Edgar Filing: INTERVOICE BRITE INC

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 18, 2001
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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 28, 2001
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 75252
DALLAS, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

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

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. [ ]

Aggregate Market Value of Common Stock held by Nonaffiliates as of May 16,
2001: $414,818,804

Number of Shares of Common Stock Outstanding as of May 16, 2001: 33,212,074

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 2001 Annual Meeting of Shareholders -- Part
III.
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TABLE OF CONTENTS

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PART I
ITEM 1. Business.................................................... 1
Call Automation Industry.................................... 4
Markets..................................................... 5
Product Strategy............................................ 6
Products and Services....................................... 7
Competition................................................. 9
Distribution................................................ 9
Backlog..................................................... 10
Research and Development.................................... 11
Proprietary Rights.......................................... 11
Manufacturing and Facilities................................ 12
Employees................................................... 12
Merger with Brite Voice Systems, Inc. and Related
Financing................................................... 12
ITEM 2. Properties.................................................. 14
ITEM 3. Legal Proceedings........................................... 14
ITEM 4. Submission of Matters to a Vote of Security Holders......... 15

PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 15
ITEM 6. Selected Financial Data..................................... 16
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 18
ITEM 7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 28
ITEM 8. Financial Statements and Supplementary Data................. 28
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 54

PART III
ITEM 10. Directors and Executive Officers of the Registrant.......... 54
ITEM 11. Executive Compensation...................................... 54
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 54
ITEM 13. Certain Relationships and Related Transactions.............. 54

PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 54

PART I

ITEM 1. BUSINESS

InterVoice-Brite, Inc. (together with its subsidiaries, collectively
referred to as the "Company") is a technology leader in speech-enabled
interactive information systems and enhanced services systems for network
service providers and a premier communications and e-business application
service provider (ASP). The Company participates in two global markets: the
interactive voice response (IVR) market in which the Company provides automated
customer service and self-help solutions to enterprises and institutions, and
the enhanced telecommunications services market in which the Company provides
value-added solutions to network service providers. The Company sells systems
solutions in both markets and, as a complement to its system sales, can provide
its products and services to its customers on an outsourcing basis through its
ASP.

The Company's early emphasis was on IVR systems, providing automated
customer service and self-help applications. IVR systems permit individuals to
use the touchtone pad on their telephones and/or their personal computers
connected to telephone networks or the Internet to access and/or provide
information to computer databases utilized by businesses. More recently, the
Company has emphasized its voice recognition capabilities to allow its
customers' patrons to interact with their systems using only their voices.
Demand for this functionality is increasing as a result of the worldwide growth
of wireless networks whose subscribers find value in "hands free" interactive
applications.

The Company also has focused on systems marketed to telecommunications
service providers. Such systems are used to provide a variety of automated
services to reduce costs, such as processing collect, debit and credit card
calls, and to provide advanced revenue generating calling features, such as
prepaid calling services, multi-media portals, voice mail, text messaging,
Internet connectivity and voice dialing. Consistent with this focus, the Company
merged with Brite Voice Systems, Inc. ("Brite") during fiscal 2000. As the
majority of Brite's sales were to telecommunication service providers, the
Company has become a leading supplier of, and generates approximately half 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 product
development and sales channel expansion.

The Company's products can be divided into two categories: (i) IVR systems
that reduce customers' costs and improve the efficiency of services provided to
end-user customers, and (ii) enhanced telecommunications services systems that
reduce costs or increase customers' revenues through increased subscription or
user fees. IVR systems are typically found in automated customer service and
self-help applications. Callers using such systems can access personal balances
for bank, credit card or mutual fund accounts; receive stock quotes and execute
securities trades; order products or product literature for delivery by mail or
by facsimile; pay bills; enroll for college courses; apply for credit cards; and
receive other personalized information. The use of the Company's systems to
respond to routine requests for information and to provide self-help reduces
customers' direct labor costs, and allows live agents to handle more complex
questions and problems, thereby improving customer service. IVR systems are
generally marketed to enterprises and are generally installed at the business
premises.

Examples of services provided or developed for telecommunications network
service providers include automated operator services, such as the processing of
collect calls; prepaid calling services; multi-media portals; voice
messaging/voicemail; voice activated dialing and wireless Internet connectivity.
Such systems are generally installed within the service providers' networks,
reducing their operating costs or increasing their revenues through increased
network usage.

SYSTEMS

The Company's IVR systems are sold under the trademark "OneVoice" and sell
at list prices ranging from approximately twenty-five thousand to millions of
dollars. Such systems 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
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multiple units of the 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.

Systems are sold to telecommunications service providers under the trade
name "Omvia" and enable the providers to deploy a variety of revenue generating
services, including:

CREDIT CARD/DEBIT CARD/PREPAID CALLING. The Company's applications
make it possible for telecommunications companies to provide subscribers
with alternate payment options extending beyond traditional monthly billed
service, i.e. the use of credit and debit cards. The Company's applications
also support prepaid calling, employing credit cards or purchase vouchers
to initialize or "re-charge" a subscriber's account. Unlike traditional
telephone company services, where service usage measurements are collected
and bills are generated offline at the end of the billing cycle, alternate
payment options require that the billing function occur as part of the call
processing system and in "real time". Further, prepaid systems must have
the ability to "tell" a subscriber the balance in his or her account. This
ability to perform IVR and call processing functions in addition to call
costing and customer account maintenance is a technical task similar to the
functionality provided by telecommunications switches and billing systems
operating simultaneously, but made more difficult due to real-time
transaction processing requirements.

The Company's BriteStar(TM) product line is a unique handset-based
prepaid solution specifically targeted towards wireless providers.
BriteStar uses encryption technology to store the user's credit securely
within the handset itself, allowing the handset to monitor the value of all
calls made, so that the user's 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.

VOICE MESSAGING. Voice messaging (or voice mail) allows users to
store, send and receive information over the telephone. 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.

UNIFIED MESSAGING. Unified Messaging allows users to store, send and
receive voice messages, e-mail messages and facsimiles over the telephone
or Internet. Users can use wireline or wireless telephones to access voice
mail functions and can have e-mail 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 e-mail and facsimile functions and,
through voice over Internet protocol (VOIP), can access voice mail
functions. Unified messaging systems are marketed by the Company to
telecommunications network service providers throughout the world.

WIRELESS INTERNET CONNECTIVITY. The Company provides wireless
telecommunications network services providers with systems that interface
wireless telephones to the Internet. With Internet connectivity, wireless
telephones can be used to access Internet and corporate Intranet based
content and services. Additionally, wireless telephone subscribers can
access services provided by their network service providers' Intranet, such
as billing records and subscription information for new services.

MULTI-MEDIA PORTALS. Multi-media portals straddle multiple networks,
such as the wireline, wireless, Internet and wireless Internet networks,
providing subscribers a seamless interface to services and content, such as
e-mail and stock quotes. Multi-media portals are often combined with the
Company's other value-added products and are marketed to both network
service providers and enterprises.

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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. Such applications are
marketed to cellular providers around the world.

ENHANCED CALLING CARD. The Company's applications offer
telecommunications service providers postpaid billing capabilities,
including customer branded calling cards and credit/debit cards.

AUTOMATED OPERATOR SERVICES. The Company offers telecommunication
service providers a variety of applications automating services
traditionally provided by live operators, such as the processing of collect
calls.

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 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.

ASP SERVICES

As a complement to its systems sales, the Company can provide all of its
enhanced networks services and IVR applications to network providers and
enterprises on an ASP basis. Under these arrangements, the Company generally
owns the IVR or enhanced telecommunication services system, provides services on
the system for the benefit of its customers and may also provide live agent
customer support. 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 or
enterprise is a completely bundled service, which requires no front-end purchase
of equipment, and the avoidance of continuing costs of operational personnel on
staff. 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 also provides a service to readers of apartment rental guides
allowing them to access information concerning rental properties in their 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 connect
directly to the leasing agent, leave messages, or request 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 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 20,000 located in 74 countries. The
customers to which the Company has sold systems include Aetna, Ameritrade, Bank
of America, BankOne, California Federal Bank, CitiBank, E-Trade, Fidelity
Investments, First Union Corporation, J.C. Penney, J. P. Morgan Chase & Co.,
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, Avantel (Mexico),
Bell Canada, British Telecom (including BT Cellnet), CANTV (Venezuela), Cellular
One, Codatel (Dominican Republic), CTC (Chile), CTI (Argentina), CTI (Puerto
Rico), Exel Communications, Guatel (Guatemala), Hutchison Telecom (Hong Kong),
Iusacel (Mexico), Mannesmann (Germany), Movilnet (Venezuela), NPT (People's
Republic of China), Qwest, RadioFone, Rogers/Cantel (Canada), SBC, Singtel
(Singapore), Sprint (including Sprint PCS), Telcel (Venezuela), Telefonica
(Spain), Telecom Asia (Thailand), Telia Nara (Sweden), Turkcell, Unicom
(People's Republic of China), Verizon and Worldcom.

British Telecom, together with its affiliate BT Cellnet, purchased both
systems and ASP managed services which combined accounted for 19% and 16% of the
Company's total sales during fiscal 2001 and 2000,

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respectively. There were no other customers accounting for 10% or more of the
Company's sales during fiscal 2001 and 2000, nor did any customer account for
10% of the Company's sales during fiscal 1999. British Telecom and BT Cellnet
are not contractually committed to purchase systems from the Company in the
future, but BT Cellnet does have a long term ASP agreement for BriteStar
handset-based prepaid services. The agreement was recently extended for an
additional eighteen months through July 17, 2003. Under this agreement, BT
Cellnet committed to purchase BriteStar services in a minimum amount of
approximately $2.6 million per month for the twenty month period ending July 17,
2001, a minimum amount of approximately $2.1 million per month for the six month
period ending January 17, 2002, and a flat amount of approximately $900,000 per
month for the eighteen month period ending July 17, 2003. Payments under the
agreement are denominated in the currency of the United Kingdom; and, therefore,
the amount received under the agreement may vary based on the exchange rate
between pounds and dollars.

CALL AUTOMATION INDUSTRY

The number of telephone calls and, more recently, Internet inquiries,
whether VOIP-based or HTML-based, requesting information or requiring operator
assistance from enterprises and telecommunications network service providers has
increased dramatically in recent years. Traditionally, consumers obtained
information or services from enterprises 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 and level of
service that can be given to each caller. Another disadvantage of this procedure
is that the potential for service delays and errors may increase if the volume
of calls increases or substantially varies with the time of day or other
factors.

As a result of these high costs and inefficiencies, enterprises 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 tasks requiring
personal expertise. In certain system applications, such as credit limit
requests, callers actually may prefer dealing with an IVR system rather than an
individual in order to preserve privacy and confidentiality. The Company
believes that its IVR systems enable its customers to provide better customer
service without additional staff, improve customer and employee retention, and,
thus, enjoy significant cost savings.

IVR systems traditionally have been interfaced to public telephone
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 wireless devices, such as cellular telephones, cellular
telephones that can access the Internet and PDA's, to access information and
data in any combination of voice, graphic and image formats.

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 for the touchtone pad. This allows the
Company to broaden its marketing efforts to include "hands free" applications
and to address new vertical markets where data input via the touchtone pad is
not viable, such as systems providing airline flight information, brokerage
services and travel reservations. Speech recognition also is an important
feature in the telecommunications service features made possible by the
Company's wireless and wireless Internet product offerings.

In addition to automating services formerly provided by live operators,
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, multi-media portals, wireless Internet connectivity, voice dialing,
voice mail, 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 occur in real-time as

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part of the call. This technical task is similar to the functionality of
telecommunications switches and billing systems, operating simultaneously.

IVR systems allow the use of a wide variety of devices, such as the human
voice, 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, brokerage transactions, credit card authorizations,
insurance claims and automating telephone calls formerly requiring operator
assistance. The Company's sales of such systems accounted for approximately 52%
of the Company's total systems sales in fiscal 2001.

Network-based enhanced services systems allow telecommunications service
providers to automate calls formerly requiring live operator assistance and to
provide revenue generating, advanced calling features such as voice mail,
multi-media portals, 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 48% of the Company's
total systems sales in fiscal 2001.

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
-------- -----------

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

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.

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Wireline and wireless telecommunications service providers rely on call
automation systems to reduce operating costs and to provide new services to
improve network utilization, to aid in subscriber retention, and to provide
product differentiation which increase the provider's revenues. Such services
include: multi-media portals; voice mail; prepaid, credit and debit calling;
wireless Internet connectivity; and voice activated dialing.

NETWORK SERVICE PROVIDER SERVICES
------------------------ --------

Local Exchange Carriers (LEC's)........................ Multi-media portals
Voice messaging/mail
Unified messaging
Competitive Local Exchange Carriers (CLEC's)........... Multi-media portals
Voice messaging/mail
Unified messaging
Interexchange Carriers (IXC's)......................... Multi-media portals
Prepaid, credit call and debit card calling
Voice activated dialing
Wireless Network Operators............................. Multi-media portals
Voice messaging/mail
Prepaid, credit call and debit card calling
Internet connectivity
Voice activated dialing
Unified messaging

PRODUCT STRATEGY

The Company's products are designed to assist its customers in achieving
the following objectives:

- Increase revenues

- Reduce costs

- Improve customer and/or employee service

- Provide product and service differentiation

The Company believes that its OneVoice 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. OneVoice systems operate on the
Company's NSP 5000 call automation platform which can simultaneously host
multiple applications. This allows the Company's customers to leverage and cost
effectively expand their investments in their OneVoice systems.

The Company also has adapted its NSP 5000 call automation platform to host
its Omvia 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 multi-media
portals, voice mail, prepaid, credit and debit card calling, wireless Internet
connectivity and voice activated dialing.

The Company focuses its development efforts on call automation technology.
Industry standard computer components, 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,

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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 and Omvia 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.

FLEXIBLE PROGRAMMING. The Company offers its customers a wide variety
of software features that can be included in OneVoice and Omvia systems in
a number of diverse product applications. The Company's graphical user
interface (GUI) software development tool, InVision, 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 Omvia systems utilize the NSP 5000 platform and 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.

VOICE AND DATA CONNECTIVITY. Systems can be connected to most digital
and analog PBX's and central office switches and to a wide variety of host
computers and enterprise systems.

The Company's products are ISO 9001 compliant. They have been 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 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 67% of the Company's sales during
fiscal 2001.

OneVoice Systems

OneVoice systems are primarily focused on the IVR market and comprised
approximately 52% of the Company's systems sales in fiscal 2001. 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 IVR
functions. Each OneVoice system utilizes the same proprietary InterSoft run time
software, allowing the Company's customers to expand their OneVoice systems
through 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's programmable add-in cards and InterSoft run time software are
hosted by the Company's NSP 5000 Platform or by computers produced by Dell,
Compaq, IBM and others, and use 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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Omvia Systems

The Company's Omvia systems, which are primarily focused on the enhanced
telecommunications services market, are similar in design to OneVoice systems
and utilize much of the same proprietary hardware and software. These systems
provide telecommunications network operators with automated operator services
(such as the processing of collect, prepaid and credit card calls) and revenue
generating enhanced telecommunication features (such as multi-media portals,
wireless Internet connectivity, voice mail, short voice and text message
delivery, "one number" services and voice activated dialing). These systems
accounted for 48% of the Company's systems sales in fiscal 2001.

Omvia 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 Omvia 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 33% of the Company's total sales during fiscal 2001.
Services include ASP services, maintenance and other services, such as
installation and training. Other services were less than 1% of the Company's
total services sales.

ASP Services. ASP Services constituted approximately 57% of the Company's
services sales during fiscal 2001. As a complement to its systems sales, the
Company can provide all of its telecommunications and IVR applications to
network operators or enterprises on an ASP basis. Under these arrangements, the
Company provides a hardware platform and a customer specific application which
can be easily expanded to meet increased demand and which combines many features
in a manner that the Company believes are unmatched in the industry. The
advantage to the network provider or enterprise is a completely bundled service,
requiring no front-end purchase of equipment, a fixed cost to provide the
service, and the avoidance of continuing costs of operational personnel on
staff. 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 a service to readers of apartment rental guides
allowing them access to information concerning rental properties in their 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 request 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 approximately 43% of the
Company's services sales during fiscal 2001. 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 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:
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.

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InVision

InVision is the Company's proprietary, 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.

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 technologies advance. The NSP 5000 can utilize any one of the following
operating systems: Windows NT, Unix, Linux, or OS/2.

COMPETITION

The IVR 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 the largest global
ASP in the communications sector and that it is second in market share in the
enhanced telecommunications services systems market.

Technological advances are critical to industry leadership. 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 Avaya and Nortel Networks. The Company's principal ASP competitor is
Boston Communications Group. The principal competitor for the Company's
telecommunications products is Comverse Technology. 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, independent call automation service
bureaus and information portal providers. Some of these competitors have greater
financial, technological and marketing resources than the Company.

DISTRIBUTION

The Company markets its IVR products through both direct and indirect sales
channels. During fiscal 2001, approximately 45% and 55% of total IVR system
sales were attributable to direct sales to end-users and to sales to
distributors, respectively. The Company provides discounts to volume end-user
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 2001 and fiscal 2000, sales to existing
customers, as a percentage of the Company's total sales, were 70% and 65%,
respectively, 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.

United States Distribution

The Company sells its IVR products directly to end-users and through 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 IVR domestic direct sales force of approximately 65. During
fiscal 2001 approximately 51% and 49% 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 separate direct
sales force of approximately 15. Marketing efforts to support the Company's
sales forces include advertising, trade shows, telemarketing and direct mail
campaigns.

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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 the markets, industries and customers that are candidates for the
Company's products. The Company's major domestic distributors include EDS,
Fiserv, Norstan, Siemens Business Communications, Sprint, Symitar Systems,
Verizon and Wiltel.

International Distribution

The Company's products are currently sold in 74 countries. The Company
offers its IVR products outside the United States through a direct sales force
of approximately 15 as well as through a network of more than 45 distributors,
which allows access to an indirect sales force numbering in excess of 1,000. The
Company's international telecommunications products are sold by a separate
international sales force of approximately 40. International distributors
include Ericsson, 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, Dubai and South Africa to support sales throughout the
European Community, the Middle East and Africa. Company offices in Singapore and
Sydney (Australia) support sales by distributors throughout the Pacific Rim.
Although a subsidiary of the Company has been organized in Brazil to support
Latin American sales, the majority of the Company's sales to Latin America are
conducted from the Company's Dallas offices. The Company also maintains small
offices in Montreal, Toronto and Vancouver to support its Canadian distributors.

Many countries lag the United States in the acceptance of IVR technology.
Government regulation of telecommunications equipment and services, and the low
penetration of digital switches and touch-tone telephones, have limited sales of
IVR in many countries. Subject to differences in culture and business practices,
the Company anticipates that the international market for IVR 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 growth
and competition among international network operators, particularly for systems
providing prepaid wireless calling and voice mail services. 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 3%, 434% and 13% in fiscal 2001, 2000 and
1999 respectively, and, as a percentage of total sales, were 48%, 45% and 18% in
fiscal 2001, 2000 and 1999 respectively. The large increase in international
sales during fiscal 2000 was due to the merger with Brite. Sales to the Europe,
Middle East and Africa region constituted 80%, 69% and 19% of international
sales in fiscal 2001, 2001 and 1999, respectively. Sales to the Americas
(excluding the United States) constituted 11%, 19%, and 55% of international
sales in fiscal 2001, 2000 and 1999, respectively. Sales to the Pacific Rim
constituted 9%, 12% and 26% of international sales in fiscal 2001, 2000 and
1999, respectively. A presentation of the Company's sales by geographical area
for fiscal 2001, 2000 and 1999 is found in Note N to the Consolidated Financial
Statements located in Item 8 of this report.

BACKLOG

The Company's systems backlog at February 28, 2001, February 29, 2000 and
February 28, 1999 was approximately $35 million, $34 million, and $17 million,
respectively. The Company expects all existing backlog to be delivered within
fiscal 2002. 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 2001 were approximately $34
million. Such expenses were approximately $61 million during fiscal 2000 and
included 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 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 in fiscal 1999. The increase in fiscal 2000 in such
expenses was the result of the Company's merger with Brite. Such recurring
expenses during fiscal 2001, 2000 and 1999 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 28,
2001, the Company owned 49 patents in the United States and in certain foreign
countries. In addition, the Company has registered "InterVoice" as a trademark
in the United States and in certain foreign countries. The Company has also
registered 33 trademarks and service marks 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
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.

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 is continuing to apply for and receive patents to reflect its
technological innovations. The Company currently has a portfolio of 49 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 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. See "Item 3. Legal Proceedings" for a discussion of certain patent
matters.

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
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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 computer 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 generally uses standard computer platform parts and
components for its products, some components, including 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.

EMPLOYEES

As of May 16, 2001, the Company had 1,196 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
approximately 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 28, 2001, the Company had $7.5 million
outstanding under the revolving credit facility and had prepaid $82.9 million of
the principal balance of the term loan facility, reducing such balance to $42.1
million. On March 12, 2001, the Company prepaid another $2 million of the
principal balance of the term loan facility, reducing such balance to $40.1
million.

The following is a summary of the principal terms of the loan facilities.
The loan facilities and the amendments to the facilities are Exhibits to this
Annual Report on Form 10-K.

The facilities mature on August 31, 2003, and the term loan facility is
subject to quarterly amortization. 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.

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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 by reference to a ratio of the
Company's funded debt to EBITDA (as defined in the facilities).

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 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 approximately 130,000
square feet of manufacturing and office facilities in the Dallas, Texas area.
The Company also owns approximately 40,000 square feet of office space in
Wichita, Kansas and leases approximately 48,000, 47,000, 12,000, 9,000, 5,500,
4,000, 4,000, 3,000 and 2,500 square feet of office space in Manchester (UK),
Orlando, Cambridge (UK), Chicago, Wiesbaden, Singapore, Jacksonville (Florida),
Sao Paulo, and Dubai, respectively. (See "Merger with Brite Voice Systems, Inc.
and Related Financing" under Item 1. Business for a discussion of encumbrances
on the Company's assets to secure the Company's senior loan facilities).

The Company has suitable properties and productive capacity for its
near-term requirements.

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 asserted 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
telecommunications company is also in the process of performing an audit of the
Company's records relating to the managed services, as expressly contemplated by
the contract. While the Company does not believe that the audit will result in
any claims for material amounts, it is possible that the telecommunications
company could make such claims and such claims could be material. The Company
has acknowledged that it may owe an immaterial amount as a monetary penalty for
failing to adhere to a specific service level, and has denied all other asserted
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
connection with this matter. 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 would prevail in any
litigation that might be asserted against the Company in connection with the
managed services contract.

From time to time Ronald A. Katz Technology Licensing L.P. ("RAKTL") has
sent letters to certain customers of the Company suggesting that the customer
should negotiate a license agreement to cover the practice of certain patents
owned by RAKTL. In the letters, RAKTL has alleged that certain of its patents
pertain to certain enhanced services offered by network providers, including
prepaid card and wireless services and postpaid card services. RAKTL has further
alleged that certain of its patents pertain to certain call processing
applications, including applications for call centers that route calls using a
called party's DNIS identification number. Certain products offered by the
Company can be programmed and configured to provide enhanced services to network
providers and call processing applications for call centers. The Company's
contracts with customers usually include a qualified obligation to indemnify and
defend customers against claims that products as delivered by the Company
infringe a third party's patent.

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may do so. In the event of such litigation, a customer could attempt to invoke
the Company's indemnity obligations under the applicable agreement. As with most
sales contracts with suppliers of computerized equipment, the Company's
contractual indemnity obligations are generally limited to the products provided
by the Company, and generally require the customer to allow the Company to have
sole control over any litigation and settlement negotiations with the patent
holder. The customers who have received letters from RAKTL generally have
multiple suppliers of the types of products that might potentially be subject to
claims by RAKTL.

Even though no claims have been made that a specific product offered by the
Company infringes any claim under the RAKTL patent portfolio, the Company has
received opinions from its outside patent counsel that certain products and
applications offered by the Company do not infringe certain claims of the RAKTL
patents. The Company has also received opinions from its outside counsel that
certain claims under the RAKTL patent portfolio are invalid. Furthermore, based
on the reviews by outside counsel, the Company is not aware of any claims under
the RAKTL portfolio that are infringed by the Company's products. If the Company
does become involved in litigation in connection with the RAKTL patent
portfolio, under a contractual indemnity or any other legal theory, the Company
intends to vigorously contest the claims and to assert appropriate defenses. A
number of companies, including some large, well known companies and some
customers of the Company, have already licensed certain rights under the RAKTL
patent portfolio. During November 2000, RAKTL announced license agreements with,
among others, AT&T Corp., Microsoft Corporation and International Business
Machines Corporation.

In the matter of Aerotel, Ltd. et al, vs. Sprint Corporation, et al, Cause
No. 99-CIV-11091 (SAS), pending in the United States District Court Southern
District of New York, Aerotel, Ltd., has sued Sprint Corporation alleging that
certain prepaid services offered by Sprint are infringing Aerotel's U.S. Patent
No. 4,706,275 ("275 patent"). According to Sprint, the suit originally focused
on land-line prepaid services not provided by the Company. Recently, as part of
an unsuccessful mediation effort, Aerotel also sought compensation for certain
prepaid wireless services provided to Sprint PCS by the Company. As a result of
the mediation effort, Sprint has requested that InterVoice-Brite provide a
defense and indemnification to Aerotel's infringement claims, to the extent that
they pertain to any wireless prepaid services offered by InterVoice-Brite. In
response to this request, the Company has offered to assist Sprint's counsel in
defending against such claims, to the extent they deal with issues unique to the
system and services provided by InterVoice-Brite, and to reimburse Sprint for
the reasonable attorneys' fees associated therewith. The trial court has stayed
the lawsuit pending certain rulings from the United States Patent and Trademark
Office. The Company has received opinions from its outside patent counsel that
the wireless prepaid services offered by the Company do not infringe the "275
patent". If the Company does become involved in litigation in connection with
the "275 patent", under a contractual indemnity or any other legal theory, the
Company intends to vigorously contest any claims that its prepaid wireless
services infringe the "275 patent" and to assert appropriate defenses.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

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. 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.
The Company does not anticipate paying cash dividends in the foreseeable future.

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High and low share prices as reported on the NASDAQ National Market are
shown below for the Company's fiscal quarters during fiscal 2001 and 2000.

FISCAL 2001 QUARTER HIGH LOW
------------------- ------ ------

1st........................................................ $38.06 $13.13
2nd........................................................ $15.25 $ 5.94
3rd........................................................ $13.75 $ 7.69
4th........................................................ $11.63 $ 6.13

FISCAL 2000 QUARTER HIGH LOW
------------------- ------ ------

1st........................................................ $13.50 $ 9.06
2nd........................................................ $15.81 $11.88
3rd........................................................ $16.44 $ 9.50
4th........................................................ $37.44 $14.75

There were approximately 675 shareholders of record and approximately
14,500 beneficial shareholders of the Company at May 16, 2001. On May 16, 2001
the closing price of the Common Stock was $12.49.

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 28, 2001 are derived from the
consolidated financial statements of the Company, which financial statements
have been audited by Ernst & Young LLP, the Company's independent auditors. The
consolidated financial statements as of February 28, 2001 and February 29, 2000,
and for each of the three years in the period ended February 28, 2001 and the
report of Ernst & Young LLP thereon, are included elsewhere herein.

FISCAL YEAR ENDED FEBRUARY 28/29
-------------------------------------------------
2001* 2000** 1999 1998*** 1997****
------ ------ ------ ------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)

Sales........................................ $274.7 $286.2 $136.9 $102.3 $104.8
Income (Loss) from Operations................ 0.4 0.3 29.1 (8.4) 17.5
Income (Loss) Before the Cumulative Effect of
a Change in Accounting Principle........... 9.5 (14.8) 20.2 (5.1) 12.8
Net Income (Loss)............................ (2.3) (14.8) 20.2 (5.1) 12.8
Total Assets................................. 256.8 303.0 111.5 84.9 109.2
Long Term Debt............................... 31.1 75.0 5.0 -- --
Per Diluted Common Share:
Income (Loss) Before the Cumulative
Effect of a Change in Accounting
Principle............................. .28 (.49) .68 (.17) .39
Net Income (Loss)....................... (0.07) (.49) .68 (.17) .39
Shares Used in Per Diluted Common Share
Calculation................................ 34.3 30.5 29.8 31.0 33.2

---------------
* Fiscal 2001 loss from operations was impacted by special charges of $8.2
million related to changes in the Company's organizational structure and
product offerings (see "Special Charges" under Item 7). Without these
special charges, income from operations would have been $8.6 million.
Income before the cumulative effect of a change in accounting principle was
impacted by these special charges of $8.2 million ($5.4 million net of
taxes) and by a $21.4 million ($13.8 million net of taxes) gain on the sale
of SpeechWorks International, Inc. common stock (see "Other Income" under
Item 7). Sales, income from operations, income before the cumulative effect
of a change in accounting principle and net

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loss also were affected by a change in the Company's method of accounting for
revenue recognition. (See "Sales" and "Income (Loss) from Operations and Net
Income (Loss)" under Item 7).

** 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 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 severance 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 for 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.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS

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 2002,
and beyond, to differ materially from those expressed in any forward-looking
statements made by or on behalf of the Company:

- The Company faces intense competition based on product capabilities and
experiences ever increasing demands from its actual and prospective
customers for its products to be compatible with a variety of rapidly
proliferating computing, telephony and computer networking technologies
and standards. The ultimate success of the Company's products is
dependent, to a large degree, on the Company allocating its resources to
developing and improving products compatible with those technologies,
standards and functionalities that ultimately become widely accepted by
the Company's actual and prospective customers. The Company's success is
also dependent, to a large degree, on the Company's ability to implement
arrangements with other vendors with complementary product offerings to
provide actual and prospective customers greater functionality and to
ensure that the Company's products are compatible with the increased
variety of technologies and standards.

- Continued availability of suitable non-proprietary computing platforms
and system operating software that are compatible with the Company's
products.

- Certain components for the Company's products are available from select
suppliers and, as a result, the Company's operating results could be
adversely affected if the Company were unable to obtain such components
in the future.

- Increasing litigation with respect to the enforcement of patents,
copyrights and other intellectual property. See "Item 3. Legal
Proceedings" for a discussion of certain patent matters.

- The ability of the Company to retain its customer base and, in
particular, its more significant customers such as British Telecom, which
purchases both systems and managed services from the Company. Sales to
British Telecom accounted for approximately 19% and 16% of the Company's
total sales during fiscal 2001 and fiscal 2000, respectively. The
Company's installed base of customers generally are not contractually
obligated to place further systems orders with the Company or to extend
their services contracts with the Company at the expiration of their
current contracts. British Telecom's managed services contract with the
Company was recently extended by eighteen months through July 17, 2003.
Under the managed services agreement, BT Cellnet is currently purchasing
services in a minimum amount of approximately $2.6 million per month, and
the minimum amount will be reduced to $2.1 million per month for the six
month period commencing July 18, 2001, and further reduced to a flat fee
of $900,000 per month for the eighteen month period commencing on January
18, 2002. See "Item 1. Business" for an expanded discussion of the ASP
managed services agreement with BT Cellnet.

- Legislative and administrative changes and, in particular, changes
affecting the telecommunications industry, such as the Telecommunications
Act of 1996.

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21

- The Company's sales are largely dependent upon the strength of the
domestic and international economies and, in particular, demand for the
types of systems offered by the Company in its primary markets. In this
regard, demand for all of the Company's systems is partially dependent
upon the general level of demand for telecommunications equipment,
computers, software and other technology products. Furthermore, demand
for the Company's products offered to telecommunications companies is
very dependent upon the general level of demand for telephone switches
and other telecommunications equipment for public networks. There are
certain indications that, at least for the short term, demand for such
technology products and network-based telecommunications equipment might
be softening.

- Risks involved in the Company's international distribution and sale of
its products, including unexpected and adverse 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 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. Due in part to the merger with Brite, the Company's sales
outside the United States, as a percentage of the Company's total sales,
increased from 25% to 43% from the first quarter of fiscal 2000 to the
first quarter of fiscal 2001.

- 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 quarterly basis.

- Many of the Company's contracts, particularly for managed services,
foreign contracts and contracts with telecommunication companies, include
provisions for the assessment of liquidated damages for delayed
performance by the Company. Since the Company's projects frequently
require a significant degree of customization, it is difficult for the
Company to predict when it will complete such projects. Accordingly, the
Company has had to pay liquidated damages in the past and may have to pay
additional liquidated damages in the future. Any such future liquidated
damages could be significant.

- The Company's ability to properly estimate costs under fixed price
contracts in developing application software and otherwise tailoring its
systems to customer-specific requests.

- The Company's ability to hire and retain, within the Company's
compensation parameters, qualified sales, administrative and technical
talent and outside contractors in highly competitive markets for the
services of such personnel.

- Mergers and acquisitions between companies in the telecommunications and
financial industries which could result in fewer companies purchasing the
Company's products for telecommunications and financial applications,
and/or delay such purchases by companies that are in the process of
reviewing their strategic alternatives in light of a merger or
acquisition.

- 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.

- 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.

- The ability of the Company to retain certain customers of the former
Brite in light of the Company's decision to phase out certain Brite
products and its ability to persuade such customers to purchase similar
products offered by the Company.

- The Company's business transactions in foreign currencies are subject to
adverse movements in foreign currency exchange rates.
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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 28/29
---------------------------
2001* 2000** 1999
------ ------- ------

Sales....................................................... 100.0% 100.0% 100.0%
Cost of Goods Sold.......................................... 50.9 47.3 39.6
Gross Margin................................................ 49.1 52.7 60.4
Research and Development Expenses........................... 12.6 21.3 9.7
Selling, General and Administrative Expenses................ 31.4 27.6 29.4
Amortization of Goodwill and Acquired Intangible Assets..... 5.0 3.7 --
Operating Income............................................ 0.1 0.1 21.3
Other Income (Expense), Net................................. 5.2 (2.3) (0.3)
Income (Loss) before Income Taxes and the Cumulative Effect
of a Change in Accounting Principle....................... 5.3 (2.2) 21.0
Income Taxes................................................ 1.9 3.0 6.3
Income (Loss) Before the Cumulative Effect of a Change in
Accounting Principle...................................... 3.4 (5.2) 14.7

---------------
* See discussion of fiscal 2001 in Item 6, "Selected Financial Data". Without
special charges totaling $5.4 million, net of taxes, and the gain on sale of
investments of $13.8 million, net of taxes, cost of goods sold, gross margin,
selling, general and administrative expenses, operating income and income
before the cumulative effect of a change in accounting principle, as a
percentage of sales, would have been 49.2%, 50.8%, 30.1%, 3.1% and 0.4%,
respectively.

** See discussion of fiscal 2000 in Item 6, "Selected Financial Data". Had they
not been impacted by merger related charges totaling $41.6 million, net of
tax, cost of goods sold, gross margin, research and development expenses,
selling, general and administrative expenses, operating income and income
before the cumulative effect of a change in accounting principle as a
percentage of sales would have been 44.1%, 55.9%, 10.8%, 25.6% 15.9% and
8.8%, respectively.

SALES

The Company sells call automation systems and services to both new and
existing customers in two major market categories: (i) IVR systems and (ii)
enhanced 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 the geographic and vertical
market diversification 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 March 1, 2000, the Company changed its method of accounting for
revenue recognition in accordance with Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements." For systems that do not require
customization to be performed by the Company, revenue is now recognized when
there is persuasive evidence that an arrangement exists, when the related
hardware and software are delivered and any installation or other post-delivery
obligation has been fulfilled, when the fee is fixed or determinable and when
collection is probable. In prior years, although the Company's contracts often
included installation and customer acceptance provisions, revenue generally was
recognized at the time of shipment based on the Company's belief that no
significant uncertainties about customer acceptance existed.

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23

For systems that require significant customization and where the completed
contract method of accounting is applicable, the Company now recognizes revenue
upon customer acceptance. Prior to the implementation of SAB 101, the Company
recognized revenue on these systems upon completion of installation and testing
but prior to customer acceptance. For more complex, customized systems
(generally ones with a sales price of $500,000 or more), the Company continues
to use a percentage of completion methodology based on labor inputs. The Company
also continues to recognize revenues from services when the services are
performed or ratably over the related contract period.

The cumulative effect of the change in accounting for revenue recognition
associated with the Company's adoption of SAB 101 has been reflected as a charge
to fiscal 2001 operations and is discussed below in "Income (Loss) from
Operations and Net Income (Loss)." As a result of the change, the Company
recognized as part of fiscal 2001 sales $22.4 million of revenue whose
contribution to income is included in the cumulative effect adjustment and did
not recognize $2.8 million of 2001 sales whose contribution to income would have
been recognized had the change in accounting policy not been adopted. See the
table of pro forma sales activity below.

As described under "In-Process Research and Development" below, the
Company's merger with Brite in fiscal 2000 was accounted for using the purchase
method of accounting. Accordingly, results of Brite's operations have been
consolidated with those of InterVoice effective with the Company's second fiscal
quarter of fiscal 2000 with no retroactive adjustments. See the table of pro
forma sales activity below.

To enhance comparability of the Company's sales for fiscal 2001, 2000 and
1999, the sales information below is presented on both an "as reported" and an
"as adjusted" basis. The "as adjusted" amounts reflect pro forma sales as though
the merger with Brite and the adoption of SAB 101 had occurred as of the end of
fiscal 1998.

AS ADJUSTED AS REPORTED
-------------------------- --------------------------
2001 2000* 1999* 2001 2000 1999
------ ------ ------ ------ ------ ------

IVR Systems.......................... $ 95.8 $117.5 $117.4 $ 95.8 $109.0 $ 97.4
Enhanced Telecommunications Services
Systems............................ 86.9 114.6 87.4 86.9 104.7 26.2
Services**........................... 92.0 86.1 52.2 92.0 72.5 13.3
------ ------ ------ ------ ------ ------
Total........................... $274.7 $318.2 $257.0 $274.7 $286.2 $136.9
====== ====== ====== ====== ====== ======

---------------
* 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 division, which was
sold December 1998.

Worldwide sales on an "as reported" basis declined 4% in fiscal 2001 and
increased 109% and 34% in fiscal 2000 and 1999, respectively. The decrease in
sales during fiscal 2001 was primarily the result of a 12% and a 17% decline in
IVR systems and enhanced telecommunications services systems sales,
respectively, partially offset by a 27% increase in services sales. The decline
in sales during fiscal 2001 included the impact of approximately $13 million
resulting from a stronger U.S. dollar, on average, as compared to fiscal 2000.
The Company's merger with Brite was the primary reason for the Company's sales
increase during fiscal 2000.

The following discussion compares sales performance on an "as adjusted"
basis:

IVR system sales decreased 18% in fiscal 2001. The decline in such
sales was attributable to (1) a sluggishness in demand from the former
Brite customer base, as those companies evaluated the Company's product
roadmap resulting from the merger with Brite, (2) a sluggish demand from
the Company's existing and prospective customers as they evaluated their
post-Y2K capital expenditures, (3) some possible softness, at least in the
near-term, in the market for telecommunications equipment, computers,
software and other technology products, and (4) a lengthening of the
overall sales cycle resulting from a transition in customer demand from
relatively simple, touchtone based applications to complex applications
employing speech recognition. IVR system sales were level from 1999 to 2000
and

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24

increased 22% 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 the hiring and training of
new and existing sales, service and support personnel. International IVR
system sales constituted 20%, 18% and 17% of the Company's total IVR system
sales in fiscal 2001, 2000 and 1999, respectively.

Enhanced telecommunications services systems sales decreased 24% in
fiscal 2001. While third-party surveys indicate good long-term prospects
for growth in the markets addressed by the Company's enhanced
telecommunications services systems, the Company believes contributing
factors to the sales decline during fiscal 2001 include its sales force
attrition and some possible softness, at least for the short-term, in the
market for telecommunications equipment and other technology products. Such
sales increased 31% and 46% in fiscal 2000 and 1999. 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 telecommunication services system sales
constituted 81%, 68% and 59%, of the Company's total enhanced
telecommunications services systems sales in fiscal 2001, 2000 and 1999,
respectively.

Services sales increased 7%, 65% and 23% in fiscal 2001, 2000 and
1999, respectively. The increases were attributable to the Company's ASP
sales which increased as a result of increased call volumes by customers
offering prepaid cellular calling services in Europe and North America.
International services sales constituted 47%, 41% and 34% of the Company's
total services sales in fiscal 2001, 2000 and 1999, respectively.

Prices for the Company's products have remained stable, as measured by
price per line shipped, during fiscal 2001, 2000 and 1999, although the
features and functions per line shipped have become more robust.

British Telecom, together with its affiliate BT Cellnet, accounted for
19% and 16% of the Company's total revenues during fiscal 2001 and fiscal
2000, respectively. See "Item 1. Business" for a discussion of the business
relationship between the Company and British Telecom and BT Cellnet. No
other customer accounted for 10% or more of the Company's sales during
fiscal 2001, 2000, or 1999.

SPECIAL CHARGES

During the fourth quarter of fiscal 2001, the Company changed its
organizational structure and eliminated certain product offerings in order to
reduce cost and improve its focus on its core competencies and products. As a
result of these actions, the Company incurred special charges of $8.2 million,
including $3.6 million for severance and related costs, $3.1 million for the
write off of assets associated with discontinued product lines and $1.5 million
for estimated customer accommodations related to the discontinued product lines.
The workforce adjustments and product eliminations are expected to reduce the
Company's quarterly expenses by $4 million from third quarter fiscal 2001 levels
when fully realized. Such expense reductions could be offset, in part, by
spending increases to pursue new opportunities being created in the Company's
markets by the convergence of voice, wireless data and Internet technologies.

The severance and related costs were associated with a workforce adjustment
that affected approximately 130 employees and included the resignation of the
Company's President and Chief Operating Officer. Of the total costs incurred,
$1.3 million, $0.4 million and $1.9 million were charged to cost of goods sold,
research and development expenses and selling, general and administrative
expenses, respectively. As of February 28, 2001, $1.8 million of the total
severance and related costs remained unpaid.

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25

customer settlements associated with the Company's decision to discontinue the
AgentConnect product line. This charge is reflected in selling, general and
administrative expenses.

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 "In-Process Research and
Development").

COST OF GOODS SOLD

Cost of goods sold was 50.9%, 47.3% and 39.6% of total sales in fiscal
2001, 2000 and 1999, respectively. During fiscal 2001 and fiscal 2000, the
Company incurred special charges totaling $4.5 million and $9.1 million,
respectively, as described in the preceding "Special Charges" section. Without
these special and non-recurring charges during fiscal 2001 and 2000, cost of
goods sold, as a percentage of total sales, would have been 49.2% and 44.1%,
respectively. The increase in cost of goods sold, as a percentage of sales,
during fiscal 2001 is attributable to the Company's continued investment in
application engineering and customer service resources to support opportunities
in all its markets. The increase in cost of goods sold, as a percentage of total
sales, during fiscal 2000 is attributable to the Company's merger with Brite
which, historically, has had a higher third party hardware content and thus more
cost in its systems. The Company has taken certain actions to reduce a portion
of its cost of goods sold during fiscal 2002. These actions are discussed above
in "Special Charges".

RESEARCH AND DEVELOPMENT

Research and development expenses during fiscal 2001 were approximately
$34.6 million, or 12.6% of the Company's total sales. Such expenses in fiscal
2000 were approximately $61 million and included a $30.1 million charge for
in-process research and development (see "In-Process Research and Development"
below), incurred in connection with the Brite merger. Net of this charge,
research and development expenses were approximately $30.9 million, or 10.8% of
the Company's total sales, during fiscal 2000. Such expenses were $13.3 million,
or 9.7% of the Company's total sales, during fiscal 1999. The large increase in
fiscal 2000 in such expenses is the result of the Company's merger with Brite.
Recurring research and development expenses during fiscal 2001, 2000 and 1999
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 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 including $122.7 million of cash and 2,985,792
shares of the Company's common stock valued at $42.4 million. Brite provided
voice processing and call processing systems and services which incorporate
prepaid/postpaid applications, voice response, voice recognition,
voice/facsimile messaging, audiotex and interactive computer applications into
both standard products and customized 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
included $3.2 million of direct costs and $4.8 million of assumed liabilities,
primarily accrued severance costs for Brite employees and lease
termination/cancellation

23
26

costs associated with the elimination of excess facilities. As of February 28,
2001, assumed liabilities of $1.0 million remained outstanding. Such costs,
comprised primarily of lease termination accruals, are anticipated to be paid
out over the remaining lease terms.

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 was 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
======

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%. As of February 28, 2001, the projects had been
completed.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative ("SG&A") expenses totaled $86.2 million
during fiscal 2001 and included special charges totaling $3.4 million (see
"Special Charges"). SG&A expenses were $79.1 million during fiscal 2000 and
included non-recurring charges totaling $5.9 million. SG&A expenses, net of
special and non-recurring charges, were approximately $82.8 million, $73.2
million and $40.3 million in fiscal 2001, 2000 and 1999, respectively, or 30.1%,
25.6% and 29.4% of the Company's total sales, respectively. The increase in
these expenses during fiscal 2001 was the result of the Company's decision to
continue to hire and train new and existing sales and sales support personnel,
and to expand its marketing and advertising programs worldwide. The increase in
such expenses during fiscal 2000 was attributable to the Company's merger with
Brite.

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27

AMORTIZATION OF GOODWILL AND ACQUIRED INTANGIBLE ASSETS

Amortization of goodwill and acquired intangible assets was approximately
$13.8 million and $10.4 million during fiscal 2001 and 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 four
quarters of amortization expense in fiscal 2001 compared to three quarters in
fiscal 2000. The Company incurred no such expenses during fiscal 1999.

OTHER INCOME

During the fourth quarter of fiscal 2001, the Company realized a gain of
$21.4 million from the sale of SpeechWorks International, Inc. common stock
acquired through the exercise of a warrant received in connection with a 1996
supply agreement between the Company and SpeechWorks. In prior periods, the
warrant had been assigned no value in the Company's balance sheets because the
warrant and the shares underlying the warrant were unregistered securities, and
significant uncertainties existed regarding the Company's ability to monetize
the warrant and the timing of any such monetization. Other income during fiscal
2000 and 1999 was primarily interest income on cash and cash equivalents.

INTEREST EXPENSE

Interest expense of approximately $8.2 million and $8.0 million was
incurred during fiscal 2001 and 2000. Substantially all of this expense relates
to the Company's long term borrowings obtained 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 AND NET INCOME (LOSS)

The Company generated operating income of $0.4 million, income before the
cumulative effect of a change in accounting principle of $9.5 million and a net
loss of $2.3 million during fiscal 2001. The Company generated operating income
of $0.3 million and a net loss of $14.8 million during fiscal 2000.

During fiscal 2001, the Company incurred the previously mentioned special
charges reported in cost of goods sold, research and development expenses and
selling, general and administrative expenses totaling $8.2 million and a
non-recurring gain of $21.4 million associated with the Company's sale of
SpeechWorks International, Inc. common stock reported in other income. In fiscal
2000, the Company incurred previously mentioned non-recurring charges reported
in cost of goods sold and selling, general and administrative expenses totaling
$15.0 million and a non-recurring charge of $30.1 million for in process
research and development relating to its merger with Brite.

Excluding the special and non-recurring charges and gain discussed above,
the Company would have generated operating income of approximately $8.6 million
and $45.4 million and income before the cumulative effect of a change in
accounting principle of approximately $1.0 million and $25.1 million in fiscal
2001 and fiscal 2000, respectively. Operating income and income before the
cumulative effect of a change in accounting principle during fiscal 1999 were
$29.1 million and $20.2 million, respectively.

The decrease in fiscal 2001 operating income and income before the
cumulative effect of a change in accounting principle, versus the previous year,
is primarily attributable to the Company's decision to continue investment in
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 IVR and enhanced
telecommunications services systems markets. The increase in fiscal

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28

2000 income from operations and income before the cumulative effect of a change
in accounting principle, versus the previous year, is primarily attributable to
the Company's merger with Brite.

The cumulative effect of a change in accounting principle on prior years
associated with the Company's adoption of SAB 101 resulted in a charge to income
of $11.9 million (after reduction for income taxes of $6.4 million) in fiscal
2001. Assuming the accounting change had been applied retroactively by the
Company to prior periods, proforma net loss for fiscal 2000 and proforma net
income for 1999 would have been ($17.3) million and $12.6 million, respectively.
Net loss per common share would have been ($0.57) in 2000, and net income per
diluted share would have been $0.42 in 1999. Had the Company not adopted SAB
101, revenues for fiscal 2001 would have been $255.5 million and net loss per
common share would have been ($0.02).

LIQUIDITY AND CAPITAL RESOURCES

The Company had approximately $15.9 million in cash and cash equivalents at
February 28, 2001, while borrowings under all of the Company's credit facilities
were $49.6 million. Borrowings under the credit facilities were paid down to
$47.6 million on March 12, 2001. The Company experienced a decrease in its cash
reserves of approximately $7.4 million during fiscal 2001. Net loss, net of a
$21.4 million gain on the sale of SpeechWorks International, Inc. common stock,
plus depreciation and amortization and other non-cash expense items totaled
$13.7 million while a decrease in operating net assets totaled $8.9 million to
yield $22.6 million of net cash provided by operating activities during fiscal
2001. Cash provided by investment activities totaled approximately $17.6 million
during fiscal 2001 and included the previously mentioned $21.4 million proceeds
from a sale of SpeechWorks International, Inc. common stock, $2.8 million
received in connection with the extinguishment of a warrant, acquired in the
Company's merger with Brite, to purchase shares of the common stock of EPS
Solutions Corporation and $6.6 million for purchases of computing hardware and
software. Financing activities during fiscal 2001 included an increase in
borrowings of $7.5 million under the Company's revolving credit facility for
working capital. Other financing activities included the receipt of $3.1 million
as proceeds from the exercise of employee stock options and the pay down of
$57.9 million on the Company's term loan borrowings.

Days sales outstanding (DSO's) of accounts receivable continues to be a
focus for the Company. At February 28, 2001, DSO's were 104 days, compared to 99
days at February 29, 2000. With the merger with Brite in fiscal 2000, the
Company now generates a significant percentage of its sales, particularly sales
of enhanced telecommunications services systems, outside the United States.
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 2001 and 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 2002 and beyond.

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 $17.5 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. However, the term loan and revolving credit
agreement discussed below includes normal and customary provisions which limit
the Company's ability to make such acquisitions.

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 16, 2001, the Company had borrowed $47.6 million
under the agreement, at an average annual interest

26
29

rate of 8.69%. Interest under the credit facility accrues at variable rates
indexed to the prime rate, the federal funds rate or an adjusted London
Interbank Offering Rate.

During fiscal 2001 and 2000, the Company entered into interest rate swap
arrangements to change the characteristics of interest payments on its long-term
borrowings from LIBOR-based variable-rate payments to fixed-rate payments. The
total notional amount covered by the arrangements ranged from $125 million
during 2000 and a portion of 2001 to $50 million as of February 28, 2001. As of
February 28, 2001, the variable-rates of 8.57% and 9.25% under the long-term
borrowings had been swapped for an effective rate of 8.19%. The effect of
interest rate swaps on the Company's interest expense during fiscal 2001 and
2000 was immaterial. The swap arrangements expire in June 2002.

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. The absence of
such contracts 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.

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

THREE MONTHS ENDED
---------------------------------------------------
FISCAL 2001* 31-MAY-00 31-AUG-00 30-NOV-00 28-FEB-01**
------------ ---------- --------- --------- -----------
(IN MILLIONS, EXCEPT PER SHARE DATA)

Sales......................................... $ 71.5 $72.4 $68.6 $62.2
Gross Profit.................................. 36.6 36.1 36.2 26.1
Income (Loss) from Operations................. 2.2 2.5 3.5 (7.8)
Income (Loss) Before the Cumulative Effect of
a Change in Accounting Principle............ 0.2 0.5 1.1 7.7
Net Income (Loss)............................. (11.7) 0.5 1.1 7.7
Income (Loss) Per Diluted Share Before
Cumulative Effect of a Change in Accounting
Principle................................... 0.01 0.02 0.03 0.23
Net Income (Loss) per Diluted Share........... (0.33) 0.02 0.03 0.23

THREE MONTHS ENDED
---------------------------------------------------
FISCAL 2000 31-MAY-99 31-AUG-99*** 30-NOV-99 29-FEB-00
----------- --------- ------------ --------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)

Sales......................................... $40.0 $ 79.9 $82.0 $84.3
Gross Profit.................................. 24.7 32.0 47.3 46.8
Income (Loss) from Operations................. 9.5 (36.6) 13.5 13.9
Net Income (Loss)............................. 6.3 (36.1) 7.1 7.9
Net Income (Loss) per Diluted Share........... 0.21 (1.24) 0.21 0.23

---------------
* Effective March 1, 2000, the Company changed its method of accounting for
revenue recognition in accordance with Staff Accounting Bulletin (SAB) 101,
"Revenue Recognition in Financial Statements." (See "Sales"). The cumulative
effect of the change on prior years resulted in a charge to income of $11.9
million, after reduction for income taxes of $6.4 million. The reduction for
income taxes of $7.0 million previously included in the cumulative effect
adjustment reported by the Company on Form 10-Q for the three months ended
May 31, 2000 has been restated. For the year ended February 28, 2001, the
Company recognized $22.4 million in revenue whose contribution to income was
included in the SAB 101 cumulative effect adjustment as of March 1, 2000.
The revenue was included in the

27
30

following quarters during 2001: first quarter, $15.8 million; second
quarter, $1.2 million; third quarter, $5.0 million; and fourth quarter, $0.4
million.

** The Company incurred special charges of $8.2 million related to changes in
organizational structure and the elimination of certain product offerings
and benefited from a non-recurring gain of $21.4 million on the sale of
SpeechWorks International, Inc., common stock. (See "Special Charges" and
"Other Income").

*** 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. (See "Special Charges" and "In
Process Research and Development").

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risks

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 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 28, 2001, the Company had $49.6 million outstanding,
under the credit agreement. Maturities under long-term borrowings are scheduled
as follows for fiscal years subsequent to February 28, 2001: $18.5 million,
$21.2 million and $9.9 million in fiscal years 2002, 2003 and 2004,
respectively.

The credit agreement matures on August 31, 2003, and the term loan facility
is subject to quarterly principal amortization. The fair value of the borrowings
approximates the carrying value at February 28, 2001. Due to the magnitude of
this credit facility, the Company believes that the effects of any reasonably
possible near-term changes in interest rates on the Company's financial
position, results of operations, and cash flows may be material. To mitigate the
effect of interest rate changes, the Company entered into interest rate swap
arrangements with a total notional amount of $50 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 28,
2001, the variable-rates of 8.27% and 9.25% under the term loan and revolving
credit facilities had been swapped for an effective rate of 8.19%. The effect of
interest rate swaps on the Company's interest expense during fiscal 2001 was
immaterial. The interest rate swaps expire in June 2002.

Foreign Currency Risks

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 28, 2001 and for each of the
three years in the period ended February 28, 2001 follow:

28
31

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 28, 2001 and February 29,
2000 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 28, 2001. 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 28, 2001 and February 29,
2000, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended February 28, 2001, 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.

As discussed in Note D to the financial statements, in 2001 the Company
changed its method of accounting for certain revenues.

Ernst & Young LLP

April 3, 2001
Dallas, Texas

29
32

INTERVOICE-BRITE, INC.

CONSOLIDATED BALANCE SHEETS

FEBRUARY 28, FEBRUARY 29,
2001 2000
------------ ------------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE DATA)

ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 15,901 $ 23,263
Trade accounts receivable, net of allowance for doubtful
accounts of $3,642 in 2001 and $4,161 in 2000........... 72,148 93,157
Income tax receivable..................................... 3,323 3,903
Inventory................................................. 40,184 27,211
Prepaid expenses and other current assets................. 5,238 8,997
Deferred income taxes..................................... 3,968 4,029
-------- --------
140,762 160,560
PROPERTY AND EQUIPMENT
Land and buildings........................................ 20,228 19,522
Computer equipment and software........................... 46,316 46,228
Furniture, fixtures and other............................. 4,528 4,566
Service equipment......................................... 6,905 5,956
-------- --------
77,977 76,272
Less allowance for depreciation........................... 42,037 35,257
-------- --------
35,940 41,015
OTHER ASSETS
Intangible assets, net of accumulated amortization of
$26,702 in 2001 and $14,400 in 2000..................... 79,760 98,568
Other assets.............................................. 299 2,880
-------- --------
$256,761 $303,023
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... $ 22,952 $ 27,240
Accrued expenses.......................................... 16,863 14,596
Customer deposits......................................... 7,730 8,010
Deferred income........................................... 19,705 14,450
Current portion of long term borrowings................... 18,537 25,000
Income taxes payable...................................... 5,117 --
-------- --------
90,904 89,296
Long Term Liabilities....................................... -- 958
Deferred Income Taxes....................................... 20,127 25,738
Long Term Borrowings........................................ 31,100 75,000
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:
33,099,647 issued and outstanding in 2001, 32,587,524
issued and outstanding in 2000.......................... 17 16
Additional capital........................................ 55,671 49,984
Unearned compensation..................................... (1,311) (3,701)
Retained earnings......................................... 64,308 66,642
Accumulated other comprehensive loss...................... (4,055) (910)
-------- --------
114,630 112,031
-------- --------
$256,761 $303,023
======== ========

See notes to consolidated financial statements.
30
33

INTERVOICE-BRITE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FISCAL YEAR ENDED
--------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2001 2000 1999
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

SALES
Systems............................................... $182,784 $213,683 $123,590
Services.............................................. 91,963 72,543 13,314
-------- -------- --------
$274,747 $286,226 $136,904
-------- -------- --------
COST OF GOODS SOLD
Systems............................................... 95,800 104,918 47,767
Services.............................................. 43,924 30,493 6,424
-------- -------- --------
139,724 135,411 54,191
-------- -------- --------
GROSS MARGIN
Systems............................................... 86,984 108,765 75,823
Services.............................................. 48,039 42,050 6,890
-------- -------- --------
135,023 150,815 82,713
-------- -------- --------
Research and development expenses....................... 34,594 61,004 13,285
Selling, general and administrative expenses............ 86,193 79,118 40,280
Amortization of goodwill and acquired intangible
assets................................................ 13,844 10,422 --
-------- -------- --------
INCOME FROM OPERATIONS.................................. 392 271 29,148
Other income............................................ 22,435 1,438 400
Interest expense........................................ (8,187) (8,023) (752)
-------- -------- --------
Income (loss) before income taxes and the cumulative
effect of a change in accounting principle............ 14,640 (6,314) 28,796
Income taxes............................................ 5,124 8,532 8,603
-------- -------- --------
INCOME (LOSS) BEFORE THE CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING PRINCIPLE............................... $ 9,516 $(14,846) $ 20,193
Cumulative effect on prior years of adopting SEC Staff
Accounting Bulletin No. 101, net of tax effect of
$6,443................................................ (11,850) -- --
-------- -------- --------
NET INCOME (LOSS)....................................... $ (2,334) $(14,846) $ 20,193
======== ======== ========
Per Basic Share:
Income (loss) before the cumulative effect of a change
in accounting principle............................... $ 0.29 $ (0.49) $ 0.72
Cumulative effect on prior years of adopting SEC Staff
Accounting Bulletin No. 101........................... (0.36) -- --
-------- -------- --------
Net income (loss)....................................... $ (0.07) $ (0.49) $ 0.72
======== ======== ========
Per Diluted Share:
Income (loss) before the cumulative effect of a change
in accounting principle............................... $ 0.28 $ (0.49) $ 0.68
Cumulative effect on prior years of adopting SEC Staff
Accounting Bulletin No. 101........................... (0.35) -- --
-------- -------- --------
Net income (loss)....................................... $ (0.07) $ (0.49) $ 0.68
======== ======== ========

See notes to consolidated financial statements.
31
34

INTERVOICE-BRITE, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

COMMON STOCK
-------------------- ADDITIONAL UNEARNED TREASURY
SHARES AMOUNT CAPITAL COMPENSATION STOCK
---------- ------ ---------- ------------ --------
(IN THOUSANDS, EXCEPT SHARE DATA)

Balance at February 28, 1998............... 13,802,491 10 44,315 -- (50,203)
Net and Comprehensive Income.............
Issuance of stock to purchase software... 75,000 -- 1,519 -- --
Exercise of stock options................ 783,680 -- 7,444 -- --
Tax benefit from exercise of stock
options................................ -- -- 2,612 -- --
Issuance of restricted stock............. 46,914 -- 693 (650) --
Purchase of treasury stock, Net.......... (294,000) -- -- -- (5,870)
Stock split in form of 100% dividend..... 14,313,931 4 (54,863) -- 56,073
---------- -- ------- ------ -------
Balance at February 28, 1999............... 28,728,016 14 1,720 (650) --
Net loss.................................
Foreign Currency translation
adjustment.............................
Comprehensive Loss.......................
Issuance of stock in connection with
acquisition............................ 2,985,792 2 42,361 -- --
Exercise of stock options................ 766,552 -- 4,413 -- --
Issuance of restricted stock............. 107,164 -- 3,402 (3,402) --
Amortization of unearned compensation.... -- -- -- 351 --
Other.................................... -- -- (1,912) -- --
---------- -- ------- ------ -------
Balance at February 29, 2000............... 32,587,524 16 49,984 (3,701) --
Net loss................................. -- -- -- -- --
Foreign Currency translation
adjustment............................. --
Comprehensive Loss.......................
Exercise of stock options................ 532,123 1 3,060 -- --
Tax benefit from exercise of stock
options................................ -- -- 3,311 -- --
Amortization of unearned compensation,
net of forfeiture...................... (20,000) -- (684) 2,390 --
---------- -- ------- ------ -------
Balance at February 28, 2001............... 33,099,647 17 55,671 (1,311) 0
========== == ======= ====== =======

RETAINED ACCUMULATED OTHER
EARNINGS COMPREHENSIVE LOSS TOTAL
-------- ------------------ -------
(IN THOUSANDS, EXCEPT SHARE DATA)

Balance at February 28, 1998............... 62,509 -- 56,631
Net and Comprehensive Income............. 20,193 20,193
Issuance of stock to purchase software... -- -- 1,519
Exercise of stock options................ -- -- 7,444
Tax benefit from exercise of stock
options................................ -- -- 2,612
Issuance of restricted stock............. -- -- 43
Purchase of treasury stock, Net.......... -- -- (5,870)
Stock split in form of 100% dividend..... (1,214) -- --
------- ------ -------
Balance at February 28, 1999............... 81,488 -- 82,572
Net loss................................. (14,846) (14,846)
Foreign Currency translation
adjustment............................. (910) (910)
-------
Comprehensive Loss....................... (15,756)
-------
Issuance of stock in connection with
acquisition............................ -- -- 42,363
Exercise of stock options................ -- -- 4,413
Issuance of restricted stock............. -- -- --
Amortization of unearned compensation.... -- -- 351
Other.................................... -- -- (1,912)
------- ------ -------
Balance at February 29, 2000............... 66,642 (910) 112,031
Net loss................................. (2,334) -- (2,334)
Foreign Currency translation
adjustment............................. (3,145) (3,145)
-------
Comprehensive Loss....................... (5,479)
-------
Exercise of stock options................ -- -- 3,061
Tax benefit from exercise of stock
options................................ -- -- 3,311
Amortization of unearned compensation,
net of forfeiture...................... -- -- 1,706
------- ------ -------
Balance at February 28, 2001............... 64,308 (4,055) 114,630
======= ====== =======

See notes to consolidated financial statements.

32
35

INTERVOICE-BRITE, INC

CONSOLIDATED STATEMENTS OF CASH FLOWS

FISCAL YEAR ENDED
--------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2001 2000 1999
------------ ------------ ------------
(IN THOUSANDS)

OPERATING ACTIVITIES
Net income (loss)..................................... $ (2,334) $ (14,846) $ 20,193
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization...................... 32,367 25,239 11,013
Gain on sale of investment......................... (21,391) -- --
In-process research and development charge......... -- 30,100 --
Deferred income taxes (benefit).................... (5,550) 627 (1,477)
Provision for doubtful accounts.................... 2,935 6,363 1,038
Provision for slow moving inventories.............. 4,752 1,881 1,800
Disposal of Equipment.............................. 17 551 --
Write off of intangible assets..................... 2,863 2,798 169
Changes in operating assets and liabilities:
Accounts receivable................................ 18,074 (8,261) (17,153)
Inventories........................................ (20,156) 2,249 (4,161)
Prepaid expenses and other assets.................. 2,313 (2,161) 3,131
Accounts payable and accrued expenses.............. (2,021) (10,608) 1,586
Customer deposits.................................. (280) (1,914) 1,470
Deferred income.................................... 5,255 5,210 125
Other.............................................. 5,794 1,277 319
-------- --------- --------
Net Cash Provided By Operating Activities............... 22,638 38,505 18,053
INVESTING ACTIVITIES
Purchase of property and equipment.................... (5,866) (9,215) (3,982)
Proceeds from sale of investment...................... 21,391 -- --
Purchased software.................................... (704) (885) (3,640)
Purchase of Brite Voice Systems, net of cash
acquired........................................... -- (116,513) --
Other................................................. 2,800 -- --
-------- --------- --------
Net Cash Provided by (Used in) Investing Activities..... 17,621 (126,613) (7,622)
FINANCING ACTIVITIES
Paydown of debt....................................... (57,863) (40,000) (4,000)
Exercise of stock options............................. 3,061 4,413 7,445
Purchase of treasury stock............................ -- -- (5,871)
Borrowings............................................ 7,500 135,000 --
-------- --------- --------
Net Cash Provided by (Used in) Financing Activities..... (47,302) 99,413 (2,426)
Effect of Exchange Rate on Cash......................... (319) (238) --
-------- --------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (7,362) 11,067 8,005
Cash and cash equivalents, beginning of period.......... 23,263 12,196 4,191
-------- --------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD................ $ 15,901 $ 23,263 $ 12,196
======== ========= ========

See notes to consolidated financial statements.

33
36

INTERVOICE-BRITE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A -- DESCRIPTION OF BUSINESS

InterVoice-Brite, Inc. (together with its subsidiaries, collectively
referred to as the "Company") is a technology leader in speech-enabled
interactive information systems and enhanced services systems for network
service providers and a premier communications and e-business application
service provider (ASP). The Company participates in two global markets: the
interactive voice response (IVR) market in which the Company provides automated
customer services and self help solutions to enterprises and institutions, and
the enhanced telecommunications services market in which the Company provides
value-added solutions to network service providers. The Company sells systems
solutions in both markets and, as a complement to its system sales, can provide
its products and services to its customers on an outsourcing basis through its
ASP.

The Company's early emphasis was on IVR systems providing automated
customer service and self-help applications. IVR systems permit individuals to
use the touchtone pad on their telephones and/or their personal computers
connected to telephone networks or the Internet to access and/or provide
information to computer data bases utilized by businesses. More recently, the
Company has emphasized its voice recognition capabilities to allow its
customers' patrons to interact with their systems using only their voices.
Demand for this functionality is increasing as a result of the worldwide growth
of wireless networks whose subscribers find value in "hand free" interactive
applications.

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.

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. Interest income was $0.5 million, $1.5 million and $0.3 million in fiscal
2001, 2000 and 1999, respectively.

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;

34
37
INTERVOICE-BRITE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and service equipment: 3 years. Depreciation expense totaled $14.0 million,
$12.5 million and $9.3 million in fiscal 2001, 2000 and 1999, respectively. The
large increase in depreciation expense in fiscal 2000 versus the prior fiscal
year is primarily associated with the merger with Brite (See Note C).

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 $15.2 million, $12.7 million and $1.8 million in fiscal
2001, 2000 and 1999, respectively. The increase in amortization expense in
fiscal 2000 versus the prior fiscal year is associated with the merger with
Brite (See Note C).

The cost 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.

Other Assets: As partial consideration for its December 1, 1998 sale of
its TSL division, 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. As of February 29, 2000, the Company had recorded the note
and warrant at an estimated fair value of $2.5 million based on business risks
associated with the instruments. During 2001, the Company received approximately
$2.8 million in exchange for the warrant and fully reserved all amounts
outstanding under the subordinated note.

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. Currently, the Company
has no other derivative instruments.

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, and embedded
derivatives. 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 2002 on a cumulative basis. Based on analysis to date, the
Company does not expect a material impact from this standard.

Revenue Recognition: The Company recognizes revenue from the sale of
hardware and software systems, from the delivery of maintenance and other
customer services associated with installed systems and
35
38
INTERVOICE-BRITE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

from the provision of its enhanced telecommunications services and IVR
applications on an ASP (managed service) basis.

Effective March 1, 2000, the Company changed its method of accounting for
revenue recognition in accordance with Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements" (See Note D). Accordingly, for
systems that do not require customization to be performed by the Company,
revenue is now recognized when there is persuasive evidence that an arrangement
exists, when the related hardware and software are delivered and any
installation or other post-delivery obligation has been fulfilled, when the fee
is fixed or determinable and when collection is probable.

For systems that require significant customization and where the completed
contract method of accounting is applicable, the Company now recognizes revenue
upon customer acceptance. For more complex, customized systems (generally over a
$500,000 sales price), the Company recognizes revenue using the percentage of
completion contract accounting methodology based on labor inputs. Unbilled
receivables accrued under this methodology amounted to $24.1 million and $23.6
million at February 28, 2001 and February 29, 2000, respectively. Unbilled
receivables at February 28, 2001 are anticipated to be billed during the next
twelve months. Billings under percentage of completion contracts are typically
made upon the satisfaction of contractually defined milestones.

The Company recognizes revenue from services when the services are
performed or ratably over the related contract period. All significant costs and
expenses associated with maintenance contracts are expensed as incurred. This
approximates a ratable recognition of expenses over the contract period.

If contracts 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.

Advertising Costs: Advertising costs are expensed as incurred. Advertising
expense was $1.5 million in fiscal 2001, $1.8 million in fiscal 2000 and $1.4
million in fiscal 1999.

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.

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 including $122.7 million of cash
and 2,985,792 shares of common stock valued at $42.4 million. Brite provided
voice processing and call processing systems and services which incorporate
prepaid/postpaid applications, voice response, voice recognition,
voice/facsimile messaging, audiotex and interactive computer applications into
both standard products and customized 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 $173.1 million, which included $3.2
million of direct costs and $4.8 million of assumed liabilities, primarily
accrued severance costs for Brite employees and lease termination/cancellation
costs, relating to the merger. As of February 28, 2001 and February 29, 2000,
assumed liabilities of $1.0 million and $3.6 million, respectively, remained
outstanding. Such costs, comprised primarily of lease termination accruals, are

36
39
INTERVOICE-BRITE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

anticipated to be paid out over the remaining lease terms. 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):

See "Note F -- 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, comprised of a $125 million term
loan facility and a $25 million revolving credit agreement. See "Note
H -- 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, 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. Fiscal 2001 data, as reported, reflect the
results of the merged companies and, therefore, are not displayed below (in
millions, except per share date):

FISCAL YEAR ENDED
FEBRUARY 29/28
------------------
2000 1999
------- -------

Sales....................................................... $322.8 $272.6
Income before income taxes.................................. $ 24.2 $ 4.3
Net income.................................................. $ 16.6 $ 3.4
Net income per share -- diluted............................. $ 0.49 $ 0.10

Pro forma income before income taxes and net income for fiscal 2000 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 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.

37
40
INTERVOICE-BRITE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE D -- CHANGE IN ACCOUNTING PRINCIPLE FOR REVENUE RECOGNITION

Effective March 1, 2000, the Company changed its method of accounting for
revenue recognition in accordance with Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements." For systems that do not require
customization to be performed by the Company, revenue is now recognized when
there is persuasive evidence that an arrangement exists, when the related
hardware and software are delivered and any installation or other post-delivery
obligation has been fulfilled, when the fee is fixed or determinable and when
collection is probable. In prior years, although the Company's contracts often
included installation and customer acceptance provisions, revenue generally was
recognized at the time of shipment based on the Company's belief that no
significant uncertainties about customer acceptance existed.

The cumulative effect of the change on prior years (which principally
relates to changes relating to customer acceptance provisions) resulted in a
charge to operations of $11.9 million (after reduction for income taxes of $6.4
million) which is included in results of operations for fiscal 2001. During
fiscal 2001, the Company recognized $22.4 million in revenue whose contribution
to income is included in the cumulative effect adjustment as of March 1, 2000.
Assuming the accounting change had been applied retroactively by the Company to
prior periods, unaudited proforma net loss for fiscal 2000 and proforma net
income for 1999 would have been ($17.3) million and $12.6 million, respectively.
Unaudited net loss per common share would have been ($0.57) in 2000, and net
income per fully diluted share would have been $0.42 in 1999. Had the Company
not adopted SAB 101, revenues for fiscal 2001 would have been $255.5 million and
net loss per common share would have been ($0.02).

NOTE E -- INVENTORY

Inventory at February 28/29 consists of the following (in millions):

2001 2000
----- -----

Purchased parts............................................. $33.1 $21.1
Work in progress............................................ 6.0 5.2
Finished goods.............................................. 1.1 0.9
----- -----
$40.2 $27.2
===== =====

Amounts presented are net of inventory obsolescence reserves totaling $2.6
million and $1.4 million at February 28, 2001 and February 29, 2000,
respectively.

38
41
INTERVOICE-BRITE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE F -- INTANGIBLE ASSETS

Intangible assets at February 28/29 include the following (in millions):

AMORTIZATION
LIVES 2001 2000
------------ ----- -----

Goodwill................................................ 10 years $23.4 $27.2
Customer relations...................................... 10 years 27.1 30.4
Developed technology.................................... 5 years 16.8 22.0
Assembled workforce..................................... 5 years 6.0 7.8
Other intangibles....................................... 5-12 years 6.5 11.2
------------ ----- -----
$79.8 $98.6
===== =====

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 of 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 28, 2001, the projects had been completed.

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 was
being amortized over the software suite's estimated useful life of five years.
In fiscal 2001, the remaining book value of approximately $2.9 million was
written off to cost of goods sold as a result of the Company's decision to
discontinue its AgentConnect product.

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

39
42
INTERVOICE-BRITE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

NOTE G -- ACCRUED EXPENSES

Accrued expenses consisted of the following at February 28/29 (in
millions):

2001 2000
----- -----

Accrued compensation........................................ $ 6.2 $ 7.8
Other....................................................... 10.7 6.8
----- -----
$16.9 $14.6
===== =====

NOTE H -- LONG-TERM BORROWINGS

Long-term borrowing were as follows at February 28/29 (in millions):

2001 2000
------ ------

Revolving Credit........................................... $ 7.5 $ --
Term Loan.................................................. 42.1 100.0
Less: Current portion...................................... (18.5) (25.0)
------ ------
$ 31.1 $ 75.0
====== ======

Maturities under long-term borrowing are scheduled as follows for fiscal
years subsequent to February 28, 2001: $18.5 million, $21.2 million and $9.9
million in fiscal years 2002, 2003 and 2004, 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 $135 million. At February
28, 2001, the outstanding borrowings under the term loan and revolving credit
facilities were $42.1 million and $7.5 million, respectively. The fair value of
the Company's long-term borrowings approximated the carrying value at February
28, 2001. On March 12, 2001, the Company prepaid another $2.0 million of the
principal balance of the term loan facility, reducing such balance to $40.1
million.

The facilities mature on August 31, 2003, and the term loan facility is
subject to quarterly principal amortization. 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 variable rates equal to either the London
Interbank Offer Rate ("LIBOR") plus applicable margins or the Alternate Base
Rate (defined as the higher of (i) the prime rate or (ii) the federal funds rate
plus 0.50%) plus applicable margins. The applicable margins are determined in
accordance with schedules to the related credit agreements and are defined by
reference to a ratio of the Company's funded debt to EBITDA (as defined in the
credit agreements). The variable rate under the term loan facility was 8.57% at
February 28, 2001. The variable rate under the revolving credit facility was
9.25% at February 28, 2001.

40
43
INTERVOICE-BRITE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 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).

NOTE I -- INCOME TAXES

Significant components of the Company's deferred tax assets and liabilities
are as follows at February 28/29 (in millions):

2001 2000
------ ------

DEFERRED TAX ASSETS:
Inventory................................................. $ 1.9 $ 1.8
Accrued Expenses.......................................... 1.1 .6
Allowance for Doubtful Accounts........................... 1.1 1.6
Depreciation and Amortization............................. 2.7 3.9
Other..................................................... 1.5 .4
------ ------
Total Deferred Tax Assets.............................. 8.3 8.3
DEFERRED TAX LIABILITIES:
Capitalized Software...................................... (1.2) (2.8)
Acquisition-Related Identified Intangibles................ (22.6) (27.0)
Other..................................................... (0.7) (0.2)
------ ------
Total Deferred Tax Liabilities......................... (24.5) (30.0)
------ ------
Net deferred tax assets (liabilities).................. $(16.2) $(21.7)
====== ======

Income (loss) before income taxes and the cumulative effect of a change in
accounting principle attributable to domestic and foreign operations was $(12.7)
million and $27.3 million, respectively, in fiscal 2001 and $(21.1) million and
$14.8 million, respectively, in fiscal 2000. Substantially all of the Company's
pre-tax income was derived from domestic operations in fiscal 1999.

41
44
INTERVOICE-BRITE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Details of the income tax provision attributable to income (loss) before
income taxes and the cumulative effect of a change in accounting principle are
as follows:

2001 2000 1999
----- ----- -----

INCOME TAX PROVISION (BENEFIT):
Current:
Federal................................................ $(5.0) $ 3.9 $ 9.2
State.................................................. .6 (0.7) .9
Foreign................................................ 8.6 4.7 --
----- ----- -----
Total current..................................... 4.2 7.9 10.1
Deferred:
Federal................................................ .9 0.5 (1.4)
State.................................................. -- 0.1 (0.1)
----- ----- -----
Total deferred.................................... .9 0.6 (1.5)
----- ----- -----
$ 5.1 $ 8.5 $ 8.6
===== ===== =====

A reconciliation of the Company's income taxes (benefit) with the United
States Federal statutory rate is as follows:

2001 2000 1999
----- ----- -----

Federal Income Taxes (Benefit) at Statutory Rates........... $ 5.1 $(2.2) $10.1
Purchased In-Process R&D Charge............................. -- 10.5 --
Research and Development Tax Credit......................... (1.0) (0.8) (0.7)
Goodwill Amortization....................................... 1.0 0.7 --
State Taxes, Net of Federal Effect.......................... 0.7 (0.4) 0.6
Charitable Contributions not Previously Benefited........... -- -- (0.6)
Effect of Non-US Rates...................................... (1.0) (0.4) --
Change in Valuation Allowance............................... -- -- (0.3)
Other....................................................... 0.3 1.1 (0.5)
----- ----- -----
$ 5.1 $ 8.5 $ 8.6
===== ===== =====

Income taxes (refunds), net, of $(6.9) million, $4.2 million and $0.5
million were paid (received) in fiscal 2001, 2000 and 1999, respectively.

NOTE J -- STOCKHOLDERS' EQUITY

1990 Employee Stock Option Plan

A stock option plan is in effect under which shares of common stock may be
authorized for issuance by the Compensation Committee of the Board of Directors
as 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 generally become exercisable at the rate of 20%, 25% or 33% per
year. Options becoming exercisable at 33% per year expire six

42
45
INTERVOICE-BRITE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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
EXERCISE PRICE
SHARES PER SHARE
---------- ----------------

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
Granted................................................... 253,000 $7.41
Exercised................................................. (391,492) $4.97
Forfeited................................................. (145,971) $5.17
---------- -----
Balance at February 28, 2001................................ 1,923,302 $6.82
========== =====

A total of 1,360,214 employee options were exercisable at an average price
of $7.19 at February 28, 2001.

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
EXERCISE PRICE
SHARES 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................................................... 40,000 $10.80
Exercised................................................. (113,742) $ 6.18
Forfeited................................................. (60,834) $ 9.02
--------- ------
Balance at February 29, 2000................................ 844,924 $ 6.24
Granted................................................... -- $ --
Exercised................................................. (60,418) $ 4.98
Forfeited................................................. (67,501) $ 6.53
--------- ------
Balance at February 28, 2001................................ 717,005 $ 6.47
========= ======

A total of 513,920 employee options were exercisable at an average price of
$6.60 at February 28, 2001.

43
46
INTERVOICE-BRITE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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
average of the high and low price per share on the date of grant. The Company
has granted options to employees 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. In addition, the Company has
granted options to non-employee directors at various dates with terms under
which the options become exercisable within the period specified in the
optionee's agreement and are exercisable for a period of ten years from the date
of grant.

WEIGHTED AVERAGE
EXERCISE PRICE
SHARES PER SHARE
--------- ----------------

Balance at February 28, 1999................................ -- $ --
Granted................................................... 1,577,500 $14.88
Forfeited................................................. (74,500) $14.88
--------- ------
Balance at February 29, 2000................................ 1,503,000 $14.88
Granted................................................... 2,458,000 $ 7.92
Exercised................................................. (10,000) $ 6.88
Forfeited................................................. (541,063) $10.99
--------- ------
Balance at February 28, 2001................................ 3,409,937 $10.50
========= ======

A total of 597,287 employee options and 42,000 non-employee options were
exercisable at an average price of $12.75 at February 28, 2001.

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 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.

WEIGHTED AVERAGE
EXERCISE PRICE
SHARES PER SHARE
------- ----------------

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 $7.08
Exercised................................................. (8,000) $4.25
------- -----
Balance at February 28, 2001................................ 84,000 $7.35
======= =====

A total of 84,000 non-employee options were exercisable at an average price
of $7.35 at February 28, 2001.

44
47
INTERVOICE-BRITE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

For all option plans at February 28, 2001, options for 1,099,358 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, with deductions beginning either January 1 or July 1 and ending on the
following December 31 and June 30, respectively. Option prices are 85% 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 PRICE
SHARES PER SHARE
-------- ----------------

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
Granted................................................... 236,505 $ 5.80
Exercised................................................. (62,213) $ 7.93
Forfeited................................................. (28,031) $ 7.12
-------- ------
Balance at February 28, 2001................................ 236,505 $ 5.80
======== ======

The grant price per option outstanding is either $5.26 or $6.16.

As of February 28, 2001, no options were exercisable under this plan.

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

45
48
INTERVOICE-BRITE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 2001, 2000 and 1999 is as follows:

SENIOR KEY
EXECUTIVE EXECUTIVE
PLAN PLAN
--------- ---------

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
Forfeited................................................. (20,000) --
------- -----
Balance at February 28, 2001................................ 223,286 6,144
======= =====

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. Shares
forfeited in fiscal 2001 had been granted at a weighted average share price of
$34.22. At February 28, 2001, 776,714 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 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 2001,
2000 and 1999, respectively: risk-free interest rates of 6.37%, 5.50% and 5.38%;
stock price volatility factors of 1.06, 0.72, and 0.75; and expected option
lives of 3.75 years, 3.75 years, and 3.52 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 2001, 2000 and 1999 was $5.02, $8.22 and $3.26, respectively.

Required Pro Forma Disclosures (in millions, except per share data):

2001 2000 1999
------ ------ -----

Net income (loss)........................................... $ (9.3) $(22.0) $15.5
Income (loss) per share diluted............................. $(0.27) $(0.72) $0.52

Options Outstanding at February 28, 2001:

WEIGHTED AVERAGE
WEIGHTED AVERAGE REMAINING CONTRACTUAL
EXERCISE PRICES SHARES EXERCISE PRICE LIFE IN YEARS
--------------- --------- ---------------- ---------------------

$ 4.50 - $ 6.73.............................. 2,792,528 $ 5.46 7.10
$ 6.81 - $10.06.............................. 1,659,334 $ 8.48 8.98
$10.38 - $34.41.............................. 1,918,887 $13.67 6.49
---------
6,370,749
=========

46
49
INTERVOICE-BRITE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Options Exercisable at February 28, 2001:

WEIGHTED AVERAGE
WEIGHTED AVERAGE REMAINING CONTRACTUAL
EXERCISE PRICES SHARES EXERCISE PRICE LIFE IN YEARS
--------------- --------- ---------------- ---------------------

$ 4.50 - $ 6.50.............................. 1,142,934 $ 5.09 6.84
$ 6.88 - $10.06.............................. 460,000 $ 7.75 7.77
$10.38 - $29.19.............................. 994,487 $12.62 4.57
---------
2,597,421
=========

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. At
such time as the rights become exercisable, 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 (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 May, 2011.

NOTE K -- TREASURY STOCK

No treasury stock was repurchased during fiscal 2001 or fiscal 2000.
Pursuant to authorizations by the Company's Board of Directors, the Company
repurchased 294,000 shares of its common stock during fiscal 1999 at an average
price per share of $19.97. 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 L -- SPECIAL CHARGES AND NON-RECURRING GAIN

During the fourth quarter of fiscal 2001, the Company changed its
organizational structure and eliminated certain product offerings in order to
reduce cost and improve the Company's focus on its core competencies and
products. As a result of these actions, the Company incurred special charges of
$8.2 million, including $3.6 million for severance and related costs, $3.1
million for the write off of assets associated with discontinued product lines
and $1.5 million for the estimated customer accommodations related to the
discontinued product lines.

47
50
INTERVOICE-BRITE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and development expenses and selling, general and administrative expenses,
respectively. As of February 28, 2001, $1.8 million of the total severance and
related costs remained unpaid.

The $3.1 million charge to write off assets is primarily attributable to
the Company's decision to discontinue its AgentConnect product line and includes
a $2.9 million charge for the impairment of unamortized purchased software
(included in other intangibles) associated with this product. The charge is
reflected in cost of goods sold. The $1.5 million charge for estimated customer
accommodations is comprised primarily of bad debts and customer settlements
associated with the Company's decision to discontinue the AgentConnect product
line. This charge is reflected in selling, general and administrative expenses.

During the fourth quarter of fiscal 2001, the Company realized a gain of
$21.4 million upon the sale of shares of stock of SpeechWorks International,
Inc. acquired through the exercise of a warrant received in connection with a
1996 supply agreement between the Company and SpeechWorks. This gain is
reflected as other income in the accompanying Consolidated Statements of
Operations. In prior periods, the warrant had been assigned no value in the
Company's balance sheets because the warrant and the underlying shares were
unregistered securities, and significant uncertainties existed regarding the
Company's ability to monetize the warrant and the timing of any such
monetization.

NOTE M -- EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted
earnings per share:

YEAR ENDED FEBRUARY 28/29
--------------------------
2001 2000 1999
------- ------ -----
(IN MILLIONS, EXCEPT PER
SHARE DATA)

NUMERATOR:
Income (loss) before the cumulative effect of a change in
accounting principle...................................... $ 9.6 $(14.8) $20.2
Cumulative effect on prior years of adopting SAB No. 101.... (11.9) -- --
------- ------ -----
Net Income (loss)........................................... $ (2.3) $(14.8) 20.2
------- ------ -----
DENOMINATOR:
Denominator for basic earnings per share.................... 32.7 30.5 28.0
Effect of dilutive securities:
Employee stock options.................................... 1.6 -- 1.8
------- ------ -----
Denominator for diluted earnings per share.................. 34.3 30.5 29.8
BASIC:
Income (loss) before the cumulative effect of a change in
accounting principle...................................... $ 0.29 $(0.49) $0.72
Cumulative effect on prior years of adopting SAB No. 101.... (0.36) -- --
------- ------ -----
Net Income (loss)........................................... $ (0.07) $(0.49) $0.72
======= ====== =====
DILUTED:
Income (loss) before the cumulative effect of a change in
accounting principle...................................... $ 0.28 $(0.49) $0.68
Cumulative effect on prior years of adopting SAB No. 101.... (0.35) -- --
------- ------ -----
Net Income (loss)........................................... $ (0.07) $(0.49) $0.68
======= ====== =====

48
51
INTERVOICE-BRITE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Options to purchase 6,370,749, 4,737,933 and 633,098 shares of common stock
at average exercise prices of $8.72, $9.23 and $10.77, respectively, were
outstanding at February 28, 2001, February 29, 2000 and February 28, 1999,
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 fiscal 2001 and 1999, the anti-dilution is due to options'
exercise prices which were greater than the average market prices of the common
shares. For fiscal 2000, the anti-dilution is due to the loss for the year.

NOTE N -- OPERATING SEGMENT INFORMATION AND MAJOR CUSTOMERS

During 2001, 2000 and 1999, the Company was comprised of a single operating
segment which developed, sold or operated and serviced speech-enabled IVR
systems and enhanced telecommunications services systems. The Company's Chief
Operating Decision Maker (CODM) assessed performance and allocated resources on
an enterprise wide basis. Therefore, no separately reportable operating segments
existed.

The CODM monitored revenues from the sale of systems to two customer
markets: the interactive voice response market and the enhanced
telecommunications services market. The CODM also monitored services sales,
including the Company's sale of ASP services, maintenance contracts and other
miscellaneous services.

REVENUES (IN MILLIONS): 2001 2000 1999
----------------------- ------ ------ ------

IVR Systems................................................. $ 95.8 $109.0 $ 97.4
Enhanced Telecommunication Services......................... 86.9 104.7 26.2
Services.................................................... 92.0 72.5 13.3
------ ------ ------
Total............................................. $274.7 $286.2 $136.9
====== ====== ======

GEOGRAPHIC OPERATIONS. The following geographic area data include net
trade revenues and property and equipment for fiscal years 2001, 2000 and 1999.
Revenues are attributed to geographic locations based on locations of customers.

REVENUES (IN MILLIONS): 2001 2000 1999
----------------------- ------ ------ ------

United States............................................... $141.6 $157.2 $112.8
The Americas (excluding the U.S.)........................... 14.9 23.9 13.4
Pacific Rim................................................. 11.6 15.5 6.3
Europe, Middle East and Africa.............................. 106.6 89.6 4.4
------ ------ ------
Total............................................. $274.7 $286.2 $136.9
====== ====== ======

One enhanced telecommunications services customer, British Telecom
(together with its affiliate BT Cellnet), has purchased both systems and ASP
managed services from the Company. Such combined purchases accounted for 19% and
16% of the Company's total sales during fiscal 2001 and 2000, respectively.
There were no other customers accounting for 10% or more of the Company's sales
during fiscal 2001 and 2000, nor did any customer account for 10% of the
Company's sales during fiscal 1999. Subsequent to year end, the Company extended
its managed services contract with British Telecom through July 2003. Under the
terms of the extended contract and current exchange rates, BT Cellnet will
continue to purchase managed services totaling at least $2.6 million per month
through July 2001 and will purchase services totaling at least

49
52
INTERVOICE-BRITE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$2.1 million per month for the six month period ending January 2002 and totaling
$0.9 million per month thereafter for the remaining term of the contract.

PROPERTY AND EQUIPMENT (IN MILLIONS): 2001 2000
------------------------------------- ----- -----

United States............................................... $28.0 $30.9
United Kingdom.............................................. 7.9 10.1
----- -----
$35.9 $41.0
===== =====

Substantially all of the Company's property and equipment was located in
the United States in fiscal 1999.

NOTE O -- CONCENTRATIONS OF CREDIT RISK

The Company sells systems directly to end-users and distributors primarily
in the banking and financial, telecommunications, human resource, and healthcare
markets. Customers are dispersed across different geographic areas, primarily
North America and Europe. Credit is extended based on an 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 P -- 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 $1.4 million,
$1.2 million and $0.8 million in fiscal 2001, 2000 and 1999, respectively.

NOTE Q -- CONTINGENCIES

50
53
INTERVOICE-BRITE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and postpaid card services. RAKTL has further alleged that certain of its
patents pertain to certain call processing applications, including applications
for call centers that route calls using a called party's DNIS identification
number. Certain products offered by the Company can be programmed and configured
to provide enhanced services to network providers and call processing
applications for call centers. The Company's contracts with customers usually
include a qualified obligation to indemnify and defend customers against claims
that products as delivered by the Company infringe a third party's patent.

To the Company's knowledge, RAKTL has not initiated litigation against any
of the Company's customers. Moreover, none of the customers have notified the
Company that RAKTL has claimed that any product provided by the Company
infringes any claims of any RAKTL patent. Accordingly, the Company has not been
required to defend any customers against a claim of infringement under a RAKTL
patent. The Company has, however, received letters from customers notifying the
Company of the efforts by RAKTL to license its patent portfolio and reminding
the Company of its potential obligations under the indemnification provisions of
the applicable agreements in the event that a claim is asserted. In response to
correspondence from RAKTL, a few customers have attempted to tender to the
Company the defense of its products under contractual indemnity provisions. The
Company has informed these customers that while it fully intends to honor any
contractual indemnity provisions, it does not believe it currently has any
obligation to provide such a defense because RAKTL does not appear to have made
a claim that a Company product infringes a patent. Even though RAKTL has not
instituted litigation against any customers, it is always possible that RAKTL
may do so. In the event of such litigation, a customer could attempt to invoke
the Company's indemnity obligations under the applicable agreement. As with most
sales contracts with suppliers of computerized equipment, the Company's
contractual indemnity obligations are generally limited to the products provided
by the Company, and generally require the customer to allow the Company to have
sole control over any litigation and settlement negotiations with the patent
holder. The customers who have received letters from RAKTL generally have
multiple suppliers of the types of products that might potentially be subject to
claims by RAKTL.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

lawsuit pending certain rulings from the United States Patent and Trademark
Office. The Company has received opinions from its outside patent counsel that
the wireless prepaid services offered by the Company do not infringe the "275
patent". If the Company does become involved in litigation in connection with
the "275 patent", under a contractual indemnity or any other legal theory, the
Company intends to vigorously contest any claims that its prepaid wireless
services infringe the "275 patent" and to assert appropriate defenses.

NOTE R -- LEASES

Rental expense was $3.6 million in 2001 and $2.7 million in 2000. Rental
costs in both years generally related to office and manufacturing facility
leases. Rental expenses in 1999 were immaterial. The lease agreements include
purchase and renewal provisions and require the company to pay taxes, insurance
and maintenance costs. At February 28, 2001, the Company was committed under
noncancelable operating leases with minimum rentals of $3.9 million, $3.9
million, $2.9 million, $2.0 million, and 2.4 million for fiscal years 2002,
2003, 2004, 2005 and thereafter.

52
55

SCHEDULE II

INTERVOICE-BRITE, INC.

VALUATION AND QUALIFYING ACCOUNTS

COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COST AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)

Year Ended February 28, 2001
Deducted from Asset Accounts:
Allowance for doubtful
accounts..................... $4,161 $2,935 $ -- $ (3,454)(A) $3,642
Allowance for slow moving
inventories.................. 1,383 4,752 $ (3,485)(B) $2,650
------ ------ ------ -------- ------
Total........................ $5,544 $7,687 $ -- $ (6,939) $6,292
====== ====== ====== ======== ======
Year Ended February 29, 2000
Deducted from Asset Accounts:
Allowance for doubtful
accounts..................... $1,306 $6,364 $3,019(C) $ (6,528)(A) $4,161
Allowance for slow moving
inventories.................. 1,204 1,881 2,420(C) $ (4,122)(B) $1,383
------ ------ ------ -------- ------
Total........................ $2,510 $8,245 $5,439 $(10,650) $5,544
====== ====== ====== ======== ======
Year Ended February 28, 1999
Deducted from Asset Accounts:
Allowance for doubtful
accounts..................... $ 368 $1,038 $ -- $ (100)(A) $1,306
Allowance for slow moving
inventories.................. 1,360 1,800 -- $ (1,956)(B) $1,204
------ ------ ------ -------- ------
Total........................ $1,728 $2,838 $ -- $ (2,056) $2,510
====== ====== ====== ======== ======

---------------
(A) Accounts written off.

(B) Scrapped material.

53
56

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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", "Report of the Audit 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.

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............................ 29
Consolidated Balance Sheets at February 28, 2001 and
February 29, 2000...................................... 30
Consolidated Statements of Operations for the three years
ended February 28, 2001................................ 31
Consolidated Statements of Changes in Stockholders' Equity
for the three years ended February 28, 2001............ 32
Consolidated Statements of Cash Flows for the three years
ended February 28, 2001................................ 33
Notes to Consolidated Financial Statements................ 34
(2) Financial Statement Schedules
II Valuation and Qualifying Accounts...................... 53

All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.

54
57

(3) Exhibits:

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 28, 2001.

55
58

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/ DAVID W. BRANDENBURG
------------------------------------
David W. Brandenburg
Chairman of the Board of Directors,
President and Chief Executive
Officer

Dated: May 18, 2001

56
59

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/ DAVID W. BRANDENBURG Chairman of the Board of Directors, May 18, 2001
--------------------------------------------------- President and Chief Executive
David W. Brandenburg Officer

/s/ ROB-ROY J. GRAHAM Chief Financial Officer and May 18, 2001
--------------------------------------------------- Controller (Principal Accounting
Rob-Roy J. Graham Officer)

/s/ JOSEPH J. PIETROPAOLO Director May 18, 2001
---------------------------------------------------
Joseph J. Pietropaolo

/s/ GEORGE C. PLATT Director May 18, 2001
---------------------------------------------------
George C. Platt

/s/ GRANT A. DOVE Director May 18, 2001
---------------------------------------------------
Grant A. Dove

/s/ STANLEY G. BRANNAN Director May 18, 2001
---------------------------------------------------
Stanley G. Brannan

57
60

INDEX TO EXHIBITS

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 Third Amended and Restated Rights Agreement dated as of May
1, 2001 between the Registrant and Computershare Investor
Services, LLC, 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 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")(11)
10.10 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)
10.11 Fourth Amended and Extended Employment Agreement effective
as of September 13, 2000, between the Company and Daniel D.
Hammond.(10)
10.12 InterVoice-Brite, Inc. 1999 Stock Option Plan.(12)
10.13 Credit Agreement dated June 1, 1999 among InterVoice, Inc.,
InterVoice Acquisition Subsidiary III, Inc. and Bank of
America National Trust and Savings Association, as "Agent",
Banc of America Securities LLC and certain other financial
institutions indicated as being parties to the Credit
Agreement (collectively, "Lenders") 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.(11)
10.14 First Amendment to Employment Agreement effective as of July
1, 2000, between the Company and Rob-Roy J. Graham.(10)
10.15 First Amendment to Credit Agreement effective as of January
15, 2001, between the Company, Agent and the Lenders.(13)
10.16 Consent and Second Amendment to Credit Agreement effective
as of February 28, 2001, between the Company, Agent and the
Lenders.(13)
21 Subsidiaries(13)
23 Consent of Independent Auditors(13)
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)

58
61

---------------
(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 3) filed
with the SEC on May 9, 2001.

(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.

(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 to 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 the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended August 31, 2000, filed October 14, 2000.

(11) Incorporated by reference to Registration Statement on Form S-4 filed with
the SEC on July 13, 1999, Registration Number 333-79839.

(12) Incorporated by reference to Registration Statement on Form S-8 filed with
the SEC on October 15, 1999, Registration Number 333-89127.

(13) Filed herewith.