiscal quarter, the Company incurred charges of, in the aggregate, $9.1
million of a non-recurring nature. These charges include a charge related to a
comprehensive patent cross-license agreement with an affiliate of Lucent
Technologies, Inc., a provision for inventories made redundant as a result of
the merger with Brite, and a provision for the impairment of certain intangible
assets relating to the Company's ESP product line made obsolete as a result of
the merger with Brite. Without these charges, cost of goods sold, as a
percentage
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50
of total sales, would have been 44.1% during fiscal 2000, compared to 39.6% and
51.7% during fiscal 1999 and 1998, respectively. The increase in cost of goods
sold, as a percentage of sales, during fiscal 2000 is attributable to the
Company's merger with Brite which, historically, has had a greater cost of goods
sold, as a percentage of sales, than the Company due to higher third party
hardware content in its systems than in the Company's systems. The decrease in
fiscal 1999 was the result of increased sales, the absence of non-recurring
expenses and the Company's efforts to control costs and expenses. Fiscal 1998
cost of goods sold included approximately $4.0 million of non-recurring expenses
recorded in the fourth quarter for inventory obsolescence and the impairment of
certain intangible assets relating to third party software development costs.
RESEARCH AND DEVELOPMENT
Research and development expenses during fiscal 2000 were approximately
$61 million. Such expenses included a $30.1 million charge for in-process
research and development, (see "In-Process Research and Development" below),
incurred during the second quarter in connection with the Brite merger. Net of
this charge, research and development expenses were approximately $30.9 million
during fiscal 2000. Such expenses were $13.3 million and $14.4 million in fiscal
1999 and 1998, respectively. The increase in fiscal 2000 in such expenses is the
result of the Company's merger with Brite. Such recurring expenses during fiscal
2000, 1999 and 1998 included the design of new products and the enhancement of
existing products. The Company expects to maintain its strong commitment to
research and development to remain at the forefront of technology development in
its business segments, which is essential to the continued improvement of the
Company's position in the industry.
IN-PROCESS RESEARCH AND DEVELOPMENT
During the second quarter of fiscal 2000, the Company acquired all of
the outstanding stock of Brite in a two-step transaction involving aggregate
consideration of approximately $165.1 million of cash and 2,985,792 shares of
the Company's common stock. Brite provides voice processing and call
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processing systems and services which incorporate prepaid/postpaid applications,
voice response, voice recognition, voice/facsimile messaging, audiotex and
interactive computer applications into both standard products and customized
market solutions. Approximately $122.7 million was paid in cash, and
approximately $42.4 million was paid in Company common stock. The Company's
consolidated statements of operations reflect the results of operations of Brite
beginning June 1, 1999.
The merger has been accounted for as a purchase business combination.
The aggregate purchase price for Brite was approximately $173.1 million, which
includes other direct costs and assumed liabilities relating to the merger.
Other direct costs of the merger and assumed liabilities primarily consisted of
employee termination costs, transaction costs and costs associated with the
elimination of excess facilities.
The purchase price has been allocated to identifiable tangible and
intangible assets acquired and liabilities assumed based on their estimated fair
values which were determined by an independent valuation and by the Company's
management based on information furnished by management of Brite. The allocation
of the purchase price is as follows (in millions):
Working capital $ 46.4
Property and equipment 17.8
Other assets 5.2
Other liabilities (1.4)
Identified intangible assets 74.5
Purchased in-process R&D (expensed) 30.1
Deferred tax liability on identified intangibles (28.8)
Goodwill 29.3
----------
$ 173.1
==========
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Identified intangibles include developed technology ($25.9 million), customer
relationships ($32.8 million), assembled workforce ($9.2 million), and trade
name ($6.6 million). Identified intangibles and the excess of cost over net
assets acquired (i.e. goodwill) are being amortized on a straight-line basis
over 5-10 years and 10 years, respectively.
In-process R&D of $30.1 million was expensed at the time of acquisition
as the Company determined that the in-process R&D had not reached technological
feasibility based on the status of design and development activities that
required further refinement and testing. Brite's in-process R&D related to
technologies which support Brite's interactive voice response (IVR)/computer
telephony integration (CTI), intelligent network, messaging, voice dialing, and
prepaid/postpaid product families.
The valuation of existing product technology and in-process R&D was
performed using the income approach, which includes an analysis of the markets,
cash flows, and risks associated with achieving such cash flows. The income
approach focuses on the income producing capability of the existing products and
in-process R&D projects and best represents the present value of the future
economic benefits expected to be derived. Significant assumptions used in the
valuation of in-process R&D included the stages of completion of R&D projects,
projected operating cash flows, and the discount rate. At the time of the
merger, Brite management estimated the remaining cost to complete the in-process
R&D projects to be approximately $1.6 million with a remaining time requirement
of approximately 8-12 months. Projected operating cash flows were expected to
begin in fiscal 2000. The discount rate selected for Brite's in-process
technologies was 27.5%. If the R&D projects are not successfully developed, the
Company may not realize the value assigned to the in-process R&D. As of February
29, 2000, development of the projects had progressed as planned with remaining
costs to complete estimated at $0.3 million.
During fiscal 1998, the Company wrote off as in-process research and
development approximately $1.8 million of the purchase price paid to Integrated
Telephony Products, Inc. for its ESP
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product line. In addition to acquiring the ESP product line and certain other
assets of Integrated Telephony Products, Inc. the Company acquired two
in-process research and development projects: (i) Call Flow and (ii) Internet
Telephony Interfaces. Call Flow was a project to develop a Windows NT, GUI-based
telecommunications application development tool. Internet Telephony Interfaces
was a project to develop interfaces to allow text and voice messaging over the
internet which will enable an end user to access voice messages, text messages
(such as Email) and faxes either through traditional telecommunications networks
(with text messages and faxes being read to the end user using text-to-speech
technology) or through the internet. The amount allocated to the purchased
research and development projects ($1.8 million) was expensed at the time of
acquisition as the Company determined that the purchased research and
development projects had not reached technological feasibility based on the
status of design and development activities that required further refinement and
testing.
To determine the fair market value of the in-process research and
development projects, the Company used a risk adjusted income approach,
whereupon fair market value is a function of the future revenues expected to be
generated by an asset, net of all allocable expenses. In determining the amount
of the purchase price to allocate to the purchased research and development,
factors such as stage of completion and technological uncertainties were
considered by the Company in determining the present value of the future
benefits to be received. The development activities required to complete the
acquired in-process research and development projects included additional
coding, cross-platform porting and validation, quality assurance procedures and
beta testing. At the time of purchase, the estimated future cost of completing
these activities was expected to be approximately $1 million to be incurred over
the next 12 months. Actual costs incurred during fiscal 1999 were approximately
$1.1 million. Revenue streams from the resulting products were expected to begin
in fiscal 2000 and were projected forward for five years in the risk adjusted
income analysis. A discount rate of 30% was used to determine the present value
of the cash flows related to the in-process research and development projects
which resulted in $1.8
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million of assigned value. During the second quarter of fiscal 2000, a provision
was made to recognize the obsolescence of the ESP product line as a result of
the Company's merger with Brite.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses totaled $79.1 million
during fiscal 2000. Such expenses include non-recurring charges totaling $5.9
million, including a provision for severance for employees of the Company prior
to the merger with Brite made redundant to the Company's staffing plan as a
result of the merger, travel expenses associated with developing the plans for
merging the operations of the Company with those of Brite, a charge to bad debt
expense relating to the impairment of certain foreign accounts receivable and
another charge to bad debt expense relating to the cancellation of certain
customer equipment trade-in obligations. Such expense, net of these charges, was
approximately $73.2 million in fiscal 2000 and $40.3 million and $42.4 million
in fiscal 1999 and 1998, respectively. The increase in these expenses is
attributable to the Company's merger with Brite. During fiscal 1999, the Company
undertook measures to control expenses, particularly selling, general and
administrative expenses (see discussion below in "Income (loss) from
Operations"), resulting in a $2.1 million reduction in such expenses versus
fiscal 1998. During fiscal 1998, the Company continued to hire and train new and
existing sales, service and support personnel and expand its marketing and
advertising programs worldwide, despite lower than anticipated sales.
AMORTIZATION OF GOODWILL AND ACQUIRED INTANGIBLE ASSETS
Amortization of goodwill and acquired intangible assets was
approximately $10.4 million for fiscal 2000. Goodwill and intangible assets
acquired in the merger with Brite totaled approximately $103.8 million with
useful lives ranging from 5 to 10 years. The Company incurred no such expenses
during fiscal 1999 or fiscal 1998.
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OTHER INCOME
Other income during fiscal 2000, 1999 and 1998 was primarily interest
income on cash and cash equivalents.
INTEREST EXPENSE
Interest expense of approximately $8.0 million was incurred during
fiscal 2000. Substantially all of this expense relates to the Company's long
term borrowings obtained during the second quarter in connection with the merger
with Brite (See "Liquidity and Capital Resources" for a description of the
Company's long term borrowings). Interest expense was approximately $0.8 million
during fiscal 1999.
INCOME TAXES
The Company's income tax expense for fiscal 2000 differs significantly
from the federal statutory rate primarily due to non-deductible charges during
the period relating to in-process R&D and amortization of goodwill resulting
from the merger with Brite.
INCOME (LOSS) FROM OPERATIONS
The Company generated operating income of $0.3 million and a net loss
of $14.9 million during fiscal 2000. During fiscal 1999, the Company generated
operating income of $29.1 million and net income of $20.2 million. The Company
incurred an operating loss and a net loss during fiscal 1998 of $8.4 million and
$5.1 million, respectively.
In order to understand the Company's operating and net income over the
last three fiscal years, it must be noted that the Company incurred, during
second quarter of fiscal 2000, the previously mentioned
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special charges reported in cost of goods sold and selling, general and
administrative expenses totaling $9.1 million and $5.9 million, respectively. In
addition, the Company incurred a charge of $30.1 million for in process research
and development relating to its merger with Brite. Also, the Company, during
fiscal 1998, incurred special charges of approximately $7.4 million reported in
cost of goods sold and selling, general and administrative expenses including
the following: severance expenses associated with certain personnel matters,
including the resignation of the Company's former President and Chief Operating
Officer; write-offs of certain accounts receivable to bad debt expense related
to certain cancellations of service contracts and write-offs of certain
intangible assets as a result of the Company's re-examination of its product
development and infrastructure requirements. The Company also provided a reserve
for potential inventory obsolescence in light of efforts to migrate customers to
its internally developed NSP-5000 computing platform from the Company's
traditional computing platforms, such as IBM PS-2 computers. As a result of such
migration, the Company reviewed its on-hand supply of traditional computer
platforms and determined that a provision for obsolescence was necessary to
allow for a potential excess supply of traditional computer platforms.
Additionally, the Company wrote off as in-process research and development
approximately $1.8 million of the purchase price paid to Integrated Telephony
Products, Inc. for its ESP product line. Also impacting operating income in
fiscal 1998 was the Company's adoption of the American Institute of Certified
Public Accountants' Statement of Position 97-2 (SOP 97-2) and a tightening of
the Company's credit practices to improve cash flow. See Item 7 - "Sales".
Adjusting for the one time charges and other items discussed above, the
Company would have generated operating income of approximately $45.4 million and
approximately $2.6 million in fiscal 2000 and 1998, respectively, and net income
of approximately $25.1 million and $2.4 million in fiscal 2000 and 1998,
respectively.
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The increase in fiscal 2000 operating income and net income, versus the
previous year, is primarily attributable to the Company's merger with Brite.
Fiscal 1999 operating income increased over eleven times versus adjusted
operating income in fiscal 1998 as the result of increased sales and the
Company's measures to control costs and expenses, particularly selling, general
and administrative expenses. Operating income, adjusted for the one time charges
and other items discussed above, in fiscal 1998 decreased 87% versus the
previous fiscal year as the Company increased its investment in sales,
marketing, application engineering, and research and development resources
without a corresponding increase in the Company's sales. These investments were
made to continue to pursue opportunities in the CPE and Telco markets. Fiscal
1999 net income increased over eight times versus adjusted net income in the
previous fiscal year, and net income, adjusted for the one time charges and
other items discussed above, in fiscal 1998 decreased 83% versus the previous
fiscal year for the same reasons as operating income.
LIQUIDITY AND CAPITAL RESOURCES
The Company had approximately $23.3 million in cash and cash
equivalents at February 29, 2000, while borrowings under the Company's credit
facilities were $100 million. Borrowing under the credit facilities were paid
down to $85 million on March 10, 2000. The sum of investment activities
(consisting of the merger with Brite and purchase of fixed assets and third
party software), financing activities (consisting primarily of the borrowings to
finance the merger with Brite) and the effect of exchange rates on cash resulted
in a use of cash of approximately $27.4 million. Net income plus non-cash
expense items totaled $52.7 million while an increase in operating assets
totaled $14.2 million to yield an operating cash flow of $38.5 million during
fiscal 2000. Days sales outstanding (DSO's) of accounts receivable continue to
be a focus for the Company. At February 29, 2000, DSO's were 99 days,
approximately the same as at February 28, 1999. Cash used in investment
activities totaled approximately $126.6 million during fiscal 2000 and included
the merger with Brite and purchases of computing hardware and
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58
software to update the Company's enterprise systems and to provide the
information systems infrastructure needed to support the Company's worldwide
growth. Expenditures were also made to acquire test equipment and third party
developed software to be integrated into the Company's InterSoft software to
allow the Company to offer its customers greater functionality and to ensure the
Company's products comply with an increasing variety of hardware and software
technologies and standards. Financing activities during fiscal 2000 included an
increase in the Company's borrowings of $135 million associated with the merger
with Brite. Other financing activities included the receipt of $4.4 million as
proceeds from the exercise of employee stock options and the pay down of $40
million on the Company's borrowings. As a result of cash generated from
operations and investment and financing activities, the Company experienced an
increase in its cash reserves of approximately $11.1 million during fiscal 2000.
The Company believes its cash reserves and internally generated cash
flow will be sufficient to meet its operating cash requirements for the
foreseeable future. In addition, the Company has access to the entire
$25 million available under its revolving credit facility. The Company reviews
share repurchase and acquisition opportunities from time to time and believes it
has access to the financial resources necessary to pursue attractive repurchase
and/or acquisition opportunities as they arise. The term loan and revolving
credit agreement discussed below includes normal and customary provisions which
limit the Company's ability to make such acquisitions.
In connection with the merger with Brite, the Company entered
into a loan agreement with Bank of America and nine other banks to provide a
senior secured credit facility amounting to $150 million, including a $125
million term loan and a $25 million revolving credit agreement. The term loan
agreement is subject to scheduled repayments, as defined, during 2000-2003. The
revolving credit agreement will expire upon the earlier of the termination of
the term loan, or August 31, 2003. The cash required to service the facilities
could have a material impact upon the operating cash requirements of the Company
for the foreseeable future. At May 22, 2000, the Company had borrowed $85
million under the
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agreement, at an average annual interest rate of 9.0%. Interest under the credit
facility accrues at a variable rate indexed to the prime rate, the federal funds
rate or an adjusted London Interbank Offering Rate.
During the fourth quarter of fiscal 2000, the Company entered into interest rate
swap arrangements with a total notional amount of $125 million to change the
characteristics of interest payments on its long-term borrowings from
LIBOR-based variable-rate payments to fixed-rate payments. As of February 29,
2000, the variable-rate of 8.62% under the long-term borrowings had been swapped
for an effective rate of 8.5%. The effect of interest rate swaps on the
Company's interest expense during fiscal 2000 was immaterial. The Company's
interest rate swap arrangements at fiscal year end 2000 expired in March 2000,
when the Company entered into new interest rate swap arrangements with similar
terms and a total notional amount of $125 million. The new interest rate swaps
expire in June 2000.
Impact of Inflation
The Company does not expect any significant short term impact of
inflation on its financial condition. Technological advances should continue to
reduce costs in the computer and communications industries. Further, the Company
presently is not bound by long term fixed price sales contracts
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60
which should reduce the Company's exposure to inflationary effects.
The Company's debt facilities financing is considered to be a material
long term debt obligation, which may expose the Company to inflationary effects
associated with such variable rate loans, however, the Company has entered into
interest rate swap agreements to hedge such exposure.
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED
----------------------------------------------------------
FISCAL 2000 31-May-99 31-Aug-99* 30-Nov-99 29-Feb-00
------------ ------------ ------------ ------------
Sales $ 40,046,761 $ 79,860,176 $ 82,034,870 $ 84,254,712
Gross profit 24,729,633 31,981,122 47,332,244 46,772,339
Income (loss) from operations 9,459,592 (36,602,477) 13,458,427 13,956,015
Net income (loss) 6,266,730 (36,106,907) 7,109,740 7,844,709
Net income (loss) per share-diluted 0.21 (1.24) 0.21 0.23
THREE MONTHS ENDED
----------------------------------------------------------
FISCAL 1999 31-May-98 31-Aug-98 30-Nov-98 28-Feb-99
------------ ------------ ------------ ------------
Sales $ 30,000,337 $ 33,070,279 $ 35,010,205 $ 38,823,310
Gross profit 17,470,239 19,626,288 21,295,593 24,320,754
Income (loss) from operations 4,703,322 6,857,125 8,505,311 9,082,726
Net income (loss) 3,002,588 4,429,140 5,506,708 7,254,480
Net income per share-diluted 0.11 0.15 0.18 0.24
* The Company acquired all of the outstanding stock of Brite during the second
quarter of fiscal 2000. Beginning June 1, 1999 the Company's financial
results include the operations of Brite.
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YEAR 2000 COMPLIANCE
Many installed computer systems used by numerous companies to run a
variety of applications are not capable of processing date sensitive information
that falls beyond the twentieth century. The Company was concerned that, unless
these computer systems were replaced or upgraded prior to the year 2000 to
process such date sensitive information, the systems might experience severe
operating difficulties or system failures.
Beginning in fiscal 1996, the Company initiated a program to replace
and upgrade its information systems to accommodate the Company's growth, improve
productivity and remediate any century compliance problems. This program was
substantially completed during the third quarter of fiscal 1999.
Additionally, the Company created a year 2000 project team to review
and test its information technology systems and non-information technology
systems and to resolve any century compliance issues that were found. The team
also worked to ensure that any replacements and upgrades to the Company's
information systems were century compliant before they were implemented. In this
regard, the team also worked with third party vendors to assess the year 2000
readiness of its information technology systems. The year 2000 readiness of the
Company's information technology systems is, therefore, partially dependent upon
the accuracy of disclosures and representations made by third party vendors,
such as Oracle, PeopleSoft, MicroSoft, IBM and Dell Computer. Because most of
the expenditures to replace and upgrade the Company's internal systems were
incurred in the ordinary course of business (i.e., on a non-accelerated basis),
the Company did not incur material incremental expenses in connection with its
year 2000 remedial efforts.
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As a result of the program to replace and upgrade its internal systems,
and the efforts of the year 2000 project team, the Company's mission-critical
internal systems were century compliant in all material respects prior to
January 2000. Accordingly, the Company did not experience any system failures in
connection with its mission-critical internal systems. While it is very unlikely
that the Company will experience any significant year 2000 issues with its
mission-critical internal systems after the date this annual report is filed,
there is still a possibility that the Company may, in the future, experience
century noncompliance issues with such systems.
The Company created a detailed year 2000 testing program for its
mission-critical systems. During the first fiscal quarter of fiscal 2000, the
Company completed a century compliance testing and remediation program for its
customer service systems. The Company substantially completed its testing and
remediation program for year 2000 issues with respect to mission-critical
systems during the third fiscal quarter. Prior to the merger, Brite had
conducted a testing and remediation program for year 2000 issues associated with
its mission-critical systems. The Company also reviewed and confirmed the year
2000 readiness of mission-critical systems acquired in the merger that remained
in operation after the end of calendar year 1999.
Many mission-critical systems and/or system applications associated
with the domestic operations of Brite, such as finance and purchasing, were
transitioned to the Company's existing enterprise system before the year 2000.
The commencement of the Company's fiscal year 2000 on March 1, 1999
helped to accelerate its year 2000 testing program, particularly for
mission-critical financial, manufacturing and order entry applications which
process dates that reflect the fiscal year end date (i.e., February 29, 2000).
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In addition to assessing and testing internal business systems for year
2000 readiness issues, the Company also reviewed its other contingency plans for
system failures that might have, but did not, arise in connection with the
millennium transition. The Company used certain previously developed disaster
recovery processes and procedures that would have allowed it to continue
critical business operations in the event of a software or hardware failure, or
the failure of infrastructure services (i.e., electricity, telephone services,
water transport, internet services, etc.).
These disaster recovery processes and procedures generally involved
manual "work arounds" and alternate computerized solutions. The Company
determined that these processes and procedures were adequate in light of
potential century compliance issues. As part of the contingency plan, the
Company acquired auxiliary power generators to help operate mission-critical
systems in the event of temporary power failures. The Company also implemented
plans for addressing any year 2000 readiness issues or concerns of customers
during the weeks surrounding the turn of the century. These plans included
additional staffing in the Company's RealCare maintenance department, specific
procedures for diagnosing and resolving year 2000 readiness issues for customer
systems, restrictions on vacations during the January 1st time-frame, and
additional phone capacity to handle any increase in customer service calls.
Based on a thorough review and testing of its software products and
other products, the Company believes that its current products are century
compliant. The Company began designating certain products as such in June 1997.
Brite began designating certain of its products as century compliant beginning
in August 1998. The Company's assessment of its current products, including
Brite's products, was partially dependent upon the accuracy of disclosures and
representations concerning century compliance made by its suppliers, such as
MicroSoft, IBM and Dell Computer. However, the Company was concerned that many
customers were using earlier versions of software products and other products
that the Company had not designated as century compliant. The Company had
instituted programs to
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actively warn these customers of the risks associated with using software and
other products which may not be century compliant, and to actively encourage
such customers to migrate to the Company's current products.
The Company did not experience a significant increase in customer
service calls during the first two weeks of January 2000. Any customer service
inquiries which were, or might have been, related to the century date change,
generally involved minor nonconformities which were resolved within 24 hours or
less. While it is conceivable that the Company may receive some additional
customer service call relating to the century date change, the Company does not
anticipate receiving many such inquiries.
The Company has not been required to defend its products or services in
judicial proceedings related to the century date change. As a result of the
Company's success in minimizing and resolving century noncompliance issues and
notifying customers of the actions necessary to avoid such issues, the Company
believes it is unlikely that it will be required in the future to defend its
products or services in proceedings against claims based on century
noncompliance issues. However, there is no assurance the Company will not be
involved in such proceedings in the future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company invests cash balances in excess of operating requirements
in short-term securities, generally with maturities of 90 days or less. The
Company's current term loan and revolving credit agreement provides for
borrowings up to $150 million which bear interest at variable rates based on
either a prime rate, the federal funds rate or the London Interbank Offering
Rate, plus an applicable margin. As of February 29, 2000, the Company had $100
million and $85 million outstanding, respectively, under the credit agreement.
The credit agreement matures on August 31, 2003 and the term loan facility is
subject to quarterly principal amortization with the first payment due May 31,
2000. The fair value of the
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borrowings approximate their carrying value at February 29, 2000. Due to the
magnitude of this credit facility, the Company believes that the effect of any
reasonably possible near-term changes in interest rates on the Company's
financial position, results of operations, and cash flows may be material. To
mitigate the effect of interest rate changes, on December 10, 1999, the Company
entered into interest rate swap agreements to hedge its exposure to interest
rate fluctuations. The Company entered into interest rate swap arrangements with
a total notional amount of $125 million to change the characteristics of
interest payments on its long-term borrowings from LIBOR-based variable-rate
payments to fixed-rate payments. As of February 29, 2000, the variable-rate of
8.62% under the long-term borrowings had been swapped for an effective rate of
8.5%. The effect of interest rate swaps on the Company's interest expense during
fiscal 2000 was immaterial. The Company's interest rate swap arrangements at
fiscal year end 2000 expired in March 2000, when the Company entered into new
interest rate swap arrangements with similar terms and a total notional amount
of $125 million. The new interest rate swaps expire in June 2000.
The Company transacts business in certain foreign currencies, including
the British Pound. Accordingly, the Company is subject to exposure from adverse
movements in foreign currency exchange rates. The Company generally mitigates
this risk by transacting business in the functional currency of each of its
subsidiaries, thus creating a natural hedge by paying expenses incurred in the
local currency in which revenues will be received.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Independent Auditors Report of Ernst & Young LLP and the
Consolidated Financial Statements of the Company as of February 29, 2000 and for
each of the three years in the period ended February 29, 2000 follow:
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REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
InterVoice-Brite, Inc.
We have audited the accompanying consolidated balance sheets of
InterVoice-Brite, Inc. and subsidiaries as of February 29, 2000 and February 28,
1999 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended February 29, 2000. Our audits also included the financial statement
schedule listed in the index at item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule 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 consolidated financial position of
InterVoice-Brite, Inc. and subsidiaries at February 29, 2000 and February 28,
1999, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended February 29, 2000, in conformity
with accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Ernst & Young LLP
April 11, 2000
Dallas, Texas
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InterVoice-Brite, Inc.
Consolidated Balance Sheets
February 29, February 28,
ASSETS 2000 1999
- ------ ------------- -------------
CURRENT ASSETS
Cash and cash equivalents $ 23,263,095 $ 12,195,612
Trade accounts receivable, net of allowance
for doubtful accounts of $4,160,803 in 2000 and
$1,305,581 in 1999 93,156,781 42,156,004
Income tax receivable 3,902,567 --
Inventory 27,211,260 11,704,428
Prepaid expenses and other current assets 8,996,796 4,497,764
Deferred income taxes 4,028,527 4,513,769
------------- -------------
160,559,026 75,067,577
PROPERTY AND EQUIPMENT
Land and buildings 19,522,066 16,300,325
Computer equipment and software 46,228,276 24,839,081
Furniture, fixtures and other 4,565,638 3,599,873
Service equipment 5,956,313 5,071,153
------------- -------------
76,272,293 49,810,432
Less allowance for depreciation 35,256,808 22,755,583
------------- -------------
41,015,485 27,054,849
OTHER ASSETS
Intangible assets, net of amortization
of $14,399,897 in 2000 and
$3,416,433 in 1999 98,568,072 9,407,075
Other assets 2,880,133 --
------------- -------------
$ 303,022,716 $ 111,529,501
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 27,240,208 $ 7,650,940
Accrued expenses 14,595,662 4,206,377
Customer deposits 8,010,378 4,095,776
Deferred income 14,449,613 5,625,799
Current portion of long term borrowings 25,000,000 --
Income taxes payable -- 1,022,171
------------- -------------
89,295,861 22,601,063
LONG TERM LIABILITIES 958,330 --
DEFERRED INCOME TAXES 25,737,754 1,356,442
LONG TERM BORROWINGS 75,000,000 5,000,000
STOCKHOLDERS' EQUITY
Preferred Stock, $100 par value--2,000,000
shares authorized: none issued
Common Stock, no par value, at nominal
assigned value--62,000,000 shares
authorized: 32,587,524 issued
and outstanding in 2000,
28,728,016 issued and outstanding in 1999 16,267 14,347
Additional capital 49,983,550 1,719,699
Unearned compensation (3,700,939) (649,612)
Retained earnings 66,641,834 81,487,562
Accumulated other comprehensive loss (909,941) --
------------- -------------
112,030,771 82,571,996
------------- -------------
$ 303,022,716 $ 111,529,501
============= =============
See notes to consolidated financial statements.
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InterVoice-Brite, Inc.
Consolidated Statements of Operations
Fiscal Year Ended
-----------------------------------------------
February 29, February 28, February 28,
2000 1999 1998
------------- ------------- -------------
SALES
Systems $ 213,682,941 $ 123,590,014 $ 88,987,634
Services 72,543,578 13,314,117 13,320,079
------------- ------------- -------------
286,226,519 136,904,131 102,307,713
------------- ------------- -------------
COST OF GOODS SOLD
Systems 104,918,354 47,767,521 47,152,182
Services 30,492,827 6,423,736 5,769,830
------------- ------------- -------------
135,411,181 54,191,257 52,922,012
------------- ------------- -------------
GROSS MARGIN
Systems 108,764,587 75,422,493 41,835,452
Services 42,050,751 7,290,381 7,550,249
------------- ------------- -------------
150,815,338 82,712,874 49,385,701
------------- ------------- -------------
Research and development expenses 61,003,921 13,285,063 14,438,638
Selling, general and administrative
expenses 79,118,234 40,279,327 43,374,242
Amortization of goodwill and
acquired intangible assets 10,421,626 -- --
------------- ------------- -------------
INCOME (LOSS) FROM OPERATIONS 271,557 29,148,484 (8,427,179)
Other income 1,437,912 399,518 783,643
Interest expense (8,023,434) (752,406) --
------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME
TAX (BENEFIT) (6,313,965) 28,795,596 (7,643,536)
INCOME TAX (BENEFIT)
Current 7,904,308 10,079,215 (546,949)
Deferred 627,455 (1,476,535) (1,956,741)
------------- ------------- -------------
8,531,763 8,602,680 (2,503,690)
------------- ------------- -------------
NET INCOME (LOSS) $ (14,845,728) $ 20,192,916 $ (5,139,846)
============= ============= =============
Net income (loss) per share - basic $ (0.49) $ 0.72 $ (0.17)
============= ============= =============
Net income (loss) per share - diluted $ (0.49) $ 0.68 $ (0.17)
============= ============= =============
See notes to consolidated financial statements.
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InterVoice-Brite, Inc.
Consolidated Statements of Changes in Stockholders' Equity
Common Stock
----------------------------- Additional Unearned Treasury
Shares Amount Capital Compensation Stock
------------ ------------- ------------- -------------- -------------
Balance at February 28, 1997 16,353,973 $ 9,667 $ 43,028,780 $ (493,634) $ (24,003,245)
Net and comprehensive loss -- -- -- -- --
Exercise of stock
options 97,622 33 752,805 -- --
Tax benefit from
exercise of
stock options -- -- 246,653 -- --
Issuance of restricted
stock, net of forfeitures (8,769) (4) (213,523) 493,634 --
Issuance of stock to
purchase software 60,465 30 499,970 -- --
Purchase of treasury
stock, net (2,700,800) -- -- -- (26,199,754)
------------- ------------- ------------- ------------- -------------
Balance at February 28, 1998 13,802,491 9,726 44,314,685 -- (50,202,999)
Net and comprehensive income -- -- -- -- --
Issuance of stock to
purchase software 75,000 38 1,518,712 -- --
Exercise of stock
options 783,680 411 7,444,497 -- --
Tax benefit from
exercise of stock options -- -- 2,612,234 -- --
Issuance of restricted stock 46,914 23 692,897 (649,612) --
Purchase of treasury
stock, net (294,000) -- -- -- (5,870,638)
Stock split in form of
100% dividend 14,313,931 4,149 (54,863,326) -- 56,073,637
------------- ------------- ------------- ------------- -------------
Balance at February 28, 1999 28,728,016 14,347 1,719,699 (649,612) --
Net income (loss) -- -- -- -- --
Foreign currency translation
adjustment -- -- -- -- --
Comprehensive loss
Issuance of stock in
connection with acquisition 2,985,792 1,489 42,360,900 -- --
Exercise of stock
options 766,552 377 4,412,834 -- --
Issuance of restricted stock 107,164 54 3,402,351 (3,402,405) --
Amortization of unearned
compensation -- -- -- 351,078 --
Other -- -- (1,912,234) -- --
------------- ------------- ------------- ------------- -------------
Balance at February 29, 2000 32,587,524 $ 16,267 $ 49,983,550 $ (3,700,939) $ --
============= ============= ============= ============= =============
Accumulated Other
Retained Comprehensive
Earnings Loss Total
------------- ----------------- -------------
Balance at February 28, 1997 $ 67,648,952 $ -- $ 86,190,520
Net and comprehensive loss (5,139,846) -- (5,139,846)
Exercise of stock
options -- -- 752,838
Tax benefit from
exercise of
stock options -- -- 246,653
Issuance of restricted
stock, net of forfeitures -- -- 280,107
Issuance of stock to
purchase software -- -- 500,000
Purchase of treasury
stock, net -- -- (26,199,754)
------------- ------------- -------------
Balance at February 28, 1998 62,509,106 -- 56,630,518
Net and comprehensive income 20,192,916 20,192,916
Issuance of stock to
purchase software -- -- 1,518,750
Exercise of stock
options -- -- 7,444,908
Tax benefit from
exercise of stock options -- -- 2,612,234
Issuance of restricted stock -- -- 43,308
Purchase of treasury
stock, net -- -- (5,870,638)
Stock split in form of
100% dividend (1,214,460) -- --
------------- ------------- -------------
Balance at February 28, 1999 81,487,562 -- 82,571,996
Net income (loss) (14,845,728) -- (14,845,728)
Foreign currency translation
adjustment -- (909,941) (909,941)
-------------
Comprehensive loss (15,755,669)
-------------
Issuance of stock in
connection with acquisition -- -- 42,362,389
Exercise of stock
options -- -- 4,413,211
Issuance of restricted stock -- -- --
Amortization of unearned
compensation -- -- 351,078
Other -- -- (1,912,234)
------------- ------------- -------------
Balance at February 29, 2000 $ 66,641,834 $ (909,941) $ 112,030,771
============= ============= =============
See notes to consolidated financial statements.
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InterVoice-Brite, Inc.
Consolidated Statements of Cash Flows
Fiscal Year Ended
--------------------------------------------------------
February 29, February 28, February 28,
2000 1999 1998
-------------- ------------- -------------
OPERATING ACTIVITIES
Net income (loss) $ (14,845,728) $ 20,192,916 $ (5,139,846)
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization 25,239,244 11,012,637 9,710,597
In-process research and
development charge 30,100,000 -- 1,750,000
Deferred income taxes (benefit) 627,455 (1,476,535) (1,956,741)
Provision for doubtful accounts 6,363,527 1,037,588 291,491
Provision for slow moving inventories 1,880,723 1,800,000 1,935,067
Disposal of equipment 550,878 -- 595,760
Write off of intangible assets 2,797,550 168,789 2,802,423
Changes in operating assets and liabilities:
Accounts receivable (8,260,677) (17,153,260) 7,174,924
Inventories 2,248,759 (4,161,089) 36,980
Prepaid expenses and other assets (2,161,401) 3,131,224 (420,265)
Accounts payable and accrued expenses (10,608,267) 1,586,092 (2,622,499)
Customer deposits (1,914,392) 1,470,276 (778,241)
Deferred income 5,209,723 125,056 505,512
Other 1,277,235 318,754 493,634
------------- ------------- -------------
NET CASH PROVIDED BY OPERATIONS 38,504,629 18,052,448 14,378,796
INVESTING ACTIVITIES
Purchase of property
and equipment (9,214,702) (3,982,298) (9,239,831)
Purchased software (885,027) (3,639,748) (8,449,606)
Purchase of Brite Voice
Systems, net of cash
acquired (116,512,518) -- --
------------- ------------- -------------
NET CASH (USED IN)
INVESTING ACTIVITIES (126,612,247) (7,622,046) (17,689,437)
FINANCING ACTIVITIES
Paydown of debt (40,000,000) (4,000,000) 9,000,000
Exercise of stock options 4,413,211 7,444,908 539,311
Purchase of treasury stock -- (5,870,638) (26,199,754)
Borrowings 135,000,000 -- --
------------- ------------- -------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 99,413,211 (2,425,730) (16,660,443)
EFFECT OF EXCHANGE RATE
ON CASH (238,110) -- --
------------- ------------- -------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 11,067,483 8,004,672 (19,971,084)
Cash and cash equivalents,
beginning of period 12,195,612 4,190,940 24,162,024
------------- ------------- -------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 23,263,095 $ 12,195,612 $ 4,190,940
============= ============= =============
See notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - DESCRIPTION OF BUSINESS
InterVoice-Brite, Inc. (together with its subsidiaries, collectively referred to
as the "Company") develops, sells and services call automation systems. The
Company's historical emphasis has been on interactive voice response ("IVR")
systems providing automated customer service and self-help applications which
permit individuals using the touchtone pad on their telephones; personal
computers connected to telephone networks or the internet; or voices over
telephone networks or the internet to access and/or provide information to
computer data bases utilized by businesses. The Company recently has expanded
its product line to include customer relationship management ("CRM") systems
which combine telemarketing capabilities and the ability to generate sales
without human interaction (i.e. e-commerce), in addition to automated customer
service and self-help applications.
The Company also has focused on systems marketed to telecommunications service
providers which use them to provision a variety of automated services to reduce
costs, such as processing collect, debit and credit card calls, and to provision
advanced revenue generating calling features, such as prepaid calling services,
voice and text messaging, internet connectivity and voice dialing. Consistent
with this focus, the Company acquired Brite Voice Systems, Inc. ("Brite") during
the second quarter of fiscal 2000. The majority of Brite's sales were to
telecommunication service providers, providing call automation systems and
services which incorporated prepaid/postpaid applications, voice response, voice
recognition, voice/facsimile messaging, audiotex and interactive computer
applications into both standard products and customized market solutions. As a
result of the acquisition, the Company has become a leading supplier of, and
generates the majority of its revenues from, the sale of enhanced
telecommunications systems and services.
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NOTE B - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of InterVoice-Brite and its subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation. Financial
statements of the Company's foreign subsidiaries have been translated into U.S.
dollars at current and average exchange rates. Resulting translation adjustments
are recorded as a separate component of stockholders' equity. Any transaction
gains or losses are included in the accompanying consolidated statements of
operations. Such gains and losses were immaterial during 2000, 1999 and 1998.
USE OF ESTIMATES: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make certain estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
CASH AND CASH EQUIVALENTS: Cash equivalents include investments in highly liquid
securities with a maturity of three months or less at the time of acquisition.
The carrying amount of these securities approximates fair market value.
INVENTORIES: Inventories, primarily system components, are valued at the lower
of cost or market with cost determined on a first-in, first-out basis.
PROPERTY AND EQUIPMENT: Property and equipment is stated at cost. Depreciation
is provided by the straight-line method over each asset's estimated useful life.
The range of useful lives by major category are: buildings: 5 to 40 years;
computer equipment and software: 3 to 5 years; furniture, fixtures and other: 5
years; and service equipment: 3 years. Depreciation expense totaled $12,501,225,
$9,260,774 and $8,573,956 in fiscal 2000, 1999 and 1998, respectively. The large
increase in depreciation expense in fiscal 2000 versus the prior fiscal year is
associated with the merger with Brite (See Note C).
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INTANGIBLE ASSETS: Intangible assets are being amortized by the straight-line
method based on the Company's assessment of each asset's useful life. Useful
lives range from five to twelve years. Amortization expense for these items
totaled $12,738,019, $1,751,863 and $1,136,641 in fiscal 2000, 1999 and 1998,
respectively. The increase in amortization expense in fiscal 2000 versus prior
fiscal years is associated with the merger with Brite (See Note C). The increase
in amortization expense in fiscal 1999 versus prior fiscal years is associated
with the start of amortization of the assets purchased from Integrated Telephony
Products, Inc. and Dronen Consulting, Incorporated (see Note E).
Costs of internally developed software products and substantial enhancements to
existing software products for sale are expensed until technological feasibility
is established, at which time any additional costs would be capitalized in
accordance with Statement of Financial Accounting Standards (SFAS) No. 86.
Technological feasibility of a computer software product is established when the
Company has completed all planning designing, coding, and testing activities
that are necessary to establish that the product can be produced to meet its
design specifications including functions, features, and technical performance
requirements. No costs have been capitalized to date for internally developed
software products and enhancements as the Company's current process for
developing software is essentially completed concurrently with the establishment
of technological feasibility. The Company capitalizes purchased software upon
acquisition when such software is technologically feasible or if it has an
alternative future use, such as use of the software in different products or
resale of the purchased software.
IMPAIRMENT OF LONG-LIVED ASSETS: The Company records impairment losses on
long-lived tangible and intangible assets, including goodwill, when events and
circumstances indicate that the assets might be impaired and the undiscounted
projected cash flows associated with those assets are less than the carrying
amounts of those assets. Impairment loss on a long-lived asset is measured based
on the excess of the carrying amount of the asset over the asset's fair value,
generally determined based upon discounted estimates of future cash flows.
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OTHER ASSETS. Other assets primarily include $2.5 million relating to a
subordinated note and warrant received by Brite upon the December 1, 1998 sale
of its TSL division. As partial consideration in the sale, Brite received a
subordinated note with a face value of $5 million and a warrant to purchase
5,000 shares of the buyer. The note has a three year maturity. The Company has
recorded the note and warrant at their estimated fair value of $2.5 million due
to business risk associated with these instruments.
DERIVATIVES: The Company has used interest rate swap arrangements to change the
characteristics of interest payments on its long-term borrowings from
variable-rate payments to fixed-rate payments. Gains and losses from interest
rate swaps are included on the accrual basis in interest expense. Gains and
losses from terminated interest rate swaps, if any, are deferred and recognized
consistent with the terms of the underlying transaction.
Accounting standard SFAS No. 133 is effective for the Company beginning March 1,
2001. It requires that all derivatives be marked-to-market on an ongoing basis.
This applies to stand-alone derivative instruments, such as forward currency
exchange contracts and interest rate swaps. It also applies to embedded
derivatives acquired after the Company's fiscal 1999. Along with the
derivatives, the underlying hedged items are also to be marked-to-market on an
ongoing basis. These market value adjustments are to be included either in the
income statement or stockholders' equity, depending on the nature of the
transaction. The Company expects to adopt the standard in the first quarter of
2001 on a cumulative basis. Based on analysis to date, the Company does not
expect a material impact from this standard.
REVENUE RECOGNITION: Systems revenues include the sale of hardware and software
relating to IVR/CRM systems and enhanced telecommunications services systems.
For systems that do not require customization to be performed by the Company,
revenue is recognized when the related hardware and software is delivered, when
there is persuasive evidence that an arrangement exists, when the fee is fixed
and determinable and when collection is probable. Generally, revenue has been
recognized at the time of shipment. Subsequent to December 1, 1997, revenue for
systems which require customization to be
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performed by the Company are recognized by the contract method of accounting,
using percentage of completion for larger, more complex systems (generally over
a $500,000 sales price). Progress toward completion is measured using labor
hours or cost incurred as a percentage of total estimated hours or cost for each
contract. Unbilled receivables accrued under percentage of completion contracts
amounted to $23.6 million and $5.8 million at February 29, 2000 and February 28,
1999. The completed contract method is used for smaller systems. Prior to
December 1, 1997, the Company recognized revenue on systems requiring
customization to be performed by the Company at the date of shipment or at the
point after shipment when the remaining obligations of the Company became
insignificant. The change in accounting was required by the American Institute
of Certified Public Accountant's Statement of Position 97-2, which was required
to be applied prospectively for transactions entered into after the Company's
December 1, 1997 date of adoption. No restatement of prior periods or cumulative
effect adjustment was permitted.
Services revenues include the Company's service bureau operations (i.e. "managed
services"), maintenance/product support activities, and other services, such as
installation and training. Revenue from managed services contracts and other
services are recognized when the services are performed. Maintenance contracts
generally entitle the customer to telephone support and "bug fixing" on the
related systems. Revenue from maintenance is recognized ratably over the
contract period. All significant costs and expenses associated with maintenance
contracts are expensed as incurred, which approximates ratable expenses over the
contract period.
If transactions include multiple elements, each element of the arrangement is
separately identified and accounted for based on the relative fair value of such
element. Revenue is not recognized on any element of the arrangement if
undelivered elements are essential to the functionality of the delivered
elements.
During December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
(SAB 101). SAB 101 provides guidance on the recognition, presentation and
disclosure of revenue in the financial statements. Implementation of
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guidance prescribed in the Bulletin and which all registrants are expected to
apply, may result in a change in the Company's revenue recognition policy as
applied to a portion of the Company's system sales from the date of shipment to
the date of transfer of title or final acceptance which may therefore have the
effect of later revenue recognition. Because the Company has complied with
generally accepted accounting principles for its historical revenue recognition,
the change in its revenue recognition policy resulting from SAB 101 will be
reported in the second fiscal quarter of fiscal 2001 which ends August 31, 2000.
Any consequent deferral of revenue for shipments previously reported as revenue
which had not been accepted by customers as of February 29, 2000 would result in
a cumulative adjustment in the first quarter of fiscal 2001. The Company is
still in the process of assessing the detailed impact of SAB 101 on its
financial statements.
ADVERTISING COSTS: Advertising costs are expensed as incurred. Advertising
expense was $1.8 million in fiscal 2000 and $1.4 million in both fiscal 1999 and
1998.
INCOME TAXES: Deferred income taxes are recognized using the liability method
and reflect the tax impact of temporary differences between the amounts of
assets and liabilities for financial reporting purposes and such amounts as
measured by tax laws and regulations.
RECLASSIFICATIONS: Certain prior year balances have been reclassified to conform
to current year presentation.
NOTE C - MERGER WITH BRITE
During the second quarter of fiscal 2000, the Company acquired all of the
outstanding stock of Brite in a two-step transaction involving aggregate
consideration of approximately $165.1 million of cash and
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2,985,792 shares of common stock. Brite provides voice processing and call
processing systems and services which incorporate prepaid/postpaid applications,
voice response, voice recognition, voice/facsimile messaging, audiotex and
interactive computer applications into both standard products and customized
market solutions. The Company's consolidated statements of operations reflect
the results of operations of Brite beginning June 1, 1999.
The merger has been accounted for as a purchase business combination. The
aggregate purchase price for Brite was approximately $173.1 million, which
includes direct costs and assumed liabilities relating to the merger. Assumed
liabilities of $4.8 million primarily included $1.3 million of accrued severance
costs for Brite employees terminated as a result of the merger and $2.6 million
of lease termination/cancellation costs. As of February 29, 2000, assumed
liabilities of $3.6 million remain outstanding, primarily $2.6 million for lease
termination accruals and $.8 million for unpaid severance costs. Lease costs
accrued are anticipated to be paid out over the remaining lease terms, and
severance costs are expected to be paid in full by the end of the second quarter
of fiscal 2001. The components of the aggregate purchase price were as follows
(in millions):
Cash $ 122.7
Issuance of common stock 42.4
Other direct costs of merger and assumed liabilities 8.0
--------
$ 173.1
========
The purchase price was allocated to identifiable tangible and intangible assets
acquired and liabilities assumed, based on their estimated fair values as
follows (in millions):
Working capital $ 46.4
Property and equipment 17.8
Other assets 5.2
Other liabilities (1.4)
Identified intangible assets 74.5
Purchased in-process R&D (expensed) 30.1
Deferred tax liability on identified intangibles (28.8)
Goodwill 29.3
--------
$ 173.1
========
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See "Note D-Intangible Assets" for more information on intangible assets and
purchased in-process research and development.
In connection with this transaction, the Company obtained senior secured credit
facilities amounting to $150 million, including a $125 million term loan
facility and a $25 million revolving credit agreement. See "Note G - Long-Term
Borrowings" for a description of the loan facilities.
The following unaudited pro forma information presents the Company's results of
operations for the fiscal years ended February 29, 2000 and February 28, 1999 as
if the Brite merger had occurred at March 1, 1999 and 1998. The pro forma
information has been prepared by combining the results of operations of the
Company and Brite, adjusted for additional amortization expense of identified
intangibles and goodwill, interest expense on the credit facilities, and the
resulting impact on the provision for income taxes. No adjustment has been made
to account for the two companies' different fiscal year ends. This pro forma
information does not purport to be indicative of what would have occurred had
the Brite merger occurred as of the date assumed or of results of operations
which may occur in the future (in thousands, except per share date):
Fiscal Year Ended
-----------------------------------
February 29/28
--------------
2000 1999
--------- ---------
Sales $ 322,801 $272,619
Income before income taxes $ 24,176 $ 4,274
Net income $ 16,634 $ 3,359
Net income per share - diluted $ 0.49 $ 0.10
Pro forma income before income taxes and net income exclude the effects of a
$30.1 million charge for in-process research and development acquired in the
merger with Brite and approximately $15.0 million
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of special charges related to the merger consisting primarily of employee
severance expenses and the write-off of certain inventory and intangible assets
made redundant in the merger.
NOTE D - INVENTORY.
Inventory consists of the following:
February 29, 2000 February 28, 1999
----------------- -----------------
Purchased parts $21,134,392 $ 9,504,635
Work in progress 5,212,607 501,195
Furnished goods 864,261 1,698,598
---------- ------------
$27,211,260 $11,704,428
=========== ===========
Amounts presented are net of inventory obsolescence reserves totaling $1,382,978
and $1,204,526 at February 29, 2000 and February 28, 1999, respectively.
NOTE E - INTANGIBLE ASSETS
Intangible assets at February 29/28 include the following:
Amortization
Lives 2000 1999
------------- ----------- -----------
Goodwill 10 years $27,158,047 --
Customer relations 10 years 30,340,000 --
Developed technology 5 years 22,015,000 --
Assembled workforce 5 years 7,820,000 --
Other intangibles 5 - 12 years 11,235,025 $9,407,075
----------- ----------
$98,568,072 $9,407,075
=========== ==========
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Other intangibles include items such as tradename, patents, purchased software,
and licenses for technologies, such as text to speech and speech recognition. In
connection with the Brite merger during the second quarter of 2000, the Company
acquired $74.5 million identified intangible assets, $30.1 million of in-process
research and development, and $29.3 million of goodwill. The estimates of fair
value used in the Brite purchase price allocation were determined by the
Company's management based on information furnished by management of Brite and
an independent valuation of the purchased in-process R&D and other identified
intangibles, which included customer relationships, developed technology,
assembled workforce, and tradename.
Amounts allocated to in-process R&D were expensed at the time of acquisition as
the Company determined that the in-process R&D had not reached technological
feasibility based on the status of design and development activities that
require further refinement and testing. Brite's in-process R&D related to
technologies which support Brite's interactive voice response (IVR)/computer
telephony integration (CTI), intelligent network, messaging, voice dialing, and
prepaid/postpaid product families. The valuation of existing product technology
and in-process R&D was performed using the income approach, which includes an
analysis of the markets, cash flows, and risks associated with achieving such
cash flows. The income approach focuses on the income producing capability of
the existing products and in-process R&D projects and best represents the
present value of the future economic benefits expected to be derived.
Significant assumptions used in the valuation of in-process R&D included the
stages of completion of R&D projects, projected operating cash flows, and the
discount rate. At the time of the merger, Brite management estimated the
remaining cost to complete the in-process R&D projects to be approximately $1.6
million with a remaining time requirement of approximately 8-12 months.
Projected operating cash flows were expected to begin in fiscal 2000. The
discount rate selected for Brite's in-process technologies was 27.5%. As of
February 29, 2000, development of the projects had progressed as planned with
remaining costs to complete estimated at $0.3 million. Management is
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primarily responsible for estimating the value of the in-process R&D. If the R&D
projects are not successfully developed, the Company may not realize the value
assigned to the in-process R&D.
On September 15, 1998, the Company purchased a computer telephony software suite
from Dronen Consulting, Incorporated for $3.5 million in cash and 75,000 shares
of the Company's stock valued at $1.5 million. The transaction was accounted for
as an asset purchase. The full purchase price of $5.0 million is being amortized
over the software suite's estimated useful life of five years.
The Company purchased the Enhanced Services Platform (ESP) product line and
certain other assets from Integrated Telephony Products, Inc. on February 26,
1998 in a transaction accounted for as a purchase. The purchase price of $5.2
million was comprised of $4.6 million in cash, Company common stock valued at
$0.5 million and other direct acquisition costs totaling $0.1 million. Based on
appraised value, a portion of the purchase price was allocated to two purchased
research and development projects. The amount allocated to the purchased
research and development projects was expensed at the time of acquisition as the
Company determined that the purchased research and development projects had not
reached technological feasibility. This allocation resulted in a $1.2 million
charge, net of taxes, to the Company's operations in fiscal year 1998. The
remaining purchase price was allocated, based on appraisals, to software ($3.1
million), net tangible assets ($0.3 million), and deferred tax assets ($0.6
million). During the second quarter of fiscal 2000, the remaining balances were
written off to recognize the redundancy of the ESP product line as a result of
the Company's merger with Brite.
In connection with a review of its portfolio of intangible assets during fiscal
1998, the Company wrote off $3.0 million as a result of re-examining its human
resource allocation, product development plans and infrastructure requirements.
Approximately $1.4 million of the write-off related to previously capitalized
third party product development costs for an incomplete project that the Company
decided to abandon in the fourth quarter of fiscal 1998 in connection with a
strategic decision to narrow its product development focus. No products were
ever released for sale by the Company in connection with the abandoned project.
Previously capitalized third party development costs of approximately $1.6
million were also
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written-off related to a decision in the fourth quarter of fiscal 1998 to
replace an inefficient, stand alone system used to manage its customer systems
configuration processes. A new Oracle-based replacement system began operation,
and the inefficient stand alone system was abandoned, at the end of fiscal year
1998.
NOTE F- ACCRUED EXPENSES
Accrued expenses consist of the following at February
29/28:
2000 1999
----------- ----------
Accrued compensation $ 7,810,527 $ 3,018,566
Other 6,785,135 1,187,811
----------- -----------
$14,595,662 $ 4,206,377
=========== ===========
NOTE G- LONG-TERM BORROWINGS
Long-term borrowing were as follows at February 29/28:
2000 1999
------------ ----------
Revolving credit $ -- $5,000,000
Term loan 100,000,000 --
Less: Current portion (25,000,000) --
------------ ----------
$ 75,000,000 $5,000,000
============ ==========
Maturities under long-term borrowing are scheduled as follows for fiscal years
subsequent to February 29, 2000: $25 million, $35 million and $40 million in
fiscal years 2001, 2002 and 2003, respectively.
During fiscal 2000, the Company entered into a $125 million term loan facility
and a $25 million revolving credit facility to finance the merger with Brite.
Initial borrowings under the facilities were
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$135 million. At February 29, 2000, the outstanding borrowings under the term
loan and revolving credit facilities were $100 million and $0 million after
prepayments made by the Company. The fair value of the Company's long-term
borrowings approximated the carrying value at February 29, 2000. On March 10,
2000, the Company prepaid another $15 million of the principal balance of the
term loan facility, reducing such balance to $85 million.
The facilities mature on August 31, 2003, and the term loan facility is subject
to quarterly principal amortization with the first payment due on May 31, 2000.
In addition, the facilities are subject to certain mandatory prepayments and
commitment reductions tied to the sale of assets, the issuance of debt, the
issuance of equity and the generation of excess cash flow for a fiscal year.
Certain of these prepayment and commitment reduction requirements are limited by
the satisfaction of certain financial ratios.
The amounts borrowed pursuant to the revolving credit facility and the term loan
facility bear interest at a variable rate equal to either the London Interbank
Offer Rate ("LIBOR") plus an applicable margin or the Alternate Base Rate
(defined as the higher of (i) the prime rate or (ii) the federal funds rate plus
0.50%) plus the applicable margin. The applicable margin is determined in
accordance with schedules to the related credit agreements and is determined by
reference to a ratio of the Company's funded debt to EBITDA (as defined in the
credit agreements). The variable rate under the facilities was 8.62% at February
29, 2000.
The facilities contain certain representations and warranties, certain negative
and affirmative covenants, certain conditions and events of default which are
customarily required for similar financing. Such covenants include, among
others, restrictions and limitations on liens and negative pledges; limitations
on mergers, consolidations and sales of assets; limitations on incurrence of
debt; limitations on dividends, stock redemptions and the redemption and/or
prepayment of other debt; limitations on investments and acquisitions (other
than the acquisition of the Company); and limitations on capital expenditures.
Key financial covenants based on the Company's consolidated financial statements
include minimum net worth, maximum leverage ratio and minimum fixed charges
coverage ratio. The facilities also require a
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first priority perfected security interest in (i) all of the capital stock of
each of the domestic subsidiaries of the Company, and 65% of the capital stock
of each first tier foreign subsidiary of the Company, which capital stock shall
not be subject to any other lien or encumbrance and (ii) subject to permitted
liens, all other present and future material assets and properties of the
Company and its material domestic subsidiaries (including, without limitation,
accounts receivable and proceeds, inventory, real property, machinery and
equipment, contracts, trademarks, copyrights, patents, license rights and
general intangibles).
During the fourth quarter of fiscal 2000, the Company entered into interest rate
swap arrangements with a total notional amount of $125 million to change the
characteristics of interest payments on its long-term borrowings from
LIBOR-based variable-rate payments to fixed-rate payments. As of February 29,
2000, the variable-rate of 8.62% under the long-term borrowings had been swapped
for an effective rate of 8.5%. The effect of interest rate swaps on the
Company's interest expense during fiscal 2000 was immaterial. The Company's
interest rate swap arrangements at fiscal year end 2000 expired in March 2000,
when the Company entered into new interest rate swap arrangements with similar
terms and a total notional amount of $125 million. The new interest rate swaps
expire in June 2000.
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NOTE H - INCOME TAXES
Significant components of the Company's deferred tax assets
and liabilities are as follows at February 29/28:
2000 1999
------------ ------------
Deferred tax assets:
Inventory $ 1,816,198 $ 1,225,117
Deferred revenue 258,992 994,191
Accrued expenses 615,821 120,071
Allowance for doubtful accounts 1,582,771 383,691
Book over tax depreciation/amortization 3,875,250 2,650,410
Other 102,712 655,471
------------ ------------
Total deferred tax assets 8,251,744 6,028,951
Deferred tax liabilities:
Capitalized Software (2,815,011) (2,814,870)
Acquisition-related identified intangibles (26,985,705) --
Other (160,255) (56,753)
------------ ------------
Total deferred tax liabilities (29,960,971) (2,871,623)
Net deferred tax assets (liabilities) $(21,709,227) $ 3,157,328
============ ============
Income (loss) from before income taxes attributable to domestic and foreign
operations were $(21.1) million and $14.8 million in fiscal 2000. Substantially
all of the Company's pre-tax income was derived from domestic operations in
fiscal 1999 and 1998.
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Details of the income tax provision are as follows:
2000 1999 1998
------------ ------------ ------------
Income tax provision (benefit):
Current:
Federal $ 3,893,902 $ 9,232,485 $ (496,864)
State (739,570) 846,730 (50,085)
Foreign 4,749,976 -- --
------------ ------------ ------------
Total current 7,904,308 10,079,215 (546,949)
Deferred:
Federal 558,785 (1,406,230) (1,805,826)
State 68,670 (70,305) (150,915)
------------ ------------ ------------
Total deferred 627,455 (1,476,535) (1,956,741)
------------ ------------ ------------
Total $ 8,531,763 $ 8,602,680 $ (2,503,690)
============ ============ ============
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A reconciliation of the Company's income taxes (benefit) with the United States
federal statutory rate is as follows:
2000 1999 1998
------------ ------------ ------------
Federal income taxes at statutory rates $ (2,209,888) $ 10,078,459 $ (2,598,802)
Purchased in-process R&D charge 10,556,853 -- --
Research and development tax credit (768,947) (636,509) (282,628)
Goodwill amortization 705,469 -- --
State taxes, net of federal effect (436,085) 597,693 (275,492)
Foreign sales corp. (benefit)/expense (60,000) (193,609) 24,107
Charitable contributions in excess of
statutory limitation -- -- 550,147
Charitable contributions not previously
benefited -- (628,743) --
Effect of non-US rates (436,072) -- --
Change in valuation allowance -- (327,057) --
Other 1,180,433 (287,554) 78,978
------------ ------------ ------------
$ 8,531,763 $ 8,602,680 $ (2,503,690)
============ ============ ============
Income taxes, net of refunds, of $4,152,158, $515,519 and $2,175,000 were paid
in fiscal 2000, 1999 and 1998, respectively.
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NOTE I - STOCKHOLDERS' EQUITY
EMPLOYEE INCENTIVE OPTION PLANS
Stock option plans are in effect under which shares of common stock may be
authorized for issuance by the Compensation Committee of the Board of Directors
as incentive stock options to key employees. Option prices per share are the
fair market value per share of stock, based on the closing per share price on
the date of grant. The Company has granted options at various dates with terms
under which the options become exercisable at the rate of 20%, 25% or 33% per
year. Options becoming exercisable at 33% per year expire six or ten years after
the date of grant. Options becoming exercisable at 20% or 25% per year expire
ten years after the date of grant.
WEIGHTED AVERAGE
SHARES EXERCISE PRICE PER SHARE
---------- ------------------------
Balance at February 29, 1997 3,587,800 $ 8.37
Granted 2,121,490 $ 4.98
Exercised (98,390) $ 3.52
Forfeited (2,184,012) $ 9.20
---------- ----------
Balance at February 28, 1998 3,426,888 $ 5.87
Granted 881,200 $ 4.85
Exercised (1,320,956) $ 4.95
Forfeited (150,314) $ 4.94
---------- ----------
Balance at February 28, 1999 2,836,818 $ 6.03
Granted -- --
Exercised (541,202) $ 5.08
Forfeited (87,851) $ 4.84
---------- ----------
Balance at February 29, 2000 2,207,765 $ 6.31
========== ==========
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A total of 984,428 and 627,923 employee options were exercisable at average
prices of $7.95 and $8.54 at February 29, 2000 and February 28, 1999,
respectively.
1998 EMPLOYEE NON-QUALIFIED PLAN
During fiscal 1999, the Company adopted a stock option plan under which shares
of common stock may be authorized for issuance by the Compensation Committee of
the Board of Directors as non-qualified stock options to key employees. Option
prices per share are the fair market value per share of stock, based on the
closing price per share on the date of grant. The Company has granted options at
various dates with terms under which the options become exercisable at a rate of
25% or 33% per year and are exercisable for a period of ten years after the date
of grant.
WEIGHTED AVERAGE
SHARES EXERCISE PRICE PER SHARE
---------- ------------------------
Balance at February 28, 1998 -- --
Granted 1,029,500 $ 6.29
Forfeited (50,000) $ 6.61
---------- ----------
Balance at February 28, 1999 979,500 $ 6.28
Granted 27,500 $ 10.80
Exercised (113,742) $ 6.18
Forfeited (60,834) $ 9.02
---------- ----------
Balance at February 29, 2000 832,424 $ 6.24
========== ==========
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A total of 186,122 employee options were exercisable at average prices of $6.20
at February 29, 2000. There were no options exercisable under the plan at
February 28, 1999.
1999 NON-QUALIFIED PLAN
During fiscal 2000, the Company adopted a stock option plan under which shares
of common stock may be authorized for issuance by the Compensation Committee of
the Board of Directors as non-qualified stock options to key employees and
non-employee members of the Company's Board of Directors. Option prices per
share are the fair market value per share of stock, based on the closing price
per share on the date of grant. The Company has granted options at various dates
with terms under which the options become exercisable at a rate of 25% or 33%
per year and are exercisable for a period of ten years after the date of grant.
WEIGHTED AVERAGE
SHARES EXERCISE PRICE PER SHARE
---------- ------------------------
Balance at February 28, 1999 -- --
Granted 1,590,000 $ 14.88
Forfeited (74,500) $ 14.88
---------- ----------
Balance at February 29, 2000 1,515,500 $ 14.88
========== ==========
No options were exercisable under this plan at February 29, 2000.
1990 NON-EMPLOYEE OPTION PLAN
Under the 1990 non-employee stock option plan, nonqualified stock options were
issued to non-employee members of the Company's Board of Directors. Options are
issued to non-employee directors in accordance with a formula prescribed by the
plan. Option prices per share are the fair market value per share, based on the
closing per share price on the date of grant. Each option became exercisable
within the period specified in the optionee's agreement and is exercisable for
10 years from the date of grant.
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WEIGHTED AVERAGE
SHARES EXERCISE PRICE PER SHARE
---------- ------------------------
Balance at February 28, 1997 100,000 $ 7.48
Granted 60,000 $ 4.88
---------- ----------
Balance at February 28, 1998 160,000 $ 6.40
Granted 32,000 $ 9.00
Exercised (65,000) $ 5.32
---------- ----------
Balance at February 28, 1999 127,000 $ 7.51
Exercised (35,000) $ 8.63
---------- ----------
Balance at February 29, 2000 92,000 $ 9.52
========== ==========
A total of 92,000 and 95,000 non-employee options were exercisable at average
prices of $7.08 and $7.00 at February 29, 2000 and February 28, 1999,
respectively.
For all option plans at February 29, 2000, options for 3,114,487 shares of
common stock were available for future grant.
EMPLOYEE STOCK PURCHASE PLAN
The Company has adopted an Employee Stock Purchase Plan under which an aggregate
of 1,000,000 shares of common stock may be issued. Options are granted to
eligible employees in accordance with a formula prescribed by the plan and are
exercised automatically at the end of a one-year payroll deduction period. As
adopted, the payroll deduction periods began either December 1 or June 1 and
ended on the following November 30 and May 31, respectively. During fiscal 2000,
the payroll deduction periods were amended to coincide with a calendar year
cycle, therefore they will begin either January 1 or July 1 and end on the
following December 31 and June 30, respectively. Option prices are determined as
85%
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of the lower of the closing price per share of the Company's common stock on the
option grant date or the option exercise date.
WEIGHTED AVERAGE EXERCISE
SHARES PRICE PER SHARES
---------- -------------------------
Balance at February 28, 1997 141,274 $ 6.11
Granted 164,424 $ 4.42
Exercised (96,854) $ 4.10
Forfeited (44,420) $ 6.46
---------- ----------
Balance at February 28, 1998 164,424 $ 4.42
Granted 88,468 $ 8.61
Exercised (128,164) $ 9.25
Forfeited (36,260) $ 4.51
---------- ----------
Balance at February 28, 1999 88,468 $ 8.61
Granted 90,244 $ 15.50
Exercised (76,608) $ 8.49
Forfeited (11,860) $ 9.37
---------- ----------
Balance at February 29, 2000 90,244 $ 15.50
========== ==========
Grant price per option outstanding is either $10.09 or $18.91.
As of February 29, 2000, no options were exercisable under this plan.
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RESTRICTED STOCK PLAN
During fiscal 1996, the Company adopted a Restricted Stock Plan under which an
aggregate of 1,000,000 shares may be issued. Shares issued to senior executives
are earned based on the achievement of certain targeted share prices and the
continued service of each executive for a two-year period after each target is
met. Shares are available for annual grants to other key executives as a
component of their annual bonuses on the achievement of targeted annual earnings
per share objectives and the completion of an additional two years of service
after the grant. Activity related to restricted stock during fiscal 2000, 1999
and 1998 is as follows:
Senior Executive Plan Key Executive Plan
--------------------- ------------------
Balance at February 28, 1997 104,588 8,302
Forfeited (15,380) (2,158)
-------- --------
Balance at February 28, 1998 89,208 6,144
Granted 46,914 --
-------- --------
Balance at February 28, 1999 136,122 6,144
Granted 107,164 --
-------- --------
Balance at February 29, 2000 243,286 6,144
======== ========
Shares forfeited in fiscal 1998 had been granted at a weighted average share
price of $11.17. The weighted average share price for grants in fiscal years
2000 and 1999 were $31.75 and $14.77, respectively, for the Senior Executive
Plan. At February 29, 2000, approximately 756,714 shares were reserved for
future restricted stock grants.
OTHER STOCK AWARD PLAN DISCLOSURES
Because the Company has elected to continue to apply the provisions of APB 25
for expense recognition purposes, Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based
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Compensation", ("FAS 123") requires disclosure of pro forma information which
provides the effects on net income and net income per share as if the Company
had accounted for its employee stock awards under fair value methods prescribed
by FAS 123. The fair value of the Company's employee stock awards was estimated
using a Black-Scholes option pricing model with the following weighted-average
assumptions for fiscal 2000, 1999, and 1998, respectively: risk-free interest
rates of 5.50%, 5.38%, and 6.48%, stock price volatility factors of .72, .75 and
.49; and expected option lives of 3.75 years, 3.52 years and 4.3 years. The
Company does not have a history of paying dividends, and none have been assumed
in estimating the fair value of the options. The weighted-average fair value per
share of options granted in fiscal 2000, 1999 and 1998 was $8.22 and $3.26 and
$1.98, respectively.
Required Pro Forma Disclosures:
2000 1999 1998
--------------- -------------- --------------
Net income (loss) $ (21,967,099) $ 15,472,916 $ (8,726,923)
Income (loss) per share diluted $ (0.72) $ 0.52 $ (0.28)
As required by FAS 123, only awards granted after fiscal 1995 have been included
in determining the amount of additional compensation expense for those years. As
such, the effects of applying FAS 123 on fiscal 2000, 1999 and 1998 results are
not necessarily representative of the additional compensation expense which will
be included in future years' pro forma disclosures as more than two years of
awards will be considered.
Options Outstanding at February 29, 2000:
Weighted Average
Weighted Average Remaining Contractual
Exercise Prices Shares Exercise Price Life in Years
- --------------- --------- ---------------- ---------------------
$ 3.81 - $ 5.00 2,124,649 $ 4.91 7.57
$ 5.68 - $11.50 1,008,660 $ 9.14 4.92
$11.75 - $29.19 1,604,624 $ 15.00 9.02
---------
4,737,933
=========
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Options Exercisable at February 29, 2000:
Weighted Average
Weighted Average Remaining Contractual
Exercise Prices Shares Exercise Price Life in Years
- --------------- --------- ---------------- ---------------------
$ 3.81 - $ 5.00 578,675 $ 4.90 7.29
$ 5.68 - $11.50 649,000 $ 9.75 3.43
$11.75 - $13.63 34,875 $ 13.56 2.49
---------
1,262,550
=========
PREFERRED SHARE PURCHASE RIGHTS
One Preferred Share Purchase Right is attached to each outstanding share of the
Company's common stock. The rights will become exercisable upon the earlier to
occur of ten days after the first public announcement that a person or group has
acquired beneficial ownership of 20 percent or more, or ten days after a person
or group announces a tender offer that would result in beneficial ownership of
20 percent or more of the Company's outstanding common stock, the rights become
exercisable and each right will entitle its holder to purchase one
eight-hundredth of a share of Series A Preferred Stock for $37.50, subject to
adjustment. If the Company is acquired in a business combination transaction
while the rights are outstanding, each right will entitle its holder to
purchase, for $37.50, common shares of the acquiring company having a market
value of $75. In addition, if a person or group acquires beneficial ownership of
20 percent or more of the Company's outstanding common stock, each right will
entitle its holder (other than such person or members of such group) to
purchase, for $37.50, a number of shares of the Company's common stock having a
market value of $75. Furthermore, at any time after a person or group acquires
beneficial ownership of 20 percent or more (but less than 50 percent) of the
Company's outstanding common stock, the Board of Directors may, at its option,
exchange part or all of the rights
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(other than rights held by the acquiring person or group) for shares of the
Company's common stock on a one-for-one basis. At any time prior to the
acquisition of such a 20 percent position, the Company can redeem each right for
$0.00125. The Board of Directors is also authorized to reduce the 20 percent
thresholds referred to above to not less than 10 percent. The rights expire in
the year 2001.
NOTE J - TREASURY STOCK
No treasury stock was repurchased during fiscal 2000. Pursuant to authorizations
by the Company's Board of Directors, the Company repurchased 294,000 and
2,700,800 shares of its common stock during fiscal 1999 and 1998, respectively,
at an average price per share of $19.97 and $9.70, respectively. All shares held
in treasury were reissued as a part of the two-for-one stock split paid in the
form of a stock dividend which took place on January 11, 1999.
NOTE K - SPECIAL CHARGES
Fiscal 2000 income from operations and net loss were impacted by second quarter
special charges of $15.0 million including: $9.1 million reported in cost of
goods sold relating to a comprehensive cross-license agreement with an affiliate
of Lucent Technologies, Inc. and provisions for inventories and certain
intangible assets made obsolete by the Company's merger with Brite; and $5.9
million reported in selling, general and administrative expenses primarily
relating to severance charges for InterVoice employees made redundant as a
result of the merger with Brite and charges relating to bad debts arising from
the impairment of certain foreign accounts receivable and from the cancellation
of certain customer trade-in obligations. Substantially all of the severance
amounts were paid by February 29, 2000. The Company also charged $30.1 million
to research and development relating to purchased in-process research and
development, as part of the Brite acquisition (See Note D).
During fiscal 1998, the Company incurred special charges of approximately $7.4
million. Special charges reported in selling, general and administrative
expenses totaled $1.6 million and included severance expenses associated with
certain personnel matters, including the resignation of the
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Company's former President and Chief Operating Officer, and accounts receivable
write-offs related to certain cancellations of service contracts. Special
charges reported in cost of goods sold totaled $4.0 million and included asset
write-offs including a provision for inventory obsolescence in light of a
migration of the Company's customers to its NSP-5000 platform and a provision
million for the impairment of certain intangible assets. The Company also
expensed as in-process research and development $1.8 million of the purchase
price of the ESP product line purchased from Integrated Telephony Products, Inc.
(See Note D).
The Company incurred a one-time charge of approximately $1.8 million in
connection with the settlement of certain litigation during fiscal 1997.
NOTE L - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
YEAR ENDED FEBRUARY 28/29
------------------------------------------------
2000 1999 1998
------------- ------------ ------------
Numerator:
Net income (loss) for basic and
diluted earnings per share: $ (14,845,728) $ 20,192,916 $ (5,139,846)
============= ============ ============
Denominator:
Denominator for basic earnings per share
weighted average shares outstanding 30,510,408 27,990,907 31,032,672
Effect of dilutive securities:
Employee stock options-- -- 1,781,597 --
------------- ------------ ------------
Denominator for diluted earnings per share 30,510,408 29,772,504 31,032,672
============= ============ ============
Net income (loss) per common shares - basic $ (0.49) $ 0.72 $ (0.17)
============= ============ ============
Net income (loss) per common share - diluted $ (0.49) $ 0.68 $ (0.17)
============= ============ ============
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Options to purchase 4,737,933, 633,098 and 3,725,712 shares of common stock at
average exercise prices of $9.23, $10.77 and $7.10, respectively, were
outstanding at February 29, 2000 and at February 28, 1999 and 1998,
respectively, but were not included in the computations of diluted earnings
(loss) per share because the effect would have been anti-dilutive to the
calculations. For 1999 the anti-dilution is due to options' exercise prices
which were greater than the average market prices of the common shares. For 2000
and 1998, the anti-dilution is due to the net loss for the years ended February
29, 2000 and February 28, 1998.
NOTE M - OPERATING SEGMENT INFORMATION AND MAJOR CUSTOMERS
The Company is comprised of a single operating segment which develops, sells and
services call automation systems. The Company's Chief Operating Decision Maker
(CODM) assesses performance and allocates resources on an enterprise wide basis.
Therefore, no separately reportable operating segments exist.
The CODM monitors revenues based on customer markets, including Business
Systems, Network Systems and Services. The Business Systems market includes IVR
and CRM systems. The Network Systems customer market focuses on systems for
telecommunications network operators.
Revenues (in millions): 2000 1999 1998
-------- -------- --------
Business Systems $ 109.0 $ 97.4 $ 71.9
Network Systems 104.7 26.2 17.1
Services 72.5 13.3 13.3
-------- -------- --------
Total $ 286.2 $ 136.9 $ 102.3
======== ======== ========
GEOGRAPHIC OPERATIONS. The following geographic area data includes net trade
revenues for fiscal years 2000, 1999 and 1998 and property and equipment for
fiscal 2000. Revenues are attributed to geographic locations based on locations
of customers.
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Revenues (in millions): 2000 1999 1998
-------- -------- --------
United States $ 157.2 $ 112.8 $ 81.0
The Americas (excluding the U.S.) 23.9 13.4 11.5
Pacific Rim 15.5 6.3 4.4
Europe, Middle East and Africa 89.6 4.4 5.4
-------- -------- --------
Total $ 286.2 $ 136.9 $ 102.3
======== ======== ========
One Network systems customer accounted for 16% of the Company's sales during
fiscal year 2000. No customers accounted for 10% or more of the Company sales
during fiscal 1999 or 1998.
Property and Equipment (in millions): 2000
-----------
United States $ 30.9
United Kingdom 10.1
-----------
$ 41.0
===========
Substantially all of the Company's property and equipment was located in the
United States in fiscal 1999 and 1998.
NOTE N - CONCENTRATIONS OF CREDIT RISK
The Company sells systems directly to end-users and distributors primarily in
the banking and financial, telecommunications, human resource, healthcare and
call center markets. Customers are dispersed across different geographic areas,
primarily North America and Europe. Credit is extended based on an
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evaluation of a customer's financial condition and a deposit is generally
required. The Company has made a provision for credit losses in these financial
statements.
NOTE O - EMPLOYEE BENEFIT PLAN
The Company sponsors an employee savings plan in the United States which
qualifies under section 401(k) of the Internal Revenue Code. All full time
employees who have completed three months of service are eligible to participate
in the plan. The Company matches 50% of employee contributions up to 6% of the
employee's eligible compensation. Company contributions totaled $1,193,505,
$798,000 and $854,000 in fiscal 2000, 1999 and 1998, respectively.
NOTE P - CONTINGENCIES
The Company provides certain automated call processing services on a
managed services basis for a large domestic telecommunications company. The
telecommunications company has alleged that the Company should pay monetary
penalties under the managed services contract for failing to achieve certain
representations, covenants and specified levels of service. The Company has
acknowledged that it may owe the telecommunications company an immaterial amount
as a monetary penalty for failing to adhere to a specific service level, and has
denied all other alleged failures under the contract. A reserve has been
established to cover the immaterial amount the Company has acknowledged it might
owe. The parties are in the process of attempting to negotiate mutually
satisfactory agreements to resolve their dispute, and to extend the managed
services contract. There is no assurance that the parties will negotiate
mutually acceptable agreements. The telecommunications company has not
threatened litigation against the Company. In the event litigation is instituted
against the Company concerning the dispute under the contract, the Company
intends to vigorously contest the claims and to assert appropriate defenses. As
with any legal proceeding, there is no guarantee that the Company will prevail
in any litigation asserted against the Company in connection with the managed
services contract.
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101
NOTE Q - LEASES
Rental expense was $2.7 million in 2000. Rental costs in fiscal 2000 generally
related to office and manufacturing facility leases acquired in connections with
the Brite merger. Rental expenses in 1999 and 1998 were immaterial. The lease
agreements include purchase and renewal provisions and require the company to
pay taxes, insurance and maintenance costs. At February 29, 2000, the Company
was committed under noncancelable operating leases with minimum rentals of $4.1
million, $3.8 million, $2.9 million, $1.3 million and $1.5 million in fiscal
years 2001, 2002, 2003, 2004 and thereafter, respectively.
The Company has also entered into a two and one half year lease agreement,
commencing April 1, 2000 for additional manufacturing and office space. Minimum
rentals under this lease are approximately $0.9 million per year.
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SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
INTERVOICE-BRITE, INC.
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ------------ ----------------------------- ------------ ------------
ADDITIONS
-----------------------------
(1) (2)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COST AND OTHER ACCOUNTS END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
YEAR ENDED FEBRUARY 29, 2000
DEDUCTED FROM ASSET ACCOUNTS:
ALLOWANCE FOR DOUBTFUL ACCOUNTS $ 1,305,581 $ 6,363,527 $ 3,019,158(A) $ (6,527,463)(B) $ 4,160,803
ALLOWANCE FOR SLOW MOVING INVENTORIES 1,204,526 1,880,723 2,419,914(A) (4,122,185)(C) 1,382,978
------------ ------------ ------------ ------------ ------------
TOTAL $ 2,510,107 $ 8,244,250 $ 5,439,072 $(10,649,648) $ 5,543,781
============ ============ ============ ============ ============
YEAR ENDED FEBRUARY 28,1999
DEDUCTED FROM ASSET ACCOUNTS:
ALLOWANCE FOR DOUBTFUL ACCOUNTS $ 368,004 $ 1,037,588 -- $ (100,011)(B) $ 1,305,581
ALLOWANCE FOR SLOW MOVING INVENTORIES 1,360,000 1,800,000 -- (1,955,474)(C) 1,204,526
------------ ------------ ------------ ------------ ------------
TOTAL $ 1,728,004 $ 2,837,588 -- $ (2,055,485) $ 2,510,107
============ ============ ============ ============ ============
YEAR ENDED FEBRUARY 28,1998
DEDUCTED FROM ASSET ACCOUNTS:
ALLOWANCE FOR DOUBTFUL ACCOUNTS $ 250,950 $ 291,491 -- $ (174,437)(B) $ 368,004
ALLOWANCE FOR SLOW MOVING INVENTORIES 166,000 1,935,067 -- (741,067)(C) 1,360,000
------------ ------------ ------------ ------------ ------------
TOTAL $ 416,950 $ 2,226,558 -- $ (915,504) $ 1,728,004
============ ============ ============ ============ ============
- --------------------------
(A) Allowance accounts included in working capital acquired from Brite.
(B) Accounts written off.
(C) Scrapped material.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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104
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item will be contained in the sections
entitled "Election of Directors" and "Executive Officers" in the Company's
Definitive Proxy Statement, involving the election of directors, to be filed
pursuant to Regulation 14A with the Securities and Exchange Commission not later
than 120 days after the end of the fiscal year covered by this Form 10-K (the
"Definitive Proxy Statement") and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be contained in the section
entitled "Executive Compensation" in the Definitive Proxy Statement. Such
information, except for the information captioned "Report of the Compensation
Committee" and "Performance Graph", is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be contained in the section
entitled "Election of Directors" in the Definitive Proxy Statement. Such
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be contained in the section
entitled "Certain Transactions" in the Definitive Proxy Statement. Such
information is incorporated herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following consolidated financial statements and financial
statement schedule of InterVoice-Brite, Inc. and subsidiaries are
included in Items 8 and 14(a), respectively.
Page
----
(1) Financial Statements:
Report of Independent Auditors 64
Consolidated Balance Sheets at February 29, 2000 and February 28, 1999 65
Consolidated Statements of Operations for the three years ended
February 29, 2000 66
Consolidated Statements of Changes in Stockholders' Equity
for the three years ended February 29, 2000 67
Consolidated Statements of Cash Flows for the three years ended
February 29, 2000 68
Notes to Consolidated Financial Statements 69-99
(2) Financial Statement Schedules
II Valuation and Qualifying Accounts 100
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
(3) Exhibits:
103
106
The exhibits required to be filed by this Item 14 are set forth in the
Index to Exhibits accompanying this report.
(b) No reports on Form 8-K were filed by the Company during the quarter
ended February 29, 2000.
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107
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INTERVOICE-BRITE, INC.
By: /s/ DANIEL D. HAMMOND
------------------------------
Daniel D. Hammond
Chairman of the Board of Directors
and Chief Executive Officer
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Dated: May 26, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ DANIEL D. HAMMOND Chairman of the Board of May 26, 2000
- -------------------------------------------- Directors and Chief
Daniel D. Hammond Executive Officer
/s/ ROB-ROY J. GRAHAM Chief Financial Officer, May 26, 2000
- -------------------------------------------- Chief Accounting Officer
Rob-Roy J. Graham and Controller
(Principal Accounting Officer)
/s/ JOSEPH J. PIETROPAOLO Director May 26, 2000
- --------------------------------------------
Joseph J. Pietropaolo
/s/ GEORGE C. PLATT Director May 26, 2000
- --------------------------------------------
George C. Platt
/s/ GRANT A. DOVE Director May 26, 2000
- --------------------------------------------
Grant A. Dove
/s/ DAVID W. BRANDENBURG Director May 26, 2000
- --------------------------------------------
David W. Brandenburg
/s/ STANLEY G. BRANNAN Director May 26, 2000
- --------------------------------------------
Stanley G. Brannan
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INDEX TO EXHIBITS
[CAPTION]
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Articles of Incorporation, as amended, of Registrant (2)
3.2 Amendment to Articles of Incorporation of Registrant (9)
3.3 Second Restated Bylaws of Registrant, as amended (1)
4.1 Amended and Restated Rights Agreement dated as of December 12,
1994 between the Registrant and KeyCorp Shareholder Services, Inc.
(as successor to Society National Bank), as Rights Agent (4)
10.1 The InterVoice, Inc. 1990 Incentive Stock Option Plan, as amended (8)
10.2 The InterVoice, Inc. 1990 Nonqualified Stock Option Plan for
Non-Employees, as amended (3)
10.3 The InterVoice, Inc. Employee Stock Purchase Plan (6)
10.4 InterVoice, Inc. Employee Savings Plan (5)
10.5 InterVoice, Inc. Restricted Stock Plan (7)
10.6 Employment Agreement dated as of September 1, 1998 between the
Company and David W. Berger (8)
10.7 Employment Agreement dated as of September 16, 1998 between
the Company and Rob-Roy J. Graham (8)
10.8 InterVoice, Inc. 1998 Stock Option Plan (8)
10.9 Assets Purchase Agreement dated as of September 15, 1998 between
the Company and Dronen Consulting, Incorporated (8)
10.10 Acquisition Agreement and Plan of Merger dated as of April 27,
1999, by and among the Company, InterVoice Acquisition
Subsidiary III, Inc. ("Acquisition Subsidiary") and Brite Voice
Systems, Inc. ("Brite") (10)
110
10.11 Patent License Agreement between Lucent Technologies GRL Corp.
and InterVoice Limited Partnership, effective as of October 1, 1999. Portions
of this exhibit have been excluded pursuant to a request for confidential treatment. (9)
10.12 Third Amended and Extended Employment Agreement executed as of
August 17, 1999, between the Company and Daniel D. Hammond. (9)
10.13 InterVoice-Brite, Inc. 1999 Stock Option Plan. (11)
10.14 Credit Agreement dated June 1, 1999 among InterVoice, Inc., InterVoice Acquisition
Subsidiary III, Inc. and Bank of America National Trust and Savings Association, Banc
of America Securities LLC and certain other financial institutions indicated as being
parties to the Credit Agreement incorporated by reference to Exhibit 99.(b)(1) of the
Schedule 14-D1 (Amendment No.4) filed by InterVoice, Inc. and InterVoice Acquisition
Subsidiary III, Inc. on June 14, 1999. (10)
10.15 Employment Agreement with Ray S. Naeini. (12)
10.16 Employment Agreement with Donald R. Walsh (12)
23 Consent of Independent Auditors (12)
27.1 Fiscal 2000 Financial Data Schedules (12)
99.1 Pages 23, 13, 18, 38-40, 43 and 45 of the Registration Statement on Form S-4,
as amended (incorporated by reference to page 12, 13, 18, 38-40, 43 and 45 of the
Registration Statement on Form S-4/A (Amendment No. One) filed by the Company
On July 13, 1999) (9)
(1) Incorporated by reference to exhibits to the Company's 1991 Annual Report
on Form 10-K for the fiscal year ended February 28, 1991, filed with the
Securities and Exchange Commission (SEC) on May 29, 1991, as amended by
Amendment No. 1 on Form 8 to Annual Report on Form 10-K, filed with the SEC
on August 1, 1991.
(2) Incorporated by reference to exhibits to the Company's 1995 Annual Report
on form 10-K for the fiscal year ended February 28, 1995, filed with the
SEC on May 30, 1995.
(3) Incorporated by reference to exhibits to the Company's Registration
Statement on form S-8 filed on April 6, 1994, with respect to the Company's
1990 Nonqualified Stock Option Plan for Non-Employees, Registration Number
33-77590.
(4) Incorporated by reference to exhibits to Form 8-A/A (Amendment No. 1) filed
with the SEC on December 15, 1994.
(5) Incorporated by reference to exhibits to the Company's 1994 Annual Report
on Form 10-K for the fiscal year ended February 28, 1994, filed with the
SEC on May 31, 1994.
(6) Incorporated by reference to exhibits to Registration Statement on Form S-8
filed with the SEC on November 30, 1998, Registration Number 333-68103.
(7) Incorporated by reference to exhibits to the Company's 1996 Annual Report
on Form 10-K for the fiscal year ended February 29, 1996, filed with the
SEC on May 29, 1996.
111
(8) Incorporated by reference to exhibits to the Company's quarterly report on
Form 10-Q for the quarter ended August 31, 1998, filed with the SEC on
October 14, 1998.
(9) Incorporated by reference the Company's Quarterly report on Form 10-Q for
the fiscal quarter ended August 31, 1999, filed October 14, 1999.
(10) Incorporated by reference to Registration Statement on Form S-4 filed with
the SEC on July 13, 1999, Registration Number 333-79839.
(11) Incorporated by reference to Registration Statement on Form S-8 filed with
the SEC on October 15, 1999, Registration Number 333-89127.
(12) Filed herewith.
(13) Previously filed.