-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DT4RG+vrNXfiSBQ0mMmhhmXGW4XJU1+Ttlx6yLNZMCx0YA9XyyBsq2f0oXjV39LH d14sJCZniin9DnD0jtTx8g== 0000909518-07-000819.txt : 20070910 0000909518-07-000819.hdr.sgml : 20070910 20070910161306 ACCESSION NUMBER: 0000909518-07-000819 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20070910 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070910 DATE AS OF CHANGE: 20070910 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMVERSE TECHNOLOGY INC/NY/ CENTRAL INDEX KEY: 0000803014 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 133238402 STATE OF INCORPORATION: NY FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15502 FILM NUMBER: 071108954 BUSINESS ADDRESS: STREET 1: 810 SEVENTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 212-739-1000 MAIL ADDRESS: STREET 1: 810 SEVENTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10019 8-K 1 mm09-1007_8k.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): September 10, 2007 COMVERSE TECHNOLOGY, INC. (Exact name of registrant as specified in its charter) NEW YORK 0-15502 13-3238402 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 810 Seventh Avenue, New York, New York 10019 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (212) 739-1000 Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): [_] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [_] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [_] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION. On September 10, 2007, Comverse Technology, Inc. (the "Company") issued a press release announcing preliminary unaudited selected financial information for the fiscal quarter ended July 31, 2007. A copy of the press release is attached as Exhibit 99.1 to this Current Report and is incorporated herein by reference. In accordance with General Instruction B.2., the foregoing information and the information set forth in Exhibit 99.1, are furnished pursuant to Item 2.02 and shall not be deemed "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information disclosed under Item 2.02 of this Current Report shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by a specific reference in such filing. CERTAIN RISKS AND UNCERTAINTIES - ------------------------------- This Current Report contains "forward-looking statements" under the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. There can be no assurances that any forward-looking statements will be achieved, and actual results could differ materially from forecasts and estimates. Important factors that could affect the Company include: the results of the investigation of the Special Committee, appointed by the Board of Directors on March 14, 2006, of matters relating to the Company's stock option grant practices and other accounting matters, including errors in revenue recognition, errors in the recording of deferred tax accounts, expense misclassification, the possible misuse of accounting reserves and the understatement of backlog; the impact of any restatement of financial statements of the Company or other actions that may be taken or required as a result of such investigation; the Company's inability to file reports with the Securities and Exchange Commission; the effects of the delisting of the Company's Common Stock from NASDAQ and the quotation of the Company's Common Stock in the "Pink Sheets," including any adverse effects relating to the trading of the stock due to, among other things, the absence of market makers; risks relating to the Company's ability to relist its Common Stock on NASDAQ; risks relating to alleged defaults under the Company's ZYPS indentures, including acceleration of repayment; risks of litigation (including the pending securities class actions and derivative lawsuits) and of governmental investigations or proceedings arising out of or related to the Company's stock option practices or any other accounting irregularities or any restatement of the financial statements of the Company, including the direct and indirect costs of such investigations and restatement; risks related to Verint Systems Inc.'s merger with Witness Systems, Inc., including risks associated with integrating the businesses and employees of Witness; risks associated with integrating the businesses and employees of the Global Software Services division acquired from CSG Systems International, Netcentrex S.A. and Netonomy, Inc.; changes in the demand for the Company's products; changes in capital spending among the Company's current and prospective customers; the risks associated with the sale of large, complex, high capacity systems and with new product introductions as well as the uncertainty of customer acceptance of these new or enhanced products from either the Company or its competition; risks associated with rapidly changing technology and the ability of the Company to introduce new products on a timely and cost-effective basis; aggressive competition may force the Company to reduce prices; a failure to compensate any decrease in the sale of the Company's traditional products with a corresponding increase in sales of new products; risks associated with changes in the competitive or regulatory environment in which the Company operates; risks associated with prosecuting or defending allegations or claims of infringement of intellectual property rights; risks associated with significant foreign operations and international sales and investment activities, including fluctuations in foreign currency exchange rates, interest rates, and valuations of public and private equity; the volatility of macroeconomic and industry conditions and the international marketplace; risk of a decline in information technology spending; risks associated with the Company's ability to retain existing personnel and recruit and retain qualified personnel; and other risks described in filings with the Securities and Exchange Commission. The Company undertakes no commitment to update or revise any forward-looking statements except as required by law. 2 ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS. (d) EXHIBITS: Exhibit No. Description ----------- ----------- 99.1 Press Release of Comverse Technology, Inc. dated September 10, 2007 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. COMVERSE TECHNOLOGY, INC. Date: September 10, 2007 By: /s/ Andre Dahan -------------------------------- Name: Andre Dahan Title: President and Chief Executive Officer 4 EXHIBIT INDEX Exhibit No. Description ----------- ----------- 99.1 Press Release of Comverse Technology, Inc. dated September 10, 2007 5 EX-99 2 mm09-1007_8ke991.txt EXHIBIT 99.1 ------------ CONTACT: Paul D. Baker Comverse Technology, Inc. 810 Seventh Avenue New York, New York 10019 (212) 739-1060 COMVERSE TECHNOLOGY ANNOUNCES SECOND QUARTER FISCAL 2007 PRELIMINARY UNAUDITED SELECTED FINANCIAL INFORMATION GAAP REVENUE OF $446.5 MILLION; ADJUSTED (NON-GAAP) REVENUE OF $454.0 MILLION; OPERATING LOSS ON A GAAP BASIS OF $73.6 MILLION; ADJUSTED (NON-GAAP) OPERATING INCOME* OF $32.2 MILLION; ADJUSTED (NON-GAAP) OPERATING MARGIN INCREASES TO 7.1% FROM 1.9% IN FIRST QUARTER, WITH SEQUENTIAL EXPANSION IN EACH OF THE COMPANY'S MAJOR OPERATING SUBSIDIARIES NEW YORK, NY, September 10, 2007 - Comverse Technology, Inc. (Pink Sheets: CMVT.PK) today announced preliminary unaudited selected financial information for the second quarter of fiscal 2007 ended July 31, 2007. For the second quarter, GAAP revenue, which excludes $7.5 million in Witness Systems deferred maintenance and service revenue not recognizable through purchase accounting following its acquisition by Verint Systems, was $446.5 million, and adjusted (non-GAAP) revenue, which includes the Witness deferred revenue, was $454.0 million. By comparison, both on a GAAP and adjusted (non-GAAP) basis, revenue was $394.1 million for the second quarter of 2006, and $405.7 million for the first quarter of 2007. Second quarter 2007 loss from operations on a GAAP basis was $73.6 million, compared with a loss from operations on a GAAP basis of $24.7 million for the second quarter of fiscal 2006, and $61.3 million for the first quarter of fiscal 2007. Adjusted (non-GAAP) income from operations was $32.2 million for the second quarter of fiscal 2007, compared with adjusted (non-GAAP) income from operations of $40.7 million for the second quarter of fiscal 2006, and $7.7 million for the first quarter of fiscal 2007. This preliminary unaudited selected financial information is subject to change, and is based on information currently available to the company. Material adjustments may result from the company's ongoing investigations described below. In addition, the company's independent registered public accounting firm has not reviewed or audited the financial information presented herein and, therefore, such financial information may be subject to additional adjustments, which could be material. Comverse Technology, Inc. - ------------------------- Andre Dahan, President and Chief Executive Officer of Comverse Technology, Inc. said, "We are making considerable progress toward our goal of significantly improved profitability, as each of our major operating subsidiaries achieved sequential expansion in adjusted (non-GAAP) operating margin, leading to an increase in consolidated adjusted (non-GAAP) operating margin to 7.1% in the second quarter, up from 1.9% in the first quarter. We are focused on realizing our opportunities for profitable growth in the future, and we are confident we will, as each of Comverse Technology's major subsidiaries holds a leading position in its key markets, providing valuable, differentiated products to a global customer base that derives considerable economic benefits and competitive advantages from the use of our products. "We are drawing closer to becoming current in our financial filings. At the same time, we are advancing and refining our planning with respect to the Comverse Technology portfolio, and its corporate and capital structure. In this process, our focus remains on the goal of maximizing shareholder value." - -------- * "GAAP" refers to generally accepted accounting principles. Adjusted (non-GAAP) income from operations is presented in a manner consistent with the company's prior practice with respect to presentation of financial measures on a "pro forma" (i.e., non-GAAP) basis. COMVERSE TECHNOLOGY SECOND QUARTER FISCAL 2007 Comverse, Inc. - -------------- Mr. Dahan said, "Comverse increased its adjusted (non-GAAP) operating margin to 6.7% in the second quarter, from 3.0% in the first quarter, achieving both year-over-year and sequential revenue growth, and a significant sequential increase in product bookings. We have focused our efforts on building a Framework for Profitable Growth, and our early actions driving profitability and revenue enhancements are clearly evident in second quarter results. Comverse is on track to achieve its near-term objective of achieving double-digit adjusted (non-GAAP) operating margin, and we believe this goal will be reached over the next couple of quarters. We are now focused on enhancing operational performance through horizontal process improvements and reinvigorating business momentum by better identifying and capitalizing on market growth drivers, and better leveraging our valuable product portfolio. Building on the foundation of industry-leading, high-value products enabling messaging and content services, converged IP communications, and real-time converged billing, customer care and revenue management, we believe our transformation framework will lead us into a new era of profitable growth." Verint Systems Inc. - ------------------- "During the quarter, Verint Systems completed its strategic acquisition of Witness Systems, and increased its adjusted (non-GAAP) operating margin to 10.7%, from 10% in the first quarter. The combination of Verint and Witness creates a new leader in workforce and enterprise optimization, and opens new opportunities for profitable growth. Verint has been focused on the integration of the two organizations and operations, and is now turning its attention to realizing the opportunities for growth synergies through cross-selling and up-selling what is now the market's most comprehensive and valuable portfolio of solutions," said Mr. Dahan. Ulticom, Inc. - ------------- "Ulticom's revenue at key telecom OEM customers rebounded, and its next-generation IP/IMS-based nSignia product line is now beginning to contribute to performance, and as a result, Ulticom returned to double-digit adjusted (non-GAAP) operating margin," said Mr. Dahan. Starhome, B.V. - -------------- "Strong revenue growth led Starhome to an adjusted (non-GAAP) operating margin of 2.7%, up from negative levels in the first quarter," said Mr. Dahan. 2 COMVERSE TECHNOLOGY SECOND QUARTER FISCAL 2007 Special Committee - ----------------- The company continues to make substantial progress toward the restatement of past financial statements, after which its independent registered public accounting firm can begin the audit process. As projected last quarter, the company continues to expect it will become current in its filings with the Securities and Exchange Commission by the end of fiscal 2007. Also as projected, Special Committee investigation and related expenses declined substantially, from $32.8 million in the first quarter, to $17.0 million in the second fiscal quarter of 2007. Any additional information that may be discovered in the subsequent reviews or procedures performed by the company's finance and accounting staff or any additional adjustments proposed in the subsequent reviews and audits by the company's independent registered public accounting firm could result in delays to the restatement and filing process, and in adjustments to the financial information presented herein, and such adjustments could be material. The timing of the company's restatements and filings may be dependent on the timing of the completion of similar activities at its Verint Systems Inc. and Ulticom, Inc. subsidiaries. The company continues to believe that the aggregate historical sales and total cash flows as previously reported are not likely to materially change. PRESENTATION OF NON-GAAP FINANCIAL MEASURES Comverse Technology provides adjusted (non-GAAP) revenue and income from operations as additional information for its operating results. These measures are not in accordance with, or an alternative for, GAAP financial measures and may be different from, or not comparable to similarly titled or other non-GAAP financial measures used by other companies. The company believes that this presentation of adjusted (non-GAAP) revenue and adjusted (non-GAAP) income from operations provides useful information to investors regarding certain additional financial and business trends relating to its financial condition and results of operations as viewed by management in monitoring the company's businesses. In addition, management uses these non-GAAP financial measures for reviewing the financial results of the company and for budget-planning purposes. 3 COMVERSE TECHNOLOGY SECOND QUARTER FISCAL 2007 PRELIMINARY THREE AND SIX MONTHS ENDED JULY 31, 2006 AND 2007 SELECTED CONSOLIDATED FINANCIAL ITEMS (UNAUDITED) (DOLLARS IN THOUSANDS)
COMVERSE TECHNOLOGY, INC. PRESS RELEASE TABLES WORKSHEET SECOND QUARTER 2007 THREE MONTHS ENDED SIX MONTHS ENDED JULY 31, JULY 31, ----------------------- ----------------------- 2006 2007 2006 2007 --------- --------- --------- --------- GAAP BASIS Revenue: Comverse, Inc. $ 275,027 $ 288,227 $ 533,070 $ 572,770 Starhome B.V. 10,182 12,669 20,435 22,336 Intercompany eliminations (1,034) (1,039) (4,096) (2,346) --------- --------- --------- --------- Comverse Network Systems segment 284,175 299,857 549,409 592,760 Security and Business Intelligence Recording segment (Verint) 92,258 129,563 179,994 230,837 Service Enabling Signaling Software segment (Ulticom) 17,115 17,352 32,817 28,766 All other 1,643 1,274 3,811 2,853 Intercompany eliminations (1,111) (1,562) (2,775) (3,006) --------- --------- --------- --------- $ 394,080 $ 446,484 $ 763,256 $ 852,210 ========= ========= ========= ========= Loss from operations $ (24,716) $ (73,589) $ (15,842) $(134,840) Operating margin -6.3% -16.5% -2.1% -15.8% ADJUSTED (NON-GAAP) BASIS Revenue $ 394,080 $ 446,484 $ 763,256 $ 852,210 Verint deferred revenue adjustment -- 7,469 -- 7,469 --------- --------- --------- --------- Adjusted (non-GAAP) revenue $ 394,080 $ 453,953 $ 763,256 $ 859,679 ========= ========= ========= ========= Adjusted (non-GAAP) income from operations $ 40,729 $ 32,151 $ 77,653 $ 39,854 Operating margin 10.3% 7.1% 10.2% 4.6% RECONCILIATION OF GAAP TO ADJUSTED (NON-GAAP) Loss from operations - GAAP Basis $ (24,716) $ (73,589) $ (15,842) $(134,840) Non-GAAP adjustments: Deferred Revenue -- 7,469 -- 7,469 Non-cash stock-based compensation 13,095 18,799 25,843 29,740 Special Committee investigation expenses 17,584 17,037 24,603 49,806 Amortization of acquisition-related intangibles 9,125 15,267 16,005 24,458 Retention bonus -- 14,998 -- 29,023 OCS royalties settlement 23,390 -- 23,390 -- Workforce reduction and restructuring charges 439 14,753 439 14,597 Write-off of in-process research and development -- 5,634 -- 5,877 Acquisition-related charges 1,812 5,191 3,215 5,690 Other -- 6,592 -- 8,034 --------- --------- --------- --------- Adjusted (non-GAAP) income from operations $ 40,729 $ 32,151 $ 77,653 $ 39,854 ========= ========= ========= =========
4 COMVERSE TECHNOLOGY SECOND QUARTER FISCAL 2007 SECOND QUARTER 2007 FINANCIAL AND OPERATIONAL REVIEW Revenue and Operations - ---------------------- Comverse Technology, Inc. reported consolidated GAAP revenue, which excludes $7.5 million in Witness Systems deferred revenue not recognizable through purchase accounting following its acquisition by Verint Systems, of $446.5 million, a $52.4 million, or 13%, increase over revenue of $394.1 million for the prior-year period, and a $40.8 million, or 10%, increase from revenue of $405.7 million for the first quarter. Consolidated adjusted (non-GAAP) revenue of $454.0 million for the second quarter of 2007 was a $59.9 million, or 15%, increase over revenue for the prior-year period, and a $48.2 million, or 12%, increase from the first quarter. Witness Systems, which was acquired by Verint Systems on May 25, 2007, contributed $37 million in GAAP revenue, and $44.5 million in adjusted (non-GAAP) revenue, in the second quarter of fiscal 2007. Revenue at the company's Comverse, Inc. subsidiary was $288.2 million for the second quarter of 2007, a $13.2 million, or 5%, increase over revenue of $275.0 million for the prior-year period, and a $3.7 million, or 1%, increase over revenue of $284.5 million for the first quarter. Comverse achieved a significant sequential increase in product bookings, and end-user adoption of wireless value-added services and VoIP-based services, two major demand drivers for Comverse, Inc.'s products and services, remains healthy, as does demand for next-generation billing and customer care solutions for service, content, and e-commerce providers. These solutions are designed to reduce customers' operating costs, while enabling services that foster customer loyalty and satisfaction. During the second quarter, Comverse, Inc. enhanced its leadership position in messaging, content delivery, converged IP communications, and converged real-time billing and customer care. Comverse announced new product launches and enhancements including: IMS Application Suite 2.0, allowing operators to offer a superior service value and end-user experience, by blending voice and video telephony services with converged messaging, conferencing, presence, and network-based address book capabilities, for seamless multimedia communications; and the launch of a next-generation MyCall Converged Communications suite, an integrated solution for the delivery of converged consumer services over fixed broadband and mobile networks. This new fixed-mobile convergence (FMC) solution was recently selected to support "quad play" (fixed and mobile communications, IPTV, and Internet) services in Norway. Comverse also announced new customer selections or deployments across a range of products, including converged billing and customer care in the telecom, travel, and benefit card processing industries, wireless content delivery, including ringback tone service, SMS "texting," and the Insight IP Open Services Environment for messaging and other Value-Added Services. In addition, customer interest in visual voicemail has seen a notable increase, with some initial bookings, and Comverse expects commercial launches in the coming months. Overall, Comverse, Inc. products and applications are used by hundreds of millions of people, through more than 500 service providers in more than 130 countries, presenting significant opportunities for the company to expand its market presence by leveraging its broad product portfolio. Verint Systems' GAAP revenue, which excludes $7.5 million in Witness Systems deferred revenue not recognizable through purchase accounting following its acquisition by Verint on May 25, 2007, was $129.6 million for the second quarter of 2007, a $37.3 million, or 40%, increase over revenue of $92.3 million for the prior-year period, and a $28.3 million, or 28%, increase over revenue of $101.3 million for the first quarter. Verint's revenue on an adjusted (non-GAAP) basis was $137.0 million for the second quarter of 2007, a $44.8 million, or 49%, increase over revenue for the prior-year period, and a $35.8 million, or 35%, increase over revenue for the first quarter. Witness Systems contributed $37 million in GAAP revenue, and $44.5 million in adjusted (non-GAAP) revenue, in 5 COMVERSE TECHNOLOGY SECOND QUARTER FISCAL 2007 the second quarter of fiscal 2007. Verint experienced continued demand for its solutions for security and business interaction intelligence, and through the combination of Verint and Witness, in workforce and enterprise optimization solutions, with the broadest portfolio of solutions in the market for contact centers, back-offices, and branch operations. The growth in unstructured data, in the form of captured voice, video, and text, has created opportunities for Verint's analytic software to deliver timely actionable intelligence to enhance security and improve business performance. Verint is focused on the successful integration of Witness, and now expects to begin realizing growth synergies through the cross-selling, up-selling, and strategic bundling of their combined complementary products. Verint also announced new customer selections in both workforce performance optimization, and video security. Revenue at the company's Ulticom, Inc. subsidiary was $17.4 million for the second quarter of 2007. This represents a $0.2 million, or 1%, increase over revenue of $17.1 million for the prior-year period, and a $5.9 million, or 52%, increase over revenue of $11.4 million for the first quarter. Revenue from large telecommunications OEM customers rebounded, and Ulticom began to realize revenue from its next-generation nSignia IP/IMS-based products, in addition to its established SS7/Sigtran signaling products. Revenue at the company's Starhome B.V. subsidiary was $12.7 million for the second quarter of 2007, a $2.5 million, or 24%, increase over revenue of $10.2 million for the prior-year period, and a $3.0 million, or 31%, increase over revenue of $9.7 million for the first quarter. Starhome's leading solution helps carriers maximize their subscribers' wireless roaming network usage. Backlog - ------- Backlog represents signed purchase orders or customer commitments deemed to be firm that have not yet been recognized as revenue as of the balance sheet date but are expected to be recognized in the next 12 months. Consolidated 12-month orders backlog of $848.6 million at July 31, 2007 was 12.2% above the $756.2 million backlog at the prior-year period, and 11.8% above the $758.7 million backlog at April 30, 2007. The majority of the year-over-year and sequential backlog increase was attributable to Verint's acquisition of Witness on May 25, 2007. Operating Income/Margin - ----------------------- GAAP Basis -- Loss from operations on a GAAP basis was $73.6 million for the second fiscal quarter of 2007, compared to a loss from operations of $24.7 million for the second quarter of fiscal 2006. This decline reflects a number of items delineated in the GAAP to adjusted (non-GAAP) reconciliation table, and described in the "Special Items" section that follows. Operating margin on a GAAP basis for the second fiscal quarter of 2007 was negative 16.5%, compared with negative 6.3% for the prior-year period, and negative 15.1% for the first quarter of 2007. Second quarter 2007 loss from operations on a GAAP basis increased by $12.3 million compared to the $61.3 million GAAP loss from operations for the first quarter of 2007. This change reflects a number of items delineated in the GAAP to adjusted (non-GAAP) reconciliation table, and described in the "Special Items" section that follows. Adjusted (Non-GAAP) Basis -- Adjusted (non-GAAP) income from operations was $32.2 million for the second quarter of fiscal 2007, compared to adjusted (non-GAAP) income from operations of $40.7 million for the prior-year period, and adjusted (non-GAAP) income from operations of $7.7 million for the first 6 COMVERSE TECHNOLOGY SECOND QUARTER FISCAL 2007 quarter of 2007. Adjusted (non-GAAP) operating margin was 7.1% for the second quarter of fiscal 2007, compared with 10.3% for the prior-year period, and 1.9% for the first quarter of fiscal 2007. Reconciliations of adjusted (non-GAAP) income from operations to the most comparable financial measure calculated and presented in accordance with GAAP are set forth herein in the section entitled "Reconciliations." Cash, Cash Equivalents, Bank Time Deposits and Short-Term Investments - --------------------------------------------------------------------- The company ended the second quarter of fiscal 2007 with cash and cash equivalents, bank time deposits and short-term investments of $1,431.4 million, compared to $1,827.1 million at April 30, 2007, for a decrease of approximately $395.7 million. During the second quarter, the company purchased $293 million in preferred stock from its Verint Systems subsidiary, which used the proceeds to fund, in part, its $950 million acquisition of Witness Systems. During the quarter Verint used $40 million to pay down debt, as described below. Debt - ---- The company ended the quarter with convertible debt of $419.6 million. During the second quarter, the company's Verint Systems subsidiary entered into a $650 million 7-year term loan facility to fund, in part, its acquisition of Witness Systems, and later paid down $40 million of that debt, resulting in a balance of $610 million at July 31, 2007. Special Items - ------------- Loss from operations on a GAAP basis primarily reflects the incurrence of the following special items: o Exclusion of Witness Systems deferred maintenance and service revenue of $7.5 million not recognizable through purchase accounting following its acquisition by Verint. o Stock-based compensation expense of $18.8 million. o Special Committee investigation and related expenses totaled approximately $17.0 million for the three months ended July 31, 2007. o Amortization of acquisition-related intangibles of $15.3 million. o Because of limitations on the company's ability to issue equity-based compensation prior to regaining compliance with its reporting obligations under the federal securities laws, the Boards of Directors of the company and certain of its subsidiaries previously authorized and disclosed additional cash compensation in lieu of equity-based compensation as a key employee retention tool in the aggregate amount of approximately $61.9 million. In the second quarter of fiscal 2007, $15.0 million of this retention compensation was charged as an expense, for a total of $35.9 million charged through July 31, 2007, and the company expects the balance to be recorded in the current fiscal year ending January 31, 2008. o Workforce reduction and restructuring charges of $14.8 million, including $13.2 million related to the previously announced reduction in workforce at Comverse, Inc. o Acquisition related charges of $5.2 million, including $4.8 million related to the acquisition by Verint of Witness Systems. o In-process R&D charges of $5.6 million related to the acquisition of Witness Systems. 7 COMVERSE TECHNOLOGY SECOND QUARTER FISCAL 2007 Reconciliations of adjusted (non-GAAP) income from operations to the most comparable financial measure calculated and presented in accordance with GAAP are set forth herein in the section entitled "Reconciliations." RECONCILIATIONS RECONCILIATIONS OF GAAP BASIS LOSS FROM OPERATIONS TO ADJUSTED (NON-GAAP) INCOME FROM OPERATIONS (UNAUDITED) (IN THOUSANDS) THREE AND SIX MONTHS ENDED JULY 31, 2006 AND 2007
THREE MONTHS ENDED SIX MONTHS ENDED JULY 31, JULY 31, ---------------------- ---------------------- 2006 2007 2006 2007 --------- --------- --------- --------- GAAP basis loss from operations $ (24,716) $ (73,589) $ (15,842) $(134,840) Adjustments: Deferred Revenue -- 7,469 -- 7,469 Stock-based compensation 13,095 18,799 25,843 29,740 Special Committee investigation expenses - professional fees 16,562 16,513 23,474 48,461 Special Committee investigation expenses - compensation and other 1,022 524 1,129 1,345 Amortization of acquisition-related intangibles 9,125 15,267 16,005 24,458 Retention bonus -- 14,998 -- 29,023 OCS royalties settlement 23,390 -- 23,390 -- Workforce reduction, restructuring and impairment charges 439 14,753 439 14,597 Strategic alternatives -- 210 -- 1,115 Acquisition-related charges 1,812 5,191 3,215 5,690 Write-off of in-process research and development -- 5,634 -- 5,877 Other -- 6,382 -- 6,919 --------- --------- --------- --------- Total adjustments 65,445 105,740 93,495 174,694 --------- --------- --------- --------- Adjusted (non-GAAP) income from operations $ 40,729 $ 32,151 $ 77,653 $ 39,854 ========= ========= ========= =========
8 COMVERSE TECHNOLOGY SECOND QUARTER FISCAL 2007 PRIOR PERIOD DATA The following table depicts adjustments that have been made to income (loss) from operations on a GAAP and adjusted (non-GAAP) basis previously disclosed in the company's press releases dated March 22, 2007 and June 11, 2007 (which, as indicated in such press releases, reflected preliminary results subject to change). These adjustments result from information that has recently become available in the course of the company's investigation and restatement process. The company cautions investors that this data remains subject to further adjustment.
FISCAL 2006 ------------------------------------------------------------- THREE THREE MONTHS ENDED MONTHS ------------------------------------------------ YEAR ENDED ENDED APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, JANUARY 31, APRIL 30, 2006 2006 2006 2007 2007 2007 --------- --------- --------- --------- --------- --------- GAAP BASIS INCOME/(LOSS) FROM OPERATIONS - ---------------------------------------- As Reported (1) $ 8,584 $ (24,396) $ (6,079) $ (17,508) $ (39,870) $ (60,396) Adjustments 290 (320) 1,065 (435) 1,071 (855) --------- --------- --------- --------- --------- --------- Current $ 8,874 $ (24,716) $ (5,014) $ (17,943) $ (38,799) $ (61,251) ========= ========= ========= ========= ========= ========= ADJUSTED (NON-GAAP) BASIS INCOME FROM OPERATIONS - ------------------------------------------------ As Reported (1) $ 37,136 $ 40,941 $ 31,624 $ 27,600 $ 136,345 $ 7,919 Adjustments (212) (212) (212) (414) (94) (216) --------- --------- --------- --------- --------- --------- Current $ 36,924 $ 40,729 $ 31,412 $ 27,186 $ 136,251 $ 7,703 ========= ========= ========= ========= ========= =========
(1) Based on the most recent earnings release. 9 COMVERSE TECHNOLOGY SECOND QUARTER FISCAL 2007 CONFERENCE CALL INFORMATION The company plans to conduct a conference call on Monday, September 10, 2007 at 5:00 PM EDT. To listen to the conference call live, dial 800-951-9235 (domestic) or 706-902-3107 (international). Please dial-in at least five minutes before the scheduled start time. A live and archived webcast can be accessed at www.cmvt.com. ABOUT COMVERSE TECHNOLOGY, INC. Comverse Technology, Inc. is the world's leading provider of software and systems enabling network-based multimedia enhanced communication and billing services. The company's Total Communication portfolio includes value-added messaging, personalized data and content-based services, converged IP communications solutions, and real-time converged billing solutions. Over 500 communication and content service providers in more than 130 countries use Comverse products to generate revenue, and improve customer loyalty and operational efficiencies. Other Comverse Technology subsidiaries include: Verint Systems (Pink Sheets: VRNT.PK), a leading provider of analytic software-based actionable intelligence solutions for security and business interaction intelligence; and Ulticom (Pink Sheets: ULCM.PK), a leading provider of service essential signaling solutions for wireless, wireline, and Internet communications. For additional information, visit the Comverse Technology website at www.cmvt.com. All product and company names mentioned herein may be registered trademarks or trademarks of Comverse or the respective referenced company(s). This release contains "forward-looking statements" under the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. There can be no assurances that any forward-looking statements will be achieved, and actual results could differ materially from forecasts and estimates. Important factors that could affect the company include: the results of the investigation of the Special Committee, appointed by the Board of Directors on March 14, 2006, of matters relating to the company's stock option grant practices and other accounting matters, including errors in revenue recognition, errors in the recording of deferred tax accounts, expense misclassification, the possible misuse of accounting reserves and the understatement of backlog; the impact of any restatement of financial statements of the company or other actions that may be taken or required as a result of such investigation; the company's inability to file reports with the Securities and Exchange Commission; the effects of the delisting of the company's Common Stock from NASDAQ and the quotation of the company's Common Stock in the "Pink Sheets," including any adverse effects relating to the trading of the stock due to, among other things, the absence of market makers; risks relating to the company's ability to relist its Common Stock on NASDAQ; risks relating to alleged defaults under the company's ZYPS indentures, including acceleration of repayment; risks of litigation (including the pending securities class action and derivative lawsuits) and of governmental investigations or proceedings arising out of or related to the company's stock option practices or any other accounting irregularities or any restatement of the financial statements of the company, including the direct and indirect costs of such investigations and restatement; risks related to Verint Systems Inc's. merger with Witness Systems, Inc., including risks associated with integrating the businesses and employees of Witness; risks associated with integrating the businesses and employees of the Global Software Services division acquired from CSG Systems International, Netcentrex S.A. and Netonomy, Inc.; changes in the demand for the company's products; changes in capital spending among the company's current and prospective customers; the risks associated with the sale 10 of large, complex, high capacity systems and with new product introductions as well as the uncertainty of customer acceptance of these new or enhanced products from either the company or its competition; risks associated with rapidly changing technology and the ability of the company to introduce new products on a timely and cost-effective basis; aggressive competition may force the company to reduce prices; a failure to compensate any decrease in the sale of the company's traditional products with a corresponding increase in sales of new products; risks associated with changes in the competitive or regulatory environment in which the company operates; risks associated with prosecuting or defending allegations or claims of infringement of intellectual property rights; risks associated with significant foreign operations and international sales and investment activities, including fluctuations in foreign currency exchange rates, interest rates, and valuations of public and private equity; the volatility of macroeconomic and industry conditions and the international marketplace; the risk of declines in information technology spending; risks associated with the company's ability to retain existing personnel and recruit and retain qualified personnel; and other risks described in filings with the Securities and Exchange Commission. The company undertakes no commitment to update or revise forward-looking statements except as required by law. #### 11 -----END PRIVACY-ENHANCED MESSAGE-----