-----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, DdxJ1XZc6+eNIYHlUbRdP5ICg4mh4JfiAeuTforwId6D7d5iC632BbaJ1oOciFHW h2nuGCAFdJOjsy7dj9NbYg== 0000950130-96-001721.txt : 19960515 0000950130-96-001721.hdr.sgml : 19960515 ACCESSION NUMBER: 0000950130-96-001721 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NASD 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: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15502 FILM NUMBER: 96564540 BUSINESS ADDRESS: STREET 1: 170 CROSSWAYS PARK DR CITY: WOODBURY STATE: NY ZIP: 11797 BUSINESS PHONE: 5166777200 MAIL ADDRESS: STREET 1: 170 CROSSWAYS PARK DRIVE STREET 2: 170 CROSSWAYS PARK DRIVE CITY: WOODBURY STATE: NY ZIP: 11797 10-Q 1 FORM 10-Q FOR 1ST QUARTER UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 0-15502 COMVERSE TECHNOLOGY, INC. (Exact name of registrant as specified in its charter) NEW YORK 13-3238402 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 170 CROSSWAYS PARK DRIVE, WOODBURY, NY 11797 (Address of principal executive offices) (Zip Code) (516) 677-7200 (Registrant's telephone number, including area code) NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report) 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. [X] Yes [ ] No APPLICABLE ONLY TO CORPORATE ISSUERS: The number of shares of Common Stock, par value $0.10 per share, outstanding as of May 10, 1996 was 21,493,977 Page 1 of 14 Total Pages (Exhibit Index Appears on Page 12) PART I FINANCIAL INFORMATION ITEM 1. Financial Statements. Page ---- 1. Condensed Consolidated Balance Sheets as of December 31, 1995 and March 31, 1996 3 2. Condensed Consolidated Statements of Income for the Three Month Periods Ended March 31, 1995 and March 31, 1996 4 3. Condensed Consolidated Statements of Stockholders' Equity for the Three Month Period Ended March 31, 1996 5 4. Condensed Consolidated Statements of Cash Flows for the Three Month Periods Ended March 31, 1995 and March 31, 1996 6 5. Notes to Condensed Consolidated Financial Statements 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 8 Page 2 of 14 Total Pages COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) ASSETS DECEMBER 31, MARCH 31, 1995* 1996 (Unaudited) Current assets: Cash and cash equivalents $ 99,862 $ 95,840 Bank time deposits and short-term investments 23,070 31,469 Accounts receivable, net 43,009 41,093 Inventories 15,773 16,209 Prepaid expenses and other current assets 8,536 9,162 -------- -------- Total current assets 190,250 193,773 Long-term receivables, net 2,105 2,121 Property and equipment 22,718 23,842 Less: accumulated depreci- ation and amortization (10,887) (11,608) -------- -------- 11,831 12,234 Investments 3,880 4,452 Goodwill, net 1,106 1,057 Software development costs, net 8,756 9,071 Other intangible assets, net 1,597 1,530 Deferred costs and other assets, net 1,929 1,782 -------- -------- $221,454 $226,020 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY DECEMBER 31, MARCH 31, 1995* 1996 (Unaudited) Current liabilities: Accounts payable and accrued expenses $ 27,230 $ 30,126 Advance payments from customers 4,988 2,975 Due to related parties 364 278 Other current liabilities 2,604 285 ------------ ---------- Total current liabilities 35,186 33,664 5-1/4% Convertible Subordinated Debentures 60,000 60,000 Liability for severance pay 2,299 2,796 Other liabilities 1,939 1,883 Minority interest 264 217 ------------ ---------- Total liabilities 99,688 98,560 Stockholders' equity: Common Stock, $.10 par value authorized 100,000,000 shares; issued and outstanding 21,362,598 and 21,472,976 2,136 2,147 Additional paid-in-capital 75,752 76,276 Cumulative translation adjustment (136) (111) Unrealized gain on available for sale securities, net of tax 646 273 Retained earnings 43,368 48,875 ------------ ---------- Total stockholders' equity 121,766 127,460 ------------ ---------- $221,454 $226,020 ============ ========== *The Condensed Consolidated Balance Sheet as of December 31, 1995 has been summarized from the Company's audited Consolidated Balance Sheet as of that date. The accompanying notes are an integral part of these financial statements. Page 3 of 14 Total Pages COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) THREE MONTHS ENDED MARCH 31, 1995 1996 Revenues: Sales $29,383 $40,410 Interest and other income 2,139 1,786 ------- ------- Total revenues 31,522 42,196 Costs and expenses: Research and development 5,912 7,773 Less reimbursement (1,512) (1,817) ------- ------- Net research and development 4,400 5,956 Cost of sales 12,921 17,352 Selling, general and administrative 9,098 10,787 Royalties and license fees 610 839 Minority interest and equity in loss of affiliates (10) - Interest expense and other 1,210 1,139 ------- ------- Total costs and expenses 28,229 36,073 Income before income tax provision 3,293 6,123 Income tax provision 404 616 ------- ------- Net income $ 2,889 $ 5,507 ======= ======= Primary and fully diluted earnings per share $0.13 $0.24 ======== ======= The accompanying notes are an integral part of these financial statements. Page 4 of 14 Total Pages COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA)
Common Stock Additional Cumulative Unrealized Number Par Paid in Translation Gains Retained of Shares Value Capital Adjustment (Losses) Earnings Total ---------- ------ ---------- ------------ ----------- -------- --------- BALANCE, DECEMBER 31, 1995 21,362,598 $2,136 $75,752 $(136) $ 646 $43,368 $121,766 Unrealized loss on available-for-sale securities, net of tax - - - - (373) - (373) Common stock issued in connection with exercise of stock options 110,378 11 524 - - - 535 Translation adjustment - - - 25 - - 25 Net income, three months ended March 31, 1996 - - - - - 5,507 5,507 ----------------------------------------------------------------------------- BALANCE, MARCH 31, 1996 21,472,976 $2,147 $76,276 $(111) $273 $48,875 $127,460 ==============================================================================
The accompanying notes are an integral part of these financial statements. Page 5 of 14 Total Pages COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) THREE MONTHS ENDED MARCH 31, 1995 1996 Cash flows from operating activities: Net cash from operations after adjustment for non-cash items $ 3,664 $ 5,196 Changes in assets and liabilities: Accounts receivable and long-term receivables (2,721) 1,900 Inventories (3,112) (436) Prepaid expenses and other current assets (1,073) (599) Accounts payable and accrued expenses 1,945 2,896 Advance payments from customers 640 (2,013) Due to related parties (68) (86) Liability for severance pay 460 497 ------- -------- Net cash (used in) provided by operating activities (265) 7,355 Cash flows from investing activities: Maturities and sales (purchase) of bank time deposits and investments, net 10,742 (9,432) Purchases of property and equipment (1,088) (1,124) Increase in software development costs (1,333) (1,152) Other - 87 ------- -------- Net cash provided by (used in) investing activities 8,321 (11,621) Cash flows from financing activities: Increase (decrease) in short and long term debt, net 702 (291) Proceeds from issuance of common stock 121 535 ------- -------- Net cash provided by financing activities 823 244 Net increase (decrease) in cash and cash equivalents 8,879 (4,022) Cash and cash equivalents, beginning of period 39,225 99,862 ------- -------- Cash and cash equivalents, end of period $48,104 $ 95,840 ======= ======== The accompanying notes are an integral part of these financial statements. Page 6 of 14 Total Pages COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) BASIS OF PRESENTATION. The accompanying financial information should be read in conjunction with the financial statements, including the notes thereto, for the year ended December 31, 1995. The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim periods. The results of operations for the three month period ended March 31, 1996 are not necessarily indicative of the results to be expected for the full year. INVENTORIES. The composition of inventories at December 31, 1995 and March 31, 1996 is as follows: DECEMBER 31, MARCH 31, 1995 1996 (In thousands) ----------------- Raw materials $10,364 $10,722 Work in process 2,638 2,963 Finished goods 2,771 2,524 ------- ------- $15,773 $16,209 ======= ======= RESEARCH AND DEVELOPMENT EXPENSES. The Company has historically supported a substantial portion of its research and development activities through participation in government sponsored funding programs, which in general provide reimbursement for a portion of research and development expenditures incurred under project budgets approved on an annual basis by the applicable funding agencies. During the three month period ended March 31, 1996, gross research and development expenses amounted to approximately $7,773,000, of which approximately $1,817,000 was reimbursed. EARNINGS PER SHARE. For the three month periods ended March 31, 1995 and 1996, the computation of earnings per share is based on the weighted average number of outstanding common shares and additional shares assuming the exercise of stock options. The shares used in the computations are as follows: THREE MONTHS ENDED MARCH 31, 1995 1996 (In thousands) Primary 22,139 23,002 Fully diluted 22,246 23,155 Page 7 of 14 Total Pages ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS. Total Revenues. Total revenues for the three month period ended March -------------- 31, 1996 increased by approximately $10,674,000 (34%) from the corresponding period in 1995. The increase is attributable to a higher volume of sales of systems and parts. Sales for the three month period ended March 31, 1996 increased by approximately $11,027,000 (38%) from the 1995 period. The growth in sales occurred in both the TRILOGUE and AUDIODISK product lines. Interest and other income for the three month period ended March 31, 1996 decreased by approximately $353,000 (17%) from the corresponding period in 1995, resulting from decreased interest rates and lower realized gains on sales of short-term investments. Cost of Sales. Cost of sales for the three month period ended March ------------- 31, 1996 increased by approximately $4,431,000 (34%) from the corresponding period in 1995. The increase is attributable primarily to the increase in sales. Gross margin (expressed as a percentage of sales) for the three month period ended March 31, 1996 increased to approximately 57% from approximately 56% during the corresponding 1995 period. Research and Development Expenses. Gross research and development --------------------------------- expenses for the three month period ended March 31, 1996 increased by approximately $1,861,000 (31%) from the corresponding period in 1995. Net research and development expenses, after reimbursement under government funding programs, for the three month period ended March 31, 1996 increased by approximately $1,556,000 (35%) from the corresponding period in 1995. Such increases are due to the overall growth of research and development operations, the initiation of significant new research and development projects for both product lines, and increases in salaries and other costs associated with research and development operations in Israel. Selling, General and Administrative Expenses. Selling, general and -------------------------------------------- administrative expenses for the three month period ended March 31, 1996 increased by approximately $1,689,000 (19%) from the corresponding period in 1995. Such increase was the result of increased sales, marketing and administrative activities associated with the overall growth of the Company's operations, and particularly with the expansion of direct sales and marketing activities internationally and in the United States. Royalties and License Fees. Royalties and license fees for the three -------------------------- month period ended March 31, 1996 increased by approximately $229,000 (38%) from the corresponding period in 1995. Royalties and license fees as a percentage of total sales was approximately 2.1% in the 1995 and 1996 periods. Income Tax Provision. Provision for income taxes for the three month -------------------- period ended March 31, 1996 increased by approximately $212,000 (52%) from the corresponding Page 8 of 14 Total Pages period in 1995. The Company's overall effective tax rate decreased from approximately 12% during the three month period ended March 31, 1995 to approximately 10% in the corresponding period of 1996. The Company's overall rate of tax is reduced significantly by the tax benefits associated with qualified activities of one of its subsidiaries in Israel. Net Income. Net income after taxes for the three month period ended ---------- March 31, 1996 increased by approximately $2,618,000 (91%) from the corresponding period in 1995, primarily as a result of the factors described above. Net income after taxes as a percentage of total revenues increased to approximately 13.1% in the three month period ended March 31, 1996 from approximately 9.2% in the corresponding period in 1995. LIQUIDITY AND CAPITAL RESOURCES. At March 31, 1996, the Company had cash and cash equivalents of approximately $95,840,000, bank time deposits and short-term investments of approximately $31,469,000 and working capital of approximately $160,109,000. The Company believes that its existing working capital, together with funds generated from operations, will be sufficient to provide for its planned operations for the foreseeable future. The Company regularly examines opportunities for strategic acquisitions of other companies or lines of business and anticipates that it may from time to time issue additional debt and/or equity securities either as direct consideration for such acquisitions or to raise additional funds to be used (in whole or in part) in payment for acquired securities or assets. The issuance of such securities could be expected to have a dilutive impact on the Company's shareholders, and there can be no assurance as to whether or when any acquired business would contribute positive operating results commensurate with the associated investment. The Company's liquidity and capital resources have not been, and are not anticipated to be, materially affected by restrictions pertaining to the ability of its foreign subsidiaries to pay dividends or by withholding taxes associated with any such dividend payments. CERTAIN TRENDS AND UNCERTAINTIES. The industries in which the Company is principally involved are highly competitive and characterized by frequent technological and market changes. The voice processing and message management industry has undergone consolidation in recent periods, as a result of corporate acquisitions and attrition. In addition, the industry has experienced a continuing evolution of product offerings and alternatives for delivery of services. These trends have affected and may be expected to have a significant continuing influence on conditions in the industry, although the impact on the industry generally and on the Company's position in the industry cannot be predicted with assurance. Significant changes in the industry make planning decisions more difficult and increase the risk inherent in the planning process. The market for telecommunications monitoring systems is also in a period of significant transition. Budgetary constraints, uncertainties resulting from the introduction of new technologies in the telecommunications environment and shifts in the pattern of government Page 9 of 14 Total Pages expenditures resulting from geopolitical events have increased uncertainties in the market, resulting in certain instances in the attenuation of government procurement programs beyond their originally expected performance periods and an increased incidence of delay, cancellation or reduction of planned projects. Competitive conditions in this sector have also been affected by the efforts of government contractors, particularly developers and integrators of technology products, to redirect their marketing strategies and product plans in reaction to cut-backs in their traditional areas of focus, resulting in an increase in the number of competitors and the range of products offered in response to particular requests for proposals. The lack of predictability in the timing and scope of government procurements have similarly made planning decisions more difficult and have increased the associated risks. The Company has historically derived a significant portion of its revenue and operating profit from a relatively small number of contracts for large system installations with customers in both the commercial and government sectors. While the growth of the Company's business has reduced its dependence on any specific customers, it continues to emphasize large capacity systems in its product development and marketing strategies. Contracts for large installations typically involve a lengthy and complex bidding and selection process, and the ability of the Company to obtain particular contracts is inherently difficult to predict. The Company believes that opportunities for large installations will continue to grow in both its commercial and government markets, and intends to continue to expand its research and development, manufacturing, sales and marketing and product support capabilities in anticipation of such growth. However, the timing and scope of these opportunities and the pricing and margins associated with any eventual contract award are difficult to forecast, and may vary substantially from transaction to transaction. The Company's future operating results may accordingly exhibit a higher degree of volatility than the operating results of other companies in its industries that have adopted different strategies, and than the Company has experienced in prior periods. Although the Company is actively pursuing a number of significant procurement opportunities in the United States and internationally, both the timing of any eventual procurements and the probability of the Company's receipt of significant contract awards are uncertain. The degree of dependence by the Company on large orders, and the investment required to enable the Company to perform such orders, without assurance of continuing order flow from the same customers and predictability of gross margins on any future orders, increase the risk associated with its business. The Company has significantly increased its expenditures in all areas of its operations during recent periods, including the areas of research and development and marketing and sales, and the Company plans to further increase these expenditures during 1996. The increase in research and development expenditures reflects the Company's concentration on enhancing the range of features and capabilities of its existing product lines and developing new generations of its products. The Company believes that these efforts are essential for the long- and short- term competitiveness of its product offerings and for positioning itself to participate in future growth opportunities in both the commercial and government sectors. The increase in sales and marketing expenditures primarily results from the Company's decision to expand its activities and direct presence in a number of world markets. The Company's costs of operations have also been affected by increases in the cost of its operations in Israel, resulting both from general inflation and increases in the cost of attracting and retaining qualified scientific, engineering and Page 10 of 14 Total Pages technical personnel in Israel, where the demand for such personnel is growing rapidly with the expansion of technology-based industries in that country. The increase in these costs in recent periods has not been offset by proportional devaluation of the Israeli shekel against the U.S. dollar, and accordingly has had a negative impact on the Company's overall results of operations. The Company currently derives a majority of its total revenues from sales to customers outside of the United States. International transactions involve particular risks, including political decisions affecting tariffs and trade conditions, rapid and unforeseen changes in economic conditions in individual countries, turbulence in foreign currency and credit markets, and increased costs resulting from lack of proximity to the customer. Volatility in international currency exchange rates may have a significant impact on the Company's operating results to the extent that it is unable to completely hedge the exchange rate risk of long term contracts denominated in foreign currencies, or by the cost of such hedging. The trading price of the Company's shares may be affected by the factors noted above as well as prevailing economic and financial trends and conditions in the public securities markets. During recent periods, share prices of companies in technology and government contracting businesses, and particularly smaller and medium-sized publicly traded companies such as the Company, have exhibited a high degree of volatility. Shortfalls in revenues or earnings from the levels anticipated by the public markets could have an immediate and significant effect on the trading price of the Company's shares in any given period. Such shortfalls may result from events that are beyond the Company's immediate control, can be unpredictable and, since a significant proportion of the Company's sales during each fiscal quarter tend to occur in the latter stages of the quarter, may not be discernible until the end of a financial reporting period, which may contribute to the volatility of the trading value of its shares regardless of the Company's long-term prospects. The trading price of the Company's shares may also be affected by developments, including reported financial results and fluctuations in trading prices of the shares of other publicly-held companies in the voice processing industry, which may not have any direct relationship with the Company's business or prospects. Page 11 of 14 Total Pages PART II Other Information ----------------- ITEM 6. Exhibits and Reports on Form 8-K. -------------------------------- (a) Exhibit Index. ------------- Item Number Exhibit Page ------ -------- ---- 11. Statement re computation of per share earnings. 14 27. Financial data schedule Filed electronically (b) Reports on Form 8-K. ------------------- None Page 12 of 14 Total Pages SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COMVERSE TECHNOLOGY, INC. Dated: May 14, 1996 S/Kobi Alexander ---------------- Kobi Alexander President, Chairman of the Board and Chief Executive Officer Dated: May 14, 1996 S/Igal Nissim ------------- Igal Nissim Vice President, Finance and Chief Financial Officer Page 13 of 14 Total Pages EX-11 2 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 COMVERSE TECHNOLOGY, INC. STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) THREE MONTHS ENDED MARCH 31, 1995 1996 Primary earnings per share: Net income $ 2,889 $ 5,507 ======= ======= Weighted average number of outstanding common shares 20,996 21,394 Additional shares assuming exercise of stock options 1,143 1,608 ------- ------- Weighted average number of outstanding common and common equivalent shares 22,139 23,002 ======= ======= Primary earnings per share $ 0.13 $ 0.24 ======= ======= Fully diluted earnings per share: Net income $2,889 $5,507 ====== ====== Weighted average number of outstanding common shares 20,996 21,394 Additional shares assuming exercise of stock options 1,250 1,761 ------- ------- Weighted average number of outstanding common shares assuming full dilution 22,246 23,155 ======= ======= Fully diluted earnings per share $ 0.13 $ 0.24 ======= ======= Page 14 of 14 Total Pages EX-27 3 ARTICLE 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-Q FOR 3/31/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 95840 31469 41093 0 16209 193773 23842 (11608) 226020 33664 60000 2147 0 0 125313 226020 40410 42196 17352 36073 0 0 1139 6123 616 5507 0 0 0 5507 0.24 0.24
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