-----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, AJqCcLdzbGFE4JNR7VC4Rg9TYeDqB5B8rHzYHZRIqcYsibywgtPsegezvtnckSpP ZhZhveu3nf1OoS4s1dnoRg== 0000950130-96-004393.txt : 19961118 0000950130-96-004393.hdr.sgml : 19961118 ACCESSION NUMBER: 0000950130-96-004393 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 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: 96662645 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 QUARTERLY REPORT FOR THE PERIOD ENDING 9/30/96 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 September 30, 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 November 7, 1996 was 21,628,743. Page 1 of 18 Total Pages (Exhibit Index Appears on Page 15) PART I FINANCIAL INFORMATION Page ---- ITEM 1. Financial Statements 1. Condensed Consolidated Balance Sheets as of December 31, 1995 and September 30, 1996 3 2. Condensed Consolidated Statements of Income for the Three Month and Nine Month Periods Ended September 30, 1995 and September 30, 1996 4 3. Condensed Consolidated Statements of Stockholders' Equity for the Year Ended December 31, 1995 and the Nine Month Period Ended September 30, 1996 5 4. Condensed Consolidated Statements of Cash Flows for the Nine Month Periods Ended September 30, 1995 and September 30, 1996 6 4. Notes to Condensed Consolidated Financial Statements 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Page 2 of 18 COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, 1995* 1996 1995* 1996 (Unaudited) (Unaudited) Current assets: Current liabilities: Cash and cash equivalents $ 99,862 $ 81,530 Accounts payable and Bank time deposits and accrued expenses $ 27,230 $ 40,036 short-term investments 23,070 35,368 Advance payments Accounts receivable, net 43,009 57,956 from customers 4,988 3,368 Inventories 15,773 29,565 Due to related parties 364 415 Prepaid expenses and Other current liabilities 2,604 314 other current assets 8,536 11,821 -------- -------- -------- -------- Total current liabilities 35,186 44,133 Total current assets 190,250 216,240 5-1/4% Convertible Subordinated Debentures 60,000 60,000 Long-term receivables, net 2,105 1,382 Liability for severance pay 2,299 3,120 Property and equipment 22,718 28,560 Other liabilities 1,939 2,054 Less: accumulated depreciation Minority interest 264 - and amortization (10,887) (13,371) -------- -------- -------- -------- 11,831 15,189 Total liabilities 99,688 109,307 Investments 3,880 6,205 Stockholders' equity: Common Stock, $.10 par value Goodwill, net 1,106 377 authorized 100,000,000 shares; issued and outstanding Software development costs, net 8,756 9,740 21,362,598 and 21,622,730 2,136 2,162 Additional paid-in-capital 75,752 77,299 Cumulative translation adjustment (136) (44) Unrealized gain on available for Other intangible assets, net 1,597 1,397 sale securities, net of tax 646 612 Retained earnings 43,368 62,961 -------- -------- Deferred costs and other assets, net 1,929 1,767 Total stockholders' equity 121,766 142,990 -------- -------- -------- -------- $221,454 $252,297 $221,454 $252,297 ======== ======== ======== ========
*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 18 COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1995 1996 1995 1996 Revenues: Sales $ 99,126 $138,931 $36,116 $51,892 Interest and other income 6,533 6,080 2,209 2,216 -------- -------- ------- ------- Total revenues 105,659 145,011 38,325 54,108 Costs and expenses: Research and development 19,806 25,911 7,078 9,537 Less reimbursement (5,148) (6,339) (1,846) (2,414) -------- -------- ------- ------- Net research and development 14,658 19,572 5,232 7,123 Cost of sales 42,879 59,476 15,665 22,110 Selling, general and administrative 29,594 37,612 10,643 13,998 Royalties and license fees 1,828 2,948 551 1,188 Minority interest and equity in loss of affiliates (105) (232) (60) (82) Interest expense and other 3,459 4,289 1,017 1,668 -------- -------- ------- ------- Total costs and expenses 92,313 123,665 33,048 46,005 -------- -------- ------- ------- Income before gain on issuance of subsidiary shares and income tax provision 13,346 21,346 5,277 8,103 Gain on issuance of subsidiary shares - 535 - - -------- -------- ------- ------- Income before income tax provision 13,346 21,881 5,277 8,103 Income tax provision 1,474 2,288 570 868 -------- -------- ------- ------- Net income $ 11,872 $ 19,593 $ 4,707 $ 7,235 ======== ======== ======= ======= Earnings per share: Primary $0.53 $0.84 $ 0.21 $ 0.31 ======== ======== ======= ======= Fully diluted $0.53 $0.82 $ 0.21 $0.30 ======== ======== ======= =======
The accompanying notes are an integral part of these financial statements. Page 4 of 18 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 - - - - (34) - (34) Common stock issued in connection with exercise of stock options 254,632 25 1,399 - - - 1,424 Common stock issued in connection with acquisition of additional interest in majority-owned subsidiary 5,500 1 148 - - - 149 Translation adjustment - - - 92 - - 92 Net income, nine months ended September 30, 1996 - - - - - 19,593 19,593 ---------- ------ ---------- ----------- ---------- -------- -------- BALANCE, SEPTEMBER 30, 1996 21,622,730 $2,162 $ 77,299 $ (44) $ 612 $ 62,961 $142,990 ========== ====== ========== =========== ========== ======== ========
The accompanying notes are an integral part of these financial statements. Page 5 of 18 COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) NINE MONTHS ENDED SEPTEMBER 30, 1995 1996 Cash flows from operating activities: Net cash from operations after adjustments for non-cash items $ 16,013 $ 21,293 Changes in assets and liabilities: Accounts receivable and long-term receivables (12,275) (14,224) Inventories ( 3,588) (13,792) Prepaid expenses and other receivables ( 2,485) (2,898) Accounts payable and accrued expenses 8,016 12,806 Advance payments from customers ( 256) (1,620) Due to related parties 60 51 Liability for severance pay 979 821 ------- -------- Net cash provided by operating activities 6,464 2,437 Cash flows from investing activities: Maturities and sales (purchases) of bank time deposits and investments, net 43,130 (12,784) Purchases of property and equipment ( 4,298) (5,842) Increase in software development costs ( 3,688) (3,443) Other - 4 ------- -------- Net cash provided by (used in) investing activities 35,144 (22,065) Cash flows from financing activities: Proceeds from issuance of common stock 1,359 1,572 Decrease in short- and long-term debt, net ( 1,856) (276) ------- -------- Net cash (used in) provided by financing activities ( 497) 1,296 Net increase (decrease) in cash and cash equivalents 41,111 (18,332) Cash and cash equivalents, beginning of period 39,225 99,862 ------- -------- Cash and cash equivalents, end of period $80,336 $ 81,530 ======= ======== The accompanying notes are an integral part of these financial statements. Page 6 of 18 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 and nine month periods ended September 30, 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 September 30, 1996 is as follows: DECEMBER 31, SEPTEMBER 30, 1995 1996 (In thousands) --------------------------- Raw materials $10,364 $16,753 Work in process 2,638 9,772 Finished goods 2,771 3,040 ------- ------- $15,773 $29,565 ======= ======= 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 nine month and three month periods ended September 30, 1996, gross research and development expenses amounted to approximately $25,911,000 and $9,537,000, respectively, of which approximately $6,339,000 and $2,414,000, respectively, was reimbursed. EARNINGS PER SHARE. For the nine month and three month periods ended September 30, 1995 and 1996, the computation of primary earnings per share is based on the weighted average number of outstanding common shares and additional shares assuming the exercise of stock options. The computation of fully diluted earnings per share for the nine month and three month periods ended September 30, 1996, further assumes the conversion of the 5-1/4% Convertible Subordinated Debentures (the "Debentures"). For the nine month and three month periods ended September 30, 1995, Page 7 of 18 the assumed conversion of the Debentures was antidilutive. The shares used in the computations are as follows (also see Exhibit 11): NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1995 1996 1995 1996 (In thousands) Primary 22,468 23,243 22,827 23,615 Fully diluted 22,612 26,486 22,929 26,864 SUBSEQUENT EVENTS. In October 1996, the Company issued $115,000,000 of convertible subordinated debentures bearing interest at 5-3/4% per annum, payable semi-annually. The debentures mature on October 1, 2006. The debentures are convertible into shares of the Company's common stock at a conversion price of $45.75 per share, subject to adjustment in certain events. The debentures are subordinated in right of payment to all existing and future senior indebtedness of the Company. The debentures are redeemable at the option of the Company, in whole or in part, at prices decreasing from 102% of the face amount on October 12, 1999 to par on October 1, 2001. The debenture holders may require the Company to repurchase the debentures at par in the event that the common stock ceases to be publicly traded and, in certain instances, upon a change in control of the Company. In October 1996, holders of approximately $2,000,000 of the 5-1/4% convertible subordinated debentures due 2003 surrendered the debentures for conversion into approximately 103,000 shares of common stock of the Company. In November 1996, the Company called for redemption the remaining $58,000,000 of the 5-1/4% convertible subordinated debentures due 2003. Based on the current trading price of the Company's common stock, it is likely that the holders of the debentures will convert the debentures into approximately 2,994,000 shares of the Company's common stock. Page 8 of 18 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. --------------------------------------------- RESULTS OF OPERATIONS. Total Revenues. Total revenues for the nine month and three month -------------- periods ended September 30, 1996 increased by approximately $39,352,000 (37%) and approximately $15,783,000 (41%), respectively, from the corresponding periods in 1995. The increase is attributable primarily to a higher volume of sales of systems, parts and related services. Sales for the nine month and three month periods ended September 30, 1996 increased by approximately $39,805,000 (40%) and approximately $15,776,000 (44%), respectively, from the 1995 periods. The growth in sales for the nine month and three month periods ended September 30, 1996 occurred primarily in the TRILOGUE product line. Interest and other income for the nine month period ended September 30, 1996 decreased by approximately $453,000 (7%) and for the three-month period ended September 30, 1996 increased by approximately $7,000 over the corresponding periods in 1995. Cost of Sales. Cost of sales for the nine month and three month ------------- periods ended September 30, 1996 increased by approximately $16,597,000 (39%) and approximately $6,445,000 (41%), respectively, from the corresponding periods in 1995. The increase is attributable primarily to the increase in sales. Gross margin (expressed as a percentage of sales) for the nine month and three month periods ended September 30, 1996 and 1995 were approximately 57%. Research and Development Expenses. Gross research and development --------------------------------- expenses for the nine month and three month periods ended September 30, 1996 increased by approximately $6,105,000 (31%) and approximately $2,459,000 (35%), respectively, from the corresponding periods in 1995. Net research and development expenses, after reimbursement under government funding programs, for the nine month and three month periods ended September 30, 1996 increased by approximately $4,914,000 (34%) and approximately $1,891,000 (36%), respectively, from the corresponding periods in 1995. Such increases are due to the overall growth of research and development operations, new research and development projects, 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 nine month and three month periods ended September 30, 1996 increased by approximately $8,018,000 (27%) and approximately $3,355,000 (32%), respectively, from the corresponding periods in 1995. Such increases were 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 nine -------------------------- month and three month periods ended September 30, 1996 increased by approximately Page 9 of 18 $1,120,000 (61%) and approximately $637,000 (116%), respectively, from the corresponding periods in 1995. Royalties and license fees for the nine and three month periods ended September 30, 1996, as a percentage of total sales, increased from approximately 1.8% and approximately 1.5%, respectively, in the 1995 periods, to approximately 2.1% and approximately 2.3%, respectively, in the 1996 periods reflecting an increase in the royalty rate owed to a funding agency that became effective in 1996 (See "Certain Trends and Uncertainties"). Income Tax Provision. Provision for income taxes for the nine month -------------------- and three month periods ended September 30, 1996 increased by approximately $814,000 (55%) and approximately $298,000 (52%), respectively, from the corresponding periods in 1995. The Company's overall effective tax rate decreased from approximately 11.0% and 10.8% during the nine month and three month periods ended September 30, 1995 to approximately 10.5% and 10.7% in the corresponding periods 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 nine month and three ---------- month periods ended September 30, 1996 increased by approximately $7,721,000 (65%) and approximately $2,528,000 (54%), respectively, from the corresponding periods in 1995, primarily as a result of the factors described above. Net income after taxes as a percentage of total revenues increased to approximately 13.5% and approximately 13.4%, respectively, in the nine month and three month periods ended September 30, 1996 from approximately 11.2% and approximately 12.3%, respectively, in the corresponding periods in 1995. LIQUIDITY AND CAPITAL RESOURCES. 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. At September 30, 1996, the Company had cash and cash equivalents of approximately $81,530,000, short-term investments of approximately $35,368,000 and working capital of approximately $172,107,000. In October 1996, the Company issued ten-year 5-3/4% Convertible Subordinated Debentures in the aggregate original principal amount of $115,000,000. The Company also called for redemption the outstanding balance of the $60,000,000 principal amount of its 5-1/4% Convertible Subordinated Debentures, originally due in 2003 (the "5-1/4% Debentures"). Based on the current trading price of the Company's common stock, it is expected that substantially all of the 5-1/4% Debentures will be converted into common shares. The Company has experienced rapid growth in recent periods, and intends to continue to grow, both through internal expansion and acquisitions. The Company regularly examines opportunities to acquire additional companies, businesses, technologies or product lines. Although the Company's management believes that acquisitions present potentially cost-effective opportunities for growth, they also present significant financial, operational and legal risks to the Company. In order to maintain and improve operating results, the Company's management will be required to manage Page 10 of 18 growth and expansion effectively. The Company's failure to effectively manage growth, including growth resulting from acquisitions, could have a material adverse effect on the Company's results of operations and financial condition. The Company may from time to time issue additional debt and/or equity securities either as direct consideration for 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 maintains a portion of its assets in a variety of financial instruments, including government obligations, commercial paper, bank time deposits, money-market accounts and common and preferred stocks, both for purposes of cash management and, to some extent, as strategic and portfolio investments. Such activities subject the Company to the risks inherent in the capital markets generally, and to the performance of other businesses over which its has no direct control. The Company has made several investments in early-stage technology ventures and expects to make additional similar investments, primarily in Israel and in the United States. Such investments entail substantial risks due to factors such as the limited operating histories of such ventures and the typical illiquidity of their securities. While the Company does not regard its portfolio and strategic investment activities as a primary element of its overall business plan, it expects to continue to allocate some of its liquid assets, comprising a portion of funds not required for working capital or acquisition plans, for these purposes and, in particular, to increase its holdings in Israeli and United States technology companies as part of its long-term growth strategy. Given the magnitude of the Company's liquid assets relative to its overall size, the results of its operations in the future may, to a greater degree than in the past, be affected by the results of the Company's capital management and investment activities and the risks associated with those activities. 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 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. Page 11 of 18 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 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 increasing use by certain potential government customers of their own internal development resources rather than outside vendors to provide certain technical solutions. In addition, a number of established government contractors, particularly developers and integrators of technology products, have taken steps 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 in the Page 12 of 18 foreseeable future. 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 continuing 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 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 United States dollar, and accordingly has had a negative impact on the Company's overall results of operations. A significant portion of the Company's research and development and manufacturing operations are located in Israel and may be affected by regulatory, political, military and economic conditions in that country. The Company's historical operating results reflect substantial benefits from programs sponsored by the Israeli government for the support of research and development, as well as favorable tax rates available to "Approved Enterprises" in Israel. The Israeli government has indicated its intention to reexamine certain of its policies in these areas. It recently acted to increase, from between 2% and 3% of associated product sales to between 3% and 5% of associated product revenues (including service and other related revenues), the annual rate of royalties to be applied to repayment of benefits under the conditional grant program administered by the Office of the Chief Scientist of the Ministry of Industry and Trade, a program in which the Company has regularly participated and under which it continues to receive significant benefits through reimbursement of qualified research and development expenditures. The Company's repayment of amounts received under the program will be accelerated through these higher royalty rates until repayment is completed. The Israeli authorities have also indicated that this funding program may be reduced in the future. The Israeli government has also shortened the period of the tax moratorium applicable to "Approved Enterprises" from four years to two years. Although this change does not affect the tax status of any of the Company's current projects, it will apply to any future "Approved Enterprises" of the Company. If further changes in the law or government policies regarding those programs were to result in their termination or adverse modification, or if the Company were to become unable to participate in or take advantage of those programs, the cost to the Company of its operations in Israel would materially increase and there would be an adverse effect on the results of the Company's operations as a whole. The Company currently derives a majority of its total sales from 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 Page 13 of 18 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 does not hedge the exchange rate risk of 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 14 of 18 PART II Other Information ----------------- ITEM 6. Exhibits and Reports on Form 8-K. -------------------------------- (a) Exhibit Index. -------------- Item Number Exhibit Page ------ ------- ---- 11. Statement of Computation of Earnings Per Share 17 - 18 27. Financial data schedule Filed electronically (b) Reports on Form 8-K. ------------------- None Page 15 of 18 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: November 13, 1996 S / Kobi Alexander ------------------ Kobi Alexander President, Chairman of the Board and Chief Executive Officer Dated: November 13, 1996 S / Igal Nissim --------------- Igal Nissim Chief Financial Officer Page 16 of 18 EX-11 2 STATEMENT OF COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 COMVERSE TECHNOLOGY, INC. STATEMENT OF COMPUTATION OF EARNINGS PER SHARE (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) THREE MONTHS ENDED SEPTEMBER 30, 1995 1996 Primary earnings per share: Net income $ 4,707 $ 7,235 ======= ======= Weighted average number of outstanding common shares 21,146 21,596 Additional shares assuming exercise of stock options 1,681 2,019 ------- ------- Weighted average number of outstanding common and common equivalent shares 22,827 23,615 ======= ======= Primary earnings per share $ 0.21 $ 0.31 ======= ======= Fully diluted earnings per share: Net income $ 4,707 $ 7,235 Interest expense on 5-1/4% Convertible Subordinated Debentures, net of tax /(1)/ - 709 ------- ------- Fully diluted earnings $ 4,707 $ 7,944 ======= ======= Weighted average number of outstanding common shares 21,146 21,596 Additional shares assuming exercise of stock options 1,783 2,171 Additional shares assuming conversion of 5-1/4% Convertible Subordinated Debentures/(1)/ - 3,097 ------- ------- Weighted average number of outstanding common shares assuming full dilution 22,929 26,864 ======= ======= Fully diluted earnings per share $ 0.21 $0.30 ======= ======= (1) The assumed conversion of the 5-1/4% Convertible Subordinated Debentures for the three month period ended September 30, 1995 was antidilutive and is omitted. Page 17 of 18 EXHIBIT 11 (continued) COMVERSE TECHNOLOGY, INC. STATEMENT OF COMPUTATION OF EARNINGS PER SHARE (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NINE MONTHS ENDED SEPTEMBER 30, 1995/(1)/ 1996 Primary earnings per share: Net income $ 11,872 $19,593 ======== ======= Weighted average number of outstanding common shares 21,061 21,503 Additional shares assuming exercise of stock options 1,407 1,740 -------- ------- Weighted average number of outstanding common and common equivalent shares 22,468 23,243 ======== ======= Primary earnings per share $ 0.53 $ 0.84 ======== ======= Fully diluted earnings per share: Net income $11,872 $19,593 Interest expense on 5-1/4% Convertible Subordinated Debentures, net of tax /(1)/ - 2,126 ------- ------- Fully diluted earnings $11,872 $21,719 ======= ======= Weighted average number of outstanding common shares 21,061 21,503 Additional shares assuming exercise of stock options 1,551 1,886 Additional shares assuming conversion of 5-1/4% Convertible Subordinated Debentures/(1)/ - 3,097 ------- ------- Weighted average number of outstanding common shares assuming full dilution 22,612 26,486 ======= ======= Fully diluted earnings per share $ 0.53 $0.82 ======= ======= (1) The assumed conversion of the 5-1/4% Convertible Subordinated Debentures for the nine month period ended September 30, 1995 was antidilutive and is omitted. Page 18 of 18 EX-27 3 ARTICLE 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-Q FOR 9/30/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 81,530 35,368 57,956 0 29,565 216,240 28,560 13,371 252,297 44,133 60,000 2,162 0 0 140,828 252,297 138,931 145,011 59,476 123,665 0 0 4,289 21,881 2,288 19,593 0 0 0 19,593 0.84 0.82
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