-----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, RitsMjjuKZ6rIAoBBVIKsC1tyFYLkxQtTfacG/ilzyFzs/o53rxx4RpLhRdwJSsM wj0q6qvSZfd3NuhQ9ka0nA== 0000950157-98-000056.txt : 19980128 0000950157-98-000056.hdr.sgml : 19980128 ACCESSION NUMBER: 0000950157-98-000056 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980114 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980127 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: 8-K SEC ACT: SEC FILE NUMBER: 000-15502 FILM NUMBER: 98513963 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 8-K 1 FORM 8-K 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): January 14, 1998 Comverse Technology, Inc. ----------------------------- (Exact name of registrant as specified in its charter) New York 0-15502 13-3238402 - ---------------------------- ----------------------- ---------------------- (State or Other Jurisdiction (Commission File Number) (IRS Employer of Incorporation) Identification Number) 170 Crossways Park Drive, Woodbury, New York 11797 - -------------------------------------------- ------------ (Address of principal executive offices) (Zip Code) (516) 677-7200 ------------------------------- (Registrant's telephone number, including area code) None ------------------------------- (Former Name or Former Address, if Changed Since Last Report) Item 2. Acquisition or Disposition of Assets. On January 14, 1998, Boston Technology, Inc., a Delaware corporation ("BTI"), merged with and into Comverse Technology, Inc., a New York corporation ("Comverse"), pursuant to which each outstanding share of common stock, par value $.001 per share, of BTI was converted into the right to receive 0.65 of a share of common stock, par value $.10, of Comverse (the "Merger"). Attached and incorporated herein by reference as Exhibit 99.1 is a copy of the press release of Comverse announcing the completion of the Merger. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (a) Financial Statements of Business Acquired. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Boston Technology, Inc.: We have audited the accompanying consolidated balance sheets of Boston Technology, Inc. as of January 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three fiscal years in the period ended January 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Boston Technology, Inc. as of January 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended January 31, 1997 in conformity with generally accepted accounting principles. /s/ COOPERS & LYBRAND L.L.P. Boston, Massachusetts April 24, 1997 BOSTON TECHNOLOGY, INC. CONSOLIDATED BALANCE SHEETS (in thousands) January 31, --------------- 1997 1996 ---- ---- ASSETS Current assets: Cash and cash equivalents $ 14,032 $ 13,929 Accounts receivable, less allowances of $3,656,000 and $1,554,000 54,405 28,892 Net investment in sales type leases 645 2,771 Inventories 19,046 16,951 Net taxes receivable -- 3,886 Prepaid expenses and other current assets 2,771 2,130 -------- -------- Total current assets 90,899 68,559 Net investment in sales type leases -- 357 Property and equipment, net 25,568 10,597 Deferred taxes 4,284 2,080 Other assets 7,422 3,068 -------- -------- TOTAL ASSETS $128,173 $ 84,661 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 1,000 $ 275 Accounts payable 15,235 11,253 Net taxes payable 2,618 -- Accrued expenses 21,556 9,981 AT&T contract accrual -- 2,060 Deferred customer funding 1,140 2,825 Deferred revenues 8,939 3,536 -------- -------- Total current liabilities 50,488 29,930 Long-term debt and other long-term liabilities 1,193 417 Commitments and contingencies (Note 11) Stockholders' equity: Common stock, $.001 par value, 60,000,000 shares authorized; 25,501,691 and 25,344,814 shares issued 25 25 Additional paid-in capital 60,557 57,048 Retained earnings 15,516 5,557 Treasury stock, at cost, none and 613,119 shares -- (8,599) Cumulative translation adjustment 394 283 -------- -------- Total stockholders' equity 76,492 54,314 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $128,173 $ 84,661 ======== ======== The accompanying notes are an integral part of the consolidated financial statements. BOSTON TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
For the Years Ended January 31, ------------------------------- 1997 1996 1995 ---- ---- ---- Revenues $ 192,458 $ 105,267 $ 89,056 Costs and expenses: Cost of revenues 91,283 46,585 31,544 Research and development 38,787 21,884 13,709 Marketing, general and administrative 40,257 31,565 26,217 Warrants & other costs associated with AT&T contract acquisition (see Note 8) -- 21,000 -- --------- --------- --------- 170,327 121,034 71,470 Income (loss) from operations 22,131 (15,767) 17,586 Interest income 881 1,169 1,098 Interest expense (1,186) (165) (207) Other expense (865) (22) (6) --------- --------- --------- Income (loss) before provision for income taxes 20,961 (14,785) 18,471 Provision for income taxes 6,812 105 5,527 --------- --------- --------- Net income (loss) $ 14,149 $ (14,890) $ 12,944 ========= ========= ========= Net income (loss) per share $ .51 $ (.60) $ .50 ========= ========= ========= Weighted average number of common and common equivalent shares outstanding 27,585 24,859 25,751 The accompanying notes are an integral part of the consolidated financial statements.
BOSTON TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the Years Ended January 31, 1995, 1996 and 1997 (in thousands, except share data)
Additional Cumulative Treasury Common Stock Stock Total ---------------- Paid-In Retained ------------------- Translation Stockholders' Shares Amount Capital Earnings Shares Amount Adjustment Equity Balance, January 31, 1994 24,217,183 $24 $32,072 $ 8,745 -- -- -- $ 40,841 Exercise of stock options 482,431 1 1,470 -- -- -- -- 1,471 Employee stock purchase plan 59,688 -- 500 -- -- -- -- 500 Tax benefit of disqualifying dispositions of incentive stock options -- -- 1,052 -- -- -- -- 1,052 Translation adjustments (16) (16ASSETS) Net income for the year ended January 31, 1995 -- -- -- 12,944 -- -- -- 12,944 - ----------------------------------------------------------------------------------------------------------------------- Balance, January 31, 1995 24,759,302 25 35,094 21,689 -- -- (16) 56,792 Common stock purchased -- -- -- -- (750,000) (10,663) -- (10,663) Issuance of treasury stock upon exercise of stock options -- -- -- (1,146) 109,334 1,649 -- 503 Exercise of stock options 557,967 -- 2,003 -- -- -- -- 2,003 Employee stock purchase plan 27,545 -- 296 -- -- -- -- 296 Tax benefit of disqualifying dispositions of incentive stock options -- -- 1,055 -- -- -- -- 1,055 Stock warrants issued -- -- 18,600 -- -- -- -- 18,600 Translation adjustments -- -- -- -- -- -- 299 299 Net loss for the year ended January 31, 1996 -- -- -- (14,890) -- -- -- (14,890) - ----------------------------------------------------------------------------------------------------------------------- Balance, January 31, 1996 25,344,814 25 57,048 5,557 (613,119) (8,599) 283 54,314 Issuance of treasury stock upon exercise of stock options -- -- -- (3,993) 542,456 7,534 -- 3,541 Issuance of treasury stock for employee stock purchase plan -- -- -- (197) 70,663 1,065 -- 868 Exercise of stock options 156,877 -- 1,338 -- -- -- -- 1,338 Tax benefit of disqualifying dispositions of incentive stock options -- -- 2,171 -- -- -- -- 2,171 Translation adjustments -- -- -- -- -- -- 111 111 Net income for the year ended January 31, 1997 -- -- -- 14,149 -- -- -- 14,149 - ----------------------------------------------------------------------------------------------------------------------- Balance, January 31, 1997 25,501,691 $25 $60,557 $ 15,516 -- -- $ 394 $ 76,492 ======================================================================================================================= The accompanying notes are an integral part of the consolidated financial statements.
BOSTON TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
For the Years Ended January 31, ---------------------------------- 1997 1996 1995 ---- ---- ---- Cash flows provided by (used in) operating activities: Net income (loss) $ 14,149 $(14,890) $ 12,944 Reconciliation of net income (loss) to cash flows provided by (used in ) operating activities: Depreciation and amortization 8,361 4,822 3,756 Provision for bad debt 2,102 755 509 Payments in excess of rent expense (192) (195) (153) Deferred income taxes (2,204) (1,897) (92) Loss on disposal of fixed assets 127 -- -- Non-cash charge for warrants issued -- 18,600 -- Changes in operating assets and liabilities: Accounts receivable (27,615) 829 (15,692) Net investment in sales type leases 2,483 1,224 (1,679) Inventories (2,095) (8,653) (2,958) Prepaid expenses and other current assets (641) (1,266) (102) Accounts payable 3,982 6,373 923 Accrued expenses 9,515 1,812 4,799 Deferred revenues 5,403 1,795 15 Deferred customer funding (1,685) (1,442) (5,914) Other long-term liabilities (32) (57) 147 Income taxes 8,675 (3,500) 454 -------- -------- -------- Cash flows provided by (used in) operating activities 20,333 4,310 (3,043) Cash flows used in investing activities: Purchase of property and equipment (22,482) (6,546) (4,442) Purchase of investments -- (3,429) (14,946) Redemption of investments -- 9,486 12,694 Investment in joint venture (2,000) (1,000) -- Purchase of license agreements and other assets (1,331) (597) (390) -------- -------- -------- Cash flows used in investing activities (25,813) (2,086) (7,084) Cash flows provided by (used in) financing activities: Principal payments under financing obligations (275) (767) (155) Proceeds from issuance of common stock 4,879 2,506 1,471 Proceeds from employee stock purchase plan 868 615 500 Purchases of treasury stock -- (10,663) -- Borrowing under revolving line of credit 30,600 -- -- Repayments under revolving credit agreements (30,600) -- -- -------- -------- -------- Cash flows provided by (used in) financing activities 5,472 (8,309) 1,816 -------- -------- -------- Effect of exchange rate changes on cash 111 299 (17) Net increase (decrease) in cash and cash equivalents 103 (5,786) (8,328) Cash and cash equivalents at beginning of year 13,929 19,715 28,043 -------- -------- -------- Cash and cash equivalents at end of year $ 14,032 $ 13,929 $ 19,715 ======== ======== ======== Supplemental disclosures of cash flow information: Interest paid $ 138 $ 185 $ 163 Income taxes paid 2,234 5,047 4,300 Supplemental disclosures of non-cash investing and financing activities: Tax benefit of disqualifying dispositions of incentive stock options $ 2,171 $ 1,055 $ 1,052 License agreement acquired for debt 2,000 -- -- The accompanying notes are an integral part of the consolidated financial statements.
Notes To Consolidated Financial Statements 1. DESCRIPTION OF BUSINESS Boston Technology, Inc. ("Boston Technology" or the "Company") is a leading worldwide provider of communications and information processing systems and applications that enable telecommunications carriers to provide their residential, business, wireless and cable subscribers with enhanced services, such as call answering, voice messaging, fax processing, pager notification and other multimedia capabilities. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated. The equity method of accounting is used for an investment in a joint venture. Reclassifications Certain amounts in fiscal 1996 and fiscal 1995 financial statements have been reclassified to conform to the fiscal 1997 presentation. Certain customer service expenses classified as marketing, general and administrative expenses for fiscal 1993 through 1996 have been reclassified to cost of revenues to conform to the fiscal 1997 presentation. These reclassifications from marketing, general and administrative expenses to cost of goods sold were $5,498,000, $3,287,000, $2,330,000 and $2,014,000 for the years ending January 31, 1996, 1995, 1994 and 1993, respectively. Cash and Cash Equivalents All highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents. The Company estimates the fair value of cash and cash equivalents to approximate its carrying value. Risks, Uncertainties, and Estimates Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash equivalents and accounts receivable. Management believes the Company's cash equivalents are maintained in high quality securities placed with major international banks and financial institutions. The Company's investment policy limits its exposure to concentrations of credit risk. The Company's customer base includes telephone companies in North America, South America, Australia, and Asia. Although the Company is directly affected by the strength of the telecommunications industry, management does not believe significant credit risk exists at January 31, 1997 and addresses this risk on a regular basis. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates included in these financial statements include the reserve for bad debts, reserve for warranty, inventory valuation reserve, and certain accrued liabilities. Inventories Inventories are carried and charged to revenue at standard cost, which is updated regularly and which approximates the lower of cost (first-in, first-out) or market. Inventories are subject to rapid technological obsolescence. Property and Equipment Property and equipment are stated at cost and depreciated on a straight line basis over the estimated useful life of the assets as follows: Manufacturing and test equipment 3 - 7 years Office equipment and furniture 5 - 7 years Equipment leased to others 5 years Leasehold improvements and other assets 3 - 8 years Leasehold improvements and assets under capital lease are amortized on a straight line basis over the estimated useful life of the asset or the related lease term, whichever is shorter. Certain manufacturing and test equipment is subject to technological obsolescence. Maintenance and repair costs are charged to operations when incurred; additions and improvements are capitalized. Upon retirement or sale, the cost of the asset disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to income. Intangible Assets Patent and software license agreements are carried at cost less accumulated amortization, which is calculated on a straight-line basis over their estimated useful lives. These assets are amortized generally over periods from three to ten years. At January 31, 1997 and 1996, approximately $4,253,000 and $1,975,000, respectively, of net intangible assets are included in other assets. At January 31, 1997 and 1996, accumulated amortization is $2,009,000 and $1,032,000, respectively. In fiscal 1996, the Company wrote off approximately $200,000 of intangible assets considered to be impaired. The carrying value of intangible assets is reviewed on a regular basis for the existence of facts or circumstance that may suggest impairment. The Company measures the amount of impairment based on the discounted expected future cash flows. Cash flow estimates used contain management's best estimates, using appropriate and customary assumptions and projections at that time. Forward Foreign Exchange Contracts The Company periodically enters into forward foreign exchange contracts to hedge specific scheduled foreign currency denominated sales. Effects of changes in currency rates are therefore minimized and any gains or losses are recognized as part of the underlying transactions being hedged. The parties to these financial instruments consist of large financial institutions. The Company monitors its positions and the credit ratings of the parties to these financial instruments, and by policy limits the amounts of credit exposure to any one party. While the Company may be exposed to potential losses due to credit risk in the event of non-performance by the parties to these financial instruments, it does not anticipate losses. There were no open foreign exchange contracts at January 31, 1997. Royalty Expense Royalty expense with respect to sales of product under royalty agreements is recorded when revenue is recognized. Warranty Costs The Company generally warrants its products for one year after delivery. A provision for estimated warranty costs is recorded at the time revenue is recognized. Revenue Recognition Product revenues are recognized at the time the hardware and/or software is shipped, collection is probable and no significant post shipment obligations remain. Unearned billings are recorded as deferred revenues. Products shipped for customer trials are carried in finished goods inventory until customer acceptance is obtained, at which time revenue is recognized. Installation fees are recognized when products are installed. Revenue from sales-type leases and the associated cost of revenue is recognized upon shipment of the equipment to customers. Interest income is recognized over the life of the sales-type lease. Rental income on equipment under operating leases is recognized ratably over the lease term, and the related equipment is depreciated over its estimated useful life. Maintenance revenue is recognized ratably over the term of the maintenance contract. The Company's products are standard hardware and software configurations which are developed according to internally generated product specifications. Development costs for standard product configurations are charged to research and development expense as incurred. Development work is frequently required for new customers in order to adapt otherwise standard products to specific languages, user interfaces and network interfaces. From time to time, customers may contract for custom modifications and enhancements to standard product configurations. The proceeds from the sale of such modifications and enhancements as well as the excess of customer funding received over and above associated costs are included in revenues upon shipment of the related hardware and/or software. Such revenues for the fiscal years ended January 31, 1997, 1996, and 1995 were approximately $3,263,000, $2,978,000 and $10,483,000, respectively. Software Development Costs Software development costs are expensed as incurred until technological feasibility has been established. At the present time, the Company believes that under its current process for developing software, the software is essentially completed concurrently with the establishment of technological feasibility. Software development costs incurred after the establishment of technological feasibility, which would be eligible for capitalization, have not been significant. Contract Accounting Earnings on long-term contracts are determined on the percentage of completion method, based on the ratio of costs incurred to date to the total estimated costs or the ratio of the number of units completed to date to the total number of units to be completed. Provisions are made currently for all known or anticipated losses. Costs or earnings in excess of billings are classified in inventory as work-in-process and represent amounts not yet billed under the terms of the contract but which are recoverable from customers. As of January 31, 1997 and 1996, the Company has included in inventory $1,249,000 and $675,000, respectively, in costs related to custom development contracts. Customer Funding The Company is involved in several software research and development programs that are funded in whole or in part by its customers. Customer funding is recognized as a reduction to research and development expense, and is recognized as development activities occur. Amounts received from customers for research and development funding are included on the balance sheet as deferred customer funding until they are recognized. Customer funding offsets against research and development expense for the years ended January 31, 1997, 1996 and 1995 amounted to approximately $3,349,000, $5,051,000 and $8,162,000, respectively. Income Taxes Deferred tax assets and liabilities are determined based on the difference between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Net Income Per Share Net income per share is computed based on the weighted average number of common and dilutive common equivalent shares outstanding. Dilutive common equivalent shares consist of stock options and warrants using the treasury stock method. Fully diluted earnings per share are not materially different from reported primary earnings per share for all periods presented. Newly Issued Accounting Standard In February 1997, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards (FAS) No. 128, "Earnings per Share". FAS 128 specifies the computation, presentation and disclosure requirements for earnings per share and is designed to improve earnings per share information by simplifying the existing computational guidelines, revising the disclosure requirements, and increasing the comparability of per share data on an international basis. FAS 128 must be adopted in the Company's fiscal 1998 financial statements. The Company is currently reviewing the adoption and impact of this standard, but does not expect it to have a material impact on the Company's results of operations or its financial position. 3. SALES TYPE LEASES The Company has entered into several sales-type leases for its products. At January 31, 1997, the future minimum payments receivable under these arrangements are as follows: Sales-type leases Year Ending January 31, 1998 $1,450,000 Less: unearned income (805,000) Net current investment in sales type leases $ 645,000 4. INVENTORIES Inventories at January 31, consist of: 1997 1996 ---- ---- Materials and purchased parts $ 7,735,000 $ 8,179,000 Work in process 9,585,000 6,858,000 Finished goods 1,726,000 1,914,000 ----------- ----------- $19,046,000 $16,951,000 =========== =========== 5. PROPERTY AND EQUIPMENT Property and equipment at January 31, consist of: 1997 1996 ---- ---- Manufacturing and test equipment $34,939,000 $20,531,000 Office equipment and furniture 12,279,000 5,741,000 Equipment leased to others 227,000 207,000 Leasehold improvements and other assets 1,104,000 542,000 ----------- ----------- 48,549,000 27,021,000 Less: accumulated depreciation and amortization (22,981,000) (16,424,000) ----------- ------------ $25,568,000 $10,597,000 =========== =========== Depreciation expense totaled $7,384,000, $4,423,000 and $3,108,000 for the years ended January 31, 1997, 1996 and 1995, respectively. In fiscal 1997, the Company disposed of gross assets of approximately $954,000 with accumulated depreciation of $827,000. 6. JOINT VENTURE During fiscal 1996, the Company entered into a joint venture with a company that formerly acted as distributor of the Company's products in Brazil. Under the terms of the joint venture agreement, the Company was committed to provide a minimum of $3,000,000 for working capital purposes, of which $1,000,000 was paid at January 31, 1996. The remaining $2,000,000 was paid in January 1997. There are no further capital contribution requirements. The Company's ownership interest in the joint venture is 30%, which is accounted for using the equity method. In addition to all necessary personnel, assets and related business activities, the former distributor has assigned its exclusive distribution agreement with the Company to the joint venture, thereby establishing the joint venture as the exclusive distributor of the Company's products in Brazil. The Company has committed to provide all necessary marketing, sales and customer service personnel to assist the joint venture in developing marketing and sales plans, and to provide technical assistance on customer service matters. The Company's share of the net loss of the joint venture for fiscal 1997 was $479,000 and is included in other expenses. At January 31, 1997 and 1996, the joint venture partner owed the Company approximately $2,298,000 and $7,321,000, respectively, resulting from transactions with the Company prior to the establishment of the joint venture, which is included in accounts receivable and investment in sales type leases. 7. ACCRUED EXPENSES Accrued expenses at January 31, consist of: 1997 1996 ---- ---- Accrued payroll, vacation and bonuses $ 3,365,000 $1,664,000 Accrued commissions 3,050,000 1,683,000 Accrued warranty 2,964,000 1,352,000 Accrued cost of sales 4,898,000 -- Other accrued expenses 7,279,000 5,282,000 ----------- ---------- $21,556,000 $9,981,000 =========== ========== 8. AT&T CONTRACT ACCRUAL In November 1995 the Company entered into an agreement with AT&T to supply its Access NP Network Services Platform and AccessMAX object-oriented software. Pursuant to this agreement, the Company issued to AT&T warrants to purchase 4,908,800 shares of its common stock at an exercise price of $14.00 per share. The warrants become exercisable in five equal annual increments of 981,760 shares each, commencing with the first anniversary date of the grant, and remain exercisable for thirty months after first becoming exercisable. In the event that any person or entity acquires a majority of the Company's outstanding voting securities, the warrants will become immediately exercisable in full. Any stock issued as a result of the exercise of the warrants would be for AT&T's investment purposes only, and would be "restricted securities" under Rule 144 of the Securities Act of 1933. Through December 31, 2000, AT&T is restricted from acquiring greater than a 30% ownership of Boston Technology's outstanding common stock. As of January 31, 1997, warrants to purchase 981,760 shares of common stock are vested and exercisable; none have been exercised. At commencement of the contract, the Company estimated that compliance with the terms of the agreement would result in a $21,000,000 loss, which was recognized in the fourth quarter of fiscal 1996, establishing the AT&T Contract Accrual. Included in the $21,000,000 was a charge of $18,600,000 relating to the value of the warrants issued to AT&T, based on an evaluation performed by an independent investment banking firm. As of January 31, 1997, all of the related expenses have been paid and no accrual balance remains. 9. FINANCING ARRANGEMENTS Long-term debt at January 31, consists of: 1997 1996 ---- ---- Notes payable--patent license agreements $ 2,000,000 $ 275,000 Less: current portion (1,000,000) (275,000) $ 1,000,000 $ -- =========== ========= The note payable of $2,000,000 at January 31, 1997 represents the amount due to AudioFAX resulting from a patent license settlement agreement and is payable in four equal installments in each of February and August of both 1997 and 1998. The Company estimates the fair value of the outstanding notes payable to approximate its carrying value. The Company has entered into several patent license agreements (the "Agreements") whereby the Company obtained a non-exclusive license to make, have made, use and sell certain inventions relating to voice messaging, voice processing, and facsimile applications covered by the claims of the patents. The license fees are due in installments through fiscal year 1999. In addition, certain of the Agreements provide that the Company shall pay to the licensor a royalty based on a percentage of defined revenues derived by the Company from the use, sale, lease or rental of the products incorporating the licensed technology. Royalty expense relating to the Agreements was $6,076,000, $902,000 and $199,000 for the years ended January 31, 1997, 1996 and 1995, respectively. Credit Agreements The Company maintains a $35,000,000 revolving credit facility with two banks. Borrowings are collateralized by the Company's accounts receivable and inventories and bear interest at the prime rate (8.25% at January 31, 1997) or the LIBOR rate plus 175 basis points. The credit facility is scheduled to expire on November 19, 1998. This revolving credit facility also has a 1/2 of 1% annual commitment fee on the unused portion. The facility contains quarterly covenants which, among other things, require the Company to maintain certain financial ratios, specified levels of equity, and other restrictions. Stand-by letters of credit reduce the amount available from the $35,000,000 revolving credit facility. At January 31, 1997 and 1996, stand-by letters of credit of approximately $3,476,000 and $203,000, respectively, had been issued under this agreement. The Company also has available an aggregate $50,000,000 of uncollateralized lines of credit for foreign exchange contracts with two banks. These lines of credit are scheduled to expire on July 6, 1997. At January 31, 1997 and 1996, there were no outstanding forward foreign exchange contracts. 10. INCOME TAXES The provision for income taxes at January 31, consists of the following: 1997 1996 1995 ---- ---- ---- Federal and foreign income taxes: Currently payable $ 8,341,000 $ 1,689,000 $ 5,135,000 Deferred (2,095,000) (1,584,000) (95,000) ----------- ----------- ----------- 6,246,000 105,000 5,040,000 State income taxes: Currently payable 675,000 313,000 483,000 Deferred (109,000) (313,000) 4,000 ----------- ----------- ----------- 566,000 -- 487,000 Total $ 6,812,000 $ 105,000 $ 5,527,000 =========== =========== ========== The difference between taxes at the statutory federal income tax rate and the Company's effective income tax rate for the years ended January 31, is as follows: 1997 1996 1995 ---- ---- ---- Tax at the federal income tax rate $ 7,336,000 $(5,105,000) $ 6,465,000 State income tax, net of federal tax benefit 368,000 -- 539,000 Tax credits (978,000) (708,000) (1,723,000) Tax effect of AT&T warrants issued for which no deduction is available -- 6,510,000 -- Meals and entertainment 321,000 53,000 60,000 Foreign sales corporation benefit (477,000) (466,000) (204,000) Other 242,000 (179,000) 390,000 ----------- ----------- ----------- Provision for income taxes $ 6,812,000 $ 105,000 $ 5,527,000 =========== =========== =========== A valuation reserve against net deferred tax assets is required if, based upon weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Based on the Company's projection of future earnings, management believes that sufficient income will be generated in the future to realize the deferred tax asset. Accordingly, the Company has provided no valuation reserve for deferred tax assets at January 31, 1997. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if future taxable income is reduced. The components of the net deferred tax asset as of January 31, consist of: 1997 1996 ---- ---- Deferred tax assets: Reserves $ 5,284,000 $3,081,000 Inventory capitalization (460,000) -- Equity in joint venture 176,000 -- Other 75,000 131,000 ----------- ---------- Total deferred tax assets 5,075,000 3,212,000 ----------- ---------- Deferred tax liabilities: Depreciation 588,000 665,000 Deferred compensation (21,000) 22,000 Sales type lease 224,000 445,000 ----------- ---------- Total deferred tax liabilities 791,000 1,132,000 ----------- ---------- Net deferred tax asset $ 4,284,000 $2,080,000 =========== ========== At January 31, 1997, the Company had income tax payable of $2,618,000. At January 31, 1996, the Company had income taxes receivable of $3,886,000, primarily representing estimated refunds receivable resulting from federal and state income tax payments made during fiscal 1996. The tax benefits related to the $18,600,000 charge for the AT&T warrants (see Note 8 to the Consolidated Financial Statements) are contingent upon the timing of the exercise of the warrants and the stock value at that time. The tax benefit, if any, is not included in the deferred tax asset. 11. COMMITMENTS AND CONTINGENCIES The Company leases a building in Wakefield, Massachusetts which is used as its principal manufacturing facility and corporate headquarters. The lease expires in fiscal 2009. In addition, the Company has the option to purchase the property at the greater of $35,500,000 or fair market value, at any time after November 15, 1995. The Company also has a commitment to lease an additional space of approximately 168,000 square feet in a new office building to be constructed adjacent to its Corporate headquarters in Wakefield, Massachusetts. Approval of the building permit is expected in April 1997, and occupancy is expected by mid May 1998 for a lease term of twelve years. The Company also leases office facilities and certain equipment under various operating leases, expiring at various dates through fiscal 2002. As of January 31, 1997, the future minimum payments under real estate operating leases are as follows: Years Ending January 31, 1998 $ 5,111,000 1999 5,672,000 2000 7,000,000 2001 6,934,000 2002 6,942,000 Beyond 52,794,000 ---------- Total minimum lease payments $ 84,453,000 ============ Rent expense was $4,328,000, $2,875,000 and $2,071,000 for the years ended January 31, 1997, 1996 and 1995, respectively. On or about November 16, 1995, a complaint was filed in the United States District Court for the Eastern District of Pennsylvania captioned John Eades v. Boston Technology, Inc., Greg C. Carr, Francis E. Girard, Joseph E. Norberg, Paul W. DeLacey, William J. Burke and John C.W. Taylor, Civil Action No. 95-CV-7236. On or about November 20 and 21, 1995, respectively, essentially identical complaints were filed in the same court captioned Jacob Turner v. Boston Technology, Inc., Greg C. Carr, Francis E. Girard, Joseph E. Norberg, Paul W. DeLacey, William J. Burke and John C.W. Taylor, Civil Action No. 95-CV-7295, and Gerald Tobin v. Boston Technology, Inc., Greg C. Carr, Francis E. Girard, Joseph E. Norberg, Paul W. DeLacey, William J. Burke and John C.W. Taylor, Civil Action No. 95-CV-7317. Each of the plaintiffs purports to represent a class of purchasers of the common stock of the Company between and including May 17, 1995 through November 15, 1995. Each complaint claims that the named defendants violated Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated pursuant thereto, by virtue of false or misleading statements made during the class period. Each complaint claims that the individual defendants are liable as "control persons" under Section 20(a) of that Act. In addition, the complaints claim that the individual defendants sold some of their own common stock of the Company, during the purported class period, at times when the market price for the stock allegedly was inflated. No response has been made to the three complaints, which have been consolidated by the Court. The plaintiffs filed an Amended Complaint on May 6, 1996, and on June 20, 1996 the defendants filed a Motion to Transfer the case to the Eastern District of Massachusetts. On November 14, 1996, the United States District Court of the Eastern District of Pennsylvania ordered the cases transferred to the United States District Court for the District of Massachusetts. On January 19, 1997, the defendants filed a Motion to Dismiss on the grounds that the Amended Complaint fails to state a claim under the relevant sections of the Securities Exchange Act of 1934, and under the law of the United States Federal Courts for the First Circuit. Oral argument was held on the Motion to Dismiss and the Plaintiffs Reply to the Motion on March 20, 1997. A decision is expected by August 1997. Boston Technology and the defendants continue to deny the allegations and will continue to contest these cases vigorously. The outcome of this lawsuit is neither probable or estimable, accordingly, no loss provisions has been made for this lawsuit. 12. STOCKHOLDER RIGHTS PLAN In May 1991, the Board of Directors of the Company adopted a Stockholder Rights Plan, as amended, pursuant to which common stock purchase rights ("Rights") were distributed as a dividend at the rate of one Right for each share of common stock held as of May 31, 1991, and one Right will be issued for each share of common stock issued after May 31, 1991 and before the Rights become exercisable. Each Right entitles the holder of common stock to purchase four-tenths of one share of common stock at an exercise price of $12.40 per Right ($31.00 per share). The Rights will be exercisable only if a person or group has acquired beneficial ownership of 20 percent or more of common stock (excluding persons or groups beneficially owning 20 percent or more as of May 9, 1991) or announces a tender or exchange offer that would result in such person or group owning 30 percent or more of the common stock. If any person becomes the beneficial owner of 25 percent or more of the common stock, except pursuant to a tender or exchange offer for all shares at a fair price as determined by the outside Board members, or if a 20 percent or more shareholder consolidates or merges into or engages in certain self-dealing transactions with the Company, or if there occurs any reclassification, merger or other transaction or transactions which increases by more than one percent the proportionate share of the Company's outstanding common stock held by a 20 percent or more shareholder, each Right not owned by a 20 percent or more shareholder will enable its holder to purchase that number of shares of common stock which equals the exercise price of the Right divided by one-half of the current market price of such common stock at the date of the occurrence of the event. The Company will generally be entitled to redeem the Rights at $.02 per Right at any time until the tenth day following the public announcement that a 20 percent stock position has been acquired and in certain other circumstances. The Rights expire on May 31, 2001 unless earlier redeemed or exchanged. 13. STOCK OPTIONS The Company has issued options to purchase shares of common stock to officers and employees under employment agreements, and to officers, employees and directors under various Company stock option plans. The following table summarizes stock option transactions under all plans:
Weighted Average Option Exercise Number Shares Option Price Range Price Exercisable Outstanding, January 31, 1994 2,551,439 $ 2.00 - $11.50 $ 4.97 947,470 Granted 941,714 $ 8.75 - $17.75 $10.92 Exercised (482,431) $ 2.00 - $12.31 $ 3.05 Canceled (101,265) $ 2.13 - $11.50 $ 8.46 Outstanding, January 31, 1995 2,909,457 $ 2.00 - $17.75 $ 7.09 1,252,007 Granted 899,317 $11.06 - $15.75 $14.05 Exercised (667,301) $ 2.00 - $14.33 $ 3.76 Canceled (152,408) $ 3.25 - $12.75 $ 9.85 Outstanding, January 31, 1996 2,989,065 $ 2.00 - $17.75 $ 9.79 1,376,467 Granted 1,164,404 $13.25 - $29.75 $19.32 Exercised (699,333) $ 2.00 - $17.75 $ 7.10 Canceled (175,110) $ 2.75 - $17.75 $12.81 Outstanding, January 31, 1997 3,279,026 $ 2.00 - $29.75 $13.59 1,546,773 Exercisable at January 31, 1997 1,546,773 $ 2.00 - $16.56 $ 9.39
The following table summarizes information concerning currently outstanding and exercisable options:
Number Weighted Weighted Weighted Outstanding Average Average Average Range of Remaining Exercise Number Exercise Exercise prices Contractual life Price Exercisable Price $ 2.00 - $ 9.00 816,939 6.01 $ 6.21 775,108 $ 6.06 9.25 - 14.00 867,359 7.66 12.48 617,864 12.61 14.19 - 14.75 758,528 9.08 14.42 135,351 14.27 $14.88 - $29.75 836,200 9.63 $21.18 36,450 $15.00 ---------- --------- Total 3,279,026 1,564,773 ========== ==========
In October 1995, the Financial Accounting Standards Board issued FAS No. 123 Accounting for Stock Based Compensation, which requires the measurement of the fair value of stock options or warrants to be included in the statement of operations or disclosed in the notes to the financial statements. The Company has determined that it will continue to account for stock-based compensation for employees under Accounting Principles Board Opinion No. 25 and elect the disclosure-only alternative under FAS No. 123 for options granted in 1997 and 1996 using the Black-Scholes option pricing model. The weighted average assumptions are as follows: 1997 1996 ---- ---- Risk-free interest rate 6.63% 6.63% Expected dividend yield --- --- Expected lives 4 years 4 years Expected volatility 57.76% 57.76% Had compensation cost for these plans been determined consistent with FAS No. 123, the Company's net pro forma income (loss) and pro forma net income (loss) per share would have been as follows: 1997 1996 ---- ---- Net Income (Loss) As Reported $ 14,149 $ (14,890) Pro Forma 11,863 (16,077) Net Income (Loss) Per Share As Reported $ .51 $ (.60) Pro Forma 0 (1) The above compensation costs does not include the fair value of the warrants issued to AT&T (see Note 8 to the Consolidated Financial Statements) as the fair value of such warrants were included in the 1996 Statement of Operations. The affects of applying FAS 123 in this disclosure are indicative of future amounts. FAS 123 does not apply to grants prior to 1995 and additional grants in the future years are anticipated. Directors' Stock Option Plan In connection with the election of directors, the Company granted options to purchase 20,000 shares of common stock at an exercise price of $2.81, vesting immediately and exercisable at any time prior to December 5, 2001, in fiscal 1992. The exercise price for all options was the fair market value at date of grant. During fiscal 1993, the stockholders of the Company approved the 1992 Directors' Stock Option Plan (the "1992 Directors' Plan"). The 1992 Directors' Plan provides for the granting of non-transferable non-qualified options to purchase a maximum of 135,000 shares of the Company's common stock to outside (i.e., non- employee) directors of the Company. The option price is equal to the fair market value at date of grant. Each eligible director was granted an option to purchase 15,000 shares of common stock annually commencing March 1, 1992 through and including March 1, 1994, provided the individual was an eligible director on the date of grant. All options granted under the 1992 Directors' Plan are immediately exercisable in full upon grant; provided, however, that no options granted under the 1992 Directors' Plan may be exercised more than six months after the optionee ceases to serve as a director of the Company, and all options terminate on the tenth anniversary of the date of grant. The 1992 Directors' Plan terminates upon the earlier of December 31, 1994 or the date on which all shares available for issuance under the 1992 Directors' Plan have been issued. During fiscal 1995, the stockholders of the Company approved an Amendment to the 1992 Directors' Plan which increased the number of shares authorized to be issued under the 1992 Directors' Plan from 135,000 to 150,000 shares of the Company's common stock to outside directors of the Company. All other terms and conditions of the 1992 Directors' Plan remained the same. During fiscal 1995, 1994 and 1993, options to purchase 60,000, 45,000 and 45,000 shares of common stock, respectively, were automatically issued to eligible directors; options to purchase 15,000 shares were exercised during 1996. During fiscal 1996, the stockholders of the Company approved the 1995 Director Stock Option Plan (the "1995 Director Plan"). The 1995 Director Plan provides for the granting of non-transferable non-qualified options to purchase a maximum of 180,000 shares of the Company's common stock to eligible outside (i.e., non-employee) directors of the Company on March 1, 1995. Accordingly, on March 1, 1995, 120,000 shares of the Company's common stock were issued to the eligible directors at an exercise price of $13.63 per share, the closing sale price of the Company's common stock on the Nasdaq National Market on the date of grant. The 1995 Director Plan also provides that an option to purchase 30,000 shares shall be granted to an eligible director upon his or her initial election as a director. All options granted under the 1995 Director Plan vest and become exercisable in increments of 10,000 each on the date of the first, second and third annual meetings of the stockholders following the date of grant. Employment Agreements Under employment agreements, certain officers and employees have been granted non-qualified options to purchase 394,450 shares of the Company's common stock at prices ranging from $2.00 to $24.38, which equaled fair market value at the date of grant. Options become exercisable in annual installments over one to ten years and expire ten years from the date of grant. Options to purchase 5,242, 17,500 and 30,967 shares of common stock were exercised during the years ended January 31, 1997, 1996 and 1995, respectively. As of January 31, 1997, no shares remained available for future option grants. 1989 Stock Option Plan During fiscal 1993, the stockholders of the Company approved an increase in the number of shares reserved for issuance under the 1989 Stock Option Plan ("the Plan") to an aggregate of 3,500,000 shares. The Plan was also amended to authorize the grant of non-statutory options, in addition to incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986. The maximum term for options granted under the Plan is ten years (five years for holders of more than 10% of the Company's common stock). The exercise price at which shares of common stock may be purchased upon exercise of options granted under the Plan must equal at least 100% (110% for holders of more than 10% of the Company's common stock) of the fair market value of the common stock on the date of grant. The aggregate fair market value (determined at the time of grant) of shares for which incentive stock options granted under the Plan are exercisable for the first time by the optionee in any one calendar year may not exceed $100,000. During the year ended January 31, 1997, options to purchase 91,608 shares of common stock had been granted and were exercisable at $24.38. As of January 31, 1997, 2,691,944 shares had been issued upon option exercises and no shares remain available for future stock option grants. 1994 Stock Incentive Plan During fiscal 1995, the stockholders of the Company, approved the 1994 Stock Incentive Plan (the "1994 Incentive Plan"). The 1994 Incentive Plan provides for the granting of a maximum of 1,500,000 shares issuable pursuant to incentive stock options, non-statutory stock options, stock appreciation rights, performance shares, restricted stock awards or non-restricted stock awards to employees, officers, directors, consultants and advisors of the Company and its subsidiaries. During the years ended January 31, 1997, 1996, and 1995, 161,843, 921,600, and 839,714 stock options had been granted at prices ranging from $14.88 to $24.38, $11.06 to $15.75, and $8.75 to $17.75, respectively. As of January 31, 1997, 276,242 shares had been issued upon exercise of options, and 1,333 shares remained available for future option grants. 1996 Stock Incentive Plan During fiscal year 1997, the stockholders of the Company approved the 1996 Stock Incentive Plan (the "1996 Incentive Plan"). The 1996 Incentive Plan provides for the granting of up to 1,000,000 shares of common stock under terms that are in all material respects similar to the 1994 Incentive Plan. As of January 31, 1997, 974,691 stock options have been granted at prices ranging from $13.25 to $29.75. No shares had been issued upon exercise of stock options and 33,309 shares remained available for future option grants. Options Granted by Stockholders During fiscal 1993, the two founding stockholders of the Company, who were also directors of the Company at the time the options were granted, granted options to purchase an aggregate of 187,500 shares of common stock owned by them to certain employees of the Company in recognition of the contributions made by these employees to the Company. The options were granted at fair market value at the time of grant. As of January 31, 1997, options to purchase 130,000 shares have been exercised at prices ranging from $3.31 to $5.00, and options to purchase 57,500 shares remain outstanding and exercisable at prices ranging from $3.31 to $5.00 per share. 14. MAJOR CUSTOMERS Substantially all of the Company's revenues were attributable to sales to the network operator market. The following table summarizes revenues from major customers for the years ended January 31: 1997 1996 1995 ---- ---- ---- AT&T 23% * * SBC Communications 17 11% * DDI 13 13 10% Bell Atlantic 10 13 48 NTT DoCoMo * 22 * * Represents less than 10% of total revenue. Geographically, the Company's revenues for the years ended January 31, are as follows: 1997 1996 1995 ---- ---- ---- North America 70% 40% 67% Asia 26 52 29 South America 2 4 4 Other 2 4 -- ---- ---- ---- Total 100% 100% 100% ==== ==== ==== 15. EMPLOYEE BENEFIT PLANS The Company has an Employee Savings and Profit Sharing Plan (the "Savings Plan"), under Section 401(k) of the Internal Revenue Code of 1986, as amended. All employees of the Company, including executive officers, are eligible to participate in the Savings Plan. A participating employee may elect to defer up to 15% of his or her salary on a pre-tax basis. This amount, plus a matching amount provided by the Company, is contributed to the Savings Plan. All amounts granted vest in their entirety upon completion of one year of service. The full amount vested in a participant's account will be distributed to a participant upon termination of employment, retirement, disability or death. Company contributions to the Savings Plan for the years ended January 31, 1997, 1996 and 1995 amounted to $472,000, $321,000 and $268,000, respectively. The Company does not currently offer post-retirement benefits, and the effect of post-employment benefits is immaterial. As of December 31, 1993, the Company implemented the Officers' Deferred Compensation Plan (the "Plan") providing elected officers with the opportunity to participate in an unfunded, deferred compensation program. Under the Plan, officers may defer up to 100% of their base salary and/or incentive compensation until retirement, separation or a fixed date at least five (5) years from the date of election. The deferred amounts are retained as Company assets and are included in other assets on the Consolidated Balance Sheets. The deferred amounts are invested, at the officer's election, in either treasury bonds or a designated mutual fund. Officers are 100% vested in their deferral balances at all times. The total amount deferred under the Plan, which is reflected in other long-term liabilities, was $57,000 and $90,000 as of January 31, 1997 and 1996, respectively. The expense for the Plan was $9,000 in fiscal 1995, there was no expense in fiscal 1996 or fiscal 1997. 16. EMPLOYEE STOCK PURCHASE PLANS Under the 1991 Employee Stock Purchase Plan (the "1991 Stock Purchase Plan"), all employees who had completed three months of employment, except for those employees who possessed at least 5% of the voting power of the Company's common stock were entitled, through payroll deductions of amounts up to 10% of his or her base salary, to purchase shares of the Company's common stock at the lesser of 85% of the market price at the offering commencement date or the offering termination date. During fiscal 1994, the stockholders of the Company approved the 1993 Employee Stock Purchase Plan (the "1993 Stock Purchase Plan"). The 1993 Stock Purchase Plan was in all material respects identical to the 1991 Employee Stock Purchase Plan. This plan was terminated during fiscal 1996 and was replaced by the 1995 Employee Stock Purchase Plan (the "1995 Stock Purchase Plan"). During fiscal 1996, the stockholders of the Company approved the 1995 Stock Purchase Plan. The 1995 Stock Purchase Plan is in all material respects identical to the 1991 and 1993 Employee Stock Purchase Plans. The number of shares available for issuance under the 1995 Stock Purchase Plan is 200,000. For the offering period ended February 28, 1997, 41,384 shares of common stock were issued to employees at a price of $12.96 per share. The number of shares available for subsequent offerings may be increased, at the election of the Board of Directors, by the shares, if any, which were made available but not purchased during any previous offerings. 17. UNAUDITED QUARTERLY FINANCIAL INFORMATION
1997 Fiscal Quarter Ended April 30 July 31 October 31 January 31 -------- ------- ---------- ---------- Revenue $35,751 $41,455 $52,818 $62,434 Gross Profit 17,775 22,263 27,097 34,040 Operating income 2,804 4,930 6,923 7,474 Net income 1,830 2,791 4,171 5,357 Net income per share (a) .07 .10 .15 .19 1996 Fiscal Quarter Ended April 30 July 31 October 31 January 31 -------- ------- ---------- ---------- Revenue $26,021 $26,127 $19,519 $33,600 Gross Profit 15,185 16,674 9,547 17,276 Operating income (loss) 4,176 4,102 (4,991) (19,054) Net income (loss) 3,278 2,960 (3,378) (17,750) Net income (loss) per share (a) .13 .11 (.14) (.72)
(a) Earnings per common share calculations for each of the quarters were based on the weighted average number of shares outstanding for each period, and the sum of the quarters may not necessarily be equal to the full year earnings per common share amount. 18. SUBSEQUENT EVENTS On February 20, 1997, the Company acquired all of the outstanding stock of Enhanced Communications Corporation ("ECC"), a company providing outsourcing of voice messaging for Bell South Telecommunications, Inc. and Bell South Personal Communications, Inc. for 250,000 shares of the Company's Common Stock. The combination will be accounted for as a pooling of interests in accordance with APB 16. (b) Pro Forma Financial Information. UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION The following unaudited pro forma condensed combined balance sheet as of September 30, 1997 combines the unaudited historical balance sheets of Comverse as of September 30, 1997 and BTI as of October 31, 1997, giving effect to the Merger as though it had been consummated as of September 30, 1997. The following unaudited pro forma condensed combined statements of income for each of the three years in the period ended December 31, 1996 combine the historical consolidated statements of income of Comverse for each of the three years in the period ended December 31, 1996 and BTI for each of the three years in the period ended January 31, 1997, giving effect to the Merger as though it had been consummated at the beginning of each period presented. The following unaudited pro forma condensed combined statements of income for each of the nine-month periods ended September 30, 1997 and 1996 combine the unaudited historical consolidated statements of income of Comverse for each of the nine-month periods ended September 30, 1997 and 1996 and BTI for each of the nine-month periods ended October 31, 1997 and 1996, giving effect to the Merger as though it had been consummated at the beginning of each period presented. The Merger is intended to be accounted for as a pooling of interests. The following unaudited pro forma condensed combined financial statements, including the notes thereto, are qualified in their entirety by reference to, and should be read in conjunction with, the historical consolidated financial statements of Comverse and BTI, including the notes thereto, which are included herein or otherwise publicly available. This unaudited pro forma condensed combined financial information is not necessarily indicative of the operating results and financial position that might have been achieved had the Merger occurred as of the beginning of the earliest period presented, nor are they necessarily indicative of operating results and financial position which may occur in the future. The pro forma data do not reflect any costs associated with the integration and consolidation of the companies anticipated by Comverse management as a result of the Merger. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS September 30, 1997 (in thousands)
Comverse BTI September 30, October 31, Pro Forma 1997 1997 Adjustments Combined(1) ------------ --------- ----------- ----------- ASSETS Current assets: Cash and cash equivalents............................ $149,074 $ 15,934 $165,008 Bank time deposits and short-term investments........ 113,600 -- 113,600 Accounts receivable, net............................. 79,233 89,386 168,619 Inventories.......................................... 35,030 26,893 61,923 Prepaid expenses and other current assets............ 20,265 11,323 31,588 ---------- ---------- ---------- Total current assets............................. 397,202 143,536 540,738 Long-term receivables, net................................ 860 -- 860 Property and equipment, net............................... 22,716 36,999 (694) 59,021 Investments............................................... 6,473 -- 6,473 Software development costs, net........................... 12,028 -- 12,028 Deferred costs and other assets, net...................... 6,619 8,144 14,763 ----------- ------------ ----------- ---------- $445,898 $188,679 $ (694) $633,883 ======== ======== ========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses................ $ 48,586 $ 38,716 $ 10,000(3) $ 97,302 Bank loans........................................... 16,916 2,644 19,560 Advance payments from customers...................... 9,247 16,738 25,985 Other current liabilities............................ 915 -- -- 915 ------------ ----------- ----------- ------------ Total current liabilities........................ 75,664 58,098 10,000 143,762 Convertible subordinated debentures....................... 115,000 -- 115,000 Long-term debt and other liabilities...................... 6,879 15,507 22,386 ----------- ----------------------- ---------- Total liabilities................................ 197,543 73,605 10,000 281,148 Stockholders' equity: Common stock......................................... 2,515 27 1,755(4) 4,297 Additional paid-in capital........................... 139,806 74,909 (1,755)(4) 212,960 Cumulative translation adjustment.................... (43) 488 445 Unrealized gain on available for sale securities, net of tax........................................... 3,026 -- 3,026 Retained earnings.................................... (694)(2) 103,051 39,650 (10,000)(3) 132,007 --------- ---------- -------- --------- Total stockholders' equity....................... 248,355 115,074 10,694 352,735 --------- --------- ------- --------- $445,898 $188,679 $ (694) $633,883 ======== ======== ========= ======== See Notes to Unaudited Pro Forma Condensed Combined Financial Information
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME For Year Ended December 31, 1996 (In Thousands, Except Per Share Data)
Comverse BTI Twelve Months Twelve Months Ended Ended December 31, 1996 January 31, 1997 Pro Forma Historical Historical Combined(1) Revenues: Sales............................................. $197,181 $192,458 $389,639 Interest and other income......................... 10,130 881 11,011 ---------- ------------ ---------- Total revenues............................... 207,311 193,339 400,650 Costs and expenses: Research and development.......................... 36,613 42,136 78,749 Less reimbursement................................ (9,172) (3,349) (12,521) ---------- ---------- ---------- Net research and development...................... 27,441 38,787 66,228 Cost of sales..................................... 84,319 85,205 169,524 Selling, general and administrative............... 53,347 40,257 93,604 Royalties and license fees........................ 4,365 6,078 10,443 Minority interest and equity in loss of affiliate.................................... (35) 479 444 Interest expense and other........................ 7,063 1,572 8,635 ---------- ---------- ---------- Total costs and expenses..................... 176,500 172,378 348,878 ---------- ---------- ---------- Income before gain on issuance of subsidiary shares and income tax provision.......................... 30,811 20,961 51,772 Gain on issuance of subsidiary shares................ 535 -- 535 ----------- ----------- ----------- Income before income tax provision................... 31,346 20,961 52,307 Income tax provision................................. 3,358 6,812 10,170 ----------- ----------- ----------- Net income........................................... $ 27,988 $ 14,149 $ 42,137 =========== =========== =========== Earnings per share: Primary........................................... $ 1.16 $ 0.51 $ 1.01 =========== =========== =========== Fully diluted..................................... $ 1.15 $ 0.51 $ 1.00 =========== =========== =========== Weighted average number of common and common equivalent shares outstanding: Primary........................................... 26,447 27,585 44,377 =========== =========== =========== Fully diluted..................................... 26,572 27,585 44,502 =========== =========== ===========
See Notes to Unaudited Pro Forma Condensed Combined Financial Information UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME For Year Ended December 31, 1995 (In Thousands, Except Per Share Data)
Comverse Twelve Months BTI Ended Twelve Months December 31, Ended 1995 January 31, 1996 Pro Forma Historical Historical Combined(1) ------------- ---------------- ----------- Revenues: Sales.................................................. $137,149 $105,267 $242,416 Interest and other income.............................. 8,747 1,169 9,916 ------------ --------- ----------- Total revenues......................................... 145,896 106,436 252,332 Costs and expenses: Research and development............................... 27,161 26,935 54,096 Less reimbursement..................................... (7,735) (5,051) (12,786) ------------ ---------- ----------- Net research and development........................... 19,426 21,884 41,310 Cost of sales.......................................... 59,297 45,683 104,980 Selling, general and administrative.................... 41,388 31,565 72,953 Royalties and license fees............................. 2,419 902 3,321 Minority interest and equity in loss of affiliate...... (147) -- (147) Warrants and other expenses associated with AT&T contract acquisition................................... -- 21,000 21,000 Interest expense and other 4,406 187 4,593 ------------ ----------- ---------- Total costs and expenses............................... 126,789 121,221 248,010 ------------ ----------- ---------- Income before income tax provision..................... 19,107 (14,785) 4,322 Income tax provision................................... 2,057 105 2,162 ------------ ----------- ---------- Net income............................................. $ 17,050 $(14,890) $ 2,160 ============ =========== =========== Earnings per share: Primary................................................ $ 0.75 $ (0.60) $ 0.06 ============ =========== =========== Fully diluted.......................................... $ 0.75 $ (0.60) $ 0.06 ============ =========== =========== Weighted average number of common and common equivalent shares outstanding: Primary................................................. 22,602 24,859 38,760 ============ ============ =========== Fully diluted............................................. 22,709 24,859 38,867 ============ ============ ===========
See Notes to Unaudited Pro Forma Condensed Combined Financial Information UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME For Year Ended December 31, 1994 (In Thousands, Except Per Share Data)
Comverse Twelve Months BTI Ended Twelve Months December 31, Ended 1994 January 31, 1995 Pro Forma Historical Historical Combined(1) ------------- ---------------- ----------- Revenues: Sales................................................ $ 108,150 $ 89,056 $ 197,206 Interest and other income............................ 6,162 1,098 7,260 ----------- --------- ---------- Total revenues................................... 114,312 90,154 204,466 Costs and expenses: Research and development............................. 18,117 21,871 39,988 Less reimbursement.................................. (5,477) (8,162) (13,639) ----------- --------- ---------- Net research and development......................... 12,640 13,709 26,349 Cost of sales........................................ 47,715 31,345 79,060 Selling, general and administrative.................. 33,681 26,217 59,898 Royalties and license fees........................... 2,186 199 2,385 Minority interest and equity in loss of affiliate.... 262 -- 262 Interest expense and other........................... 3,947 213 4.160 ----------- ---------- ---------- Total costs and expenses......................... 100,431 71,683 172,114 ----------- ---------- ---------- Income before gain on issuance of subsidiary shares and income tax provision................................. 13,881 18,471 32,352 Income tax provision...................................... 1,783 5,527 7,310 ----------- ---------- ----------- Net income................................................ $ 12,098 $ 12,944 $ 25,042 =========== ========== =========== Earnings per share: Primary.............................................. $ 0.55 $ 0.50 $ 0.65 =========== ========== =========== Fully diluted........................................ $ 0.55 $ 0.50 $ 0.65 =========== ========== =========== Weighted average number of common and common equivalent shares outstanding: Primary.............................................. 21,868 25,751 38,606 =========== ========== ========== Fully diluted........................................ 21,868 25,751 38,606 =========== ========== ==========
See Notes to Unaudited Pro Forma Condensed Combined Financial Information UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME For Nine Months Ended September 30, 1997 (In Thousands, Except Per Share Data)
Comverse BTI Nine Months Nine Months Ended Ended September 30, October 31, 1997 1997 Pro Forma Historical Historical Adjustments Combined(1) Revenues: Sales.......................................... $202,681 $ 198,342 $(836)(2) $400,187 Interest and other income...................... 11,973 686 12,659 ---------- ---------- ----------- ---------- Total revenues............................. 214,654 199,028 (836) 412,846 Costs and expenses: Research and development....................... 39,121 50,133 89,254 Less reimbursement............................. (11,344) (4,863) (16,207) ---------- ---------- --------- Net research and development................... 27,777 45,270 73,047 Cost of sales.................................. 85,953 74,973 (142)(2) 160,784 Selling, general and administrative............ 53,756 41,255 95,011 Royalties and license fees..................... 4,981 5,413 10,394 Minority interest and equity in loss of affiliate.................................. (30) (122) (152) Interest expense and other..................... 6,997 1,792 8,789 ----------- ---------- ---------- ---------- Total costs and expenses................... 179,434 168,581 (142) 347,873 ----------- ---------- ---------- Income before income tax provision.................. 35,220 30,447 (694) 64,973 Income tax provision................................ 3,525 6,682 10,207 ----------- --------- ---------- ---------- Net income.......................................... $ 31,695 $ 23,765 $(694) $ 54,766 =========== ========= ========== ========== Earnings per share: Primary........................................ $ 1.17 $ 0.84 $ 1.20 =========== ========= ========== Fully diluted.................................. $ 1.17 $ 0.84 $ 1.20 =========== ========= ========== Weighted average number of common and common equivalent shares outstanding: Primary........................................ 27,081 28,373 45,523 =========== ========= ========== Fully diluted.................................. 27,188 28,373 45,630 =========== ========= ==========
See Notes to Unaudited Pro Forma Condensed Combined Financial Information UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME For Nine Months Ended September 30, 1996 (In Thousands, Except Per Share Data)
Comverse Nine Months BTI Ended Nine Months September 30, Ended 1996 October 31, 1996 Pro Forma Historical Historical Combined ------------ ---------------- --------- Revenues: Sales................................................ $138,931 $130,024 $268,955 Interest and other income............................ 6,080 470 6,550 ------------ --------------- ----------- Total revenues................................... 145,011 130,494 275,505 Costs and expenses: Research and development............................. 25,911 28,549 54,460 Less reimbursement................................... (6,339) (3,204) (9,543) ------------ -------------- ---------- Net research and development......................... 19,572 25,345 44,917 Cost of sales........................................ 59,476 58,411 117,887 Selling, general and administrative.................. 37,612 27,133 64,745 Royalties and license fees........................... 2,948 4,478 7,426 Minority interest and equity in loss of affiliate.... (232) 597 365 Interest expense and other........................... 4,289 1,004 5,293 ------------ ----------- ----------- Total costs and expenses......................... 123,665 116,968 240,633 ------------ ----------- ----------- Income before gain on issuance of subsidiary shares and income tax provision................................. 21,346 13,526 34,872 Gain on issuance of subsidiary shares..................... 535 -- 535 ------------ ------------ ------------ Income before income tax provision........................ 21,881 13,526 35,407 Income tax provision...................................... 2,288 4,734 7,022 ------------ ------------ ------------ Net income................................................ $ 19,593 $ 8,792 $ 28,385 ============ ============ ============ Earnings per share: Primary.............................................. $ 0.84 $ 0.32 $ 0.69 ============ ============ ============ Fully diluted........................................ $ 0.82 $ 0.32 $ 0.68 ============ ============ ============ Weighted average number of common and common equivalent shares outstanding: Primary.............................................. 23,243 27,823 41,328 ============ ============ ========== Fully diluted........................................ 26,486 27,823 44,571 ============ ============ ==========
See Notes to Unaudited Pro Forma Condensed Combined Financial Information Notes to Unaudited Pro Forma Condensed Combined Financial Information (1) The unaudited pro forma condensed combined balance sheet combines the unaudited historical consolidated balance sheet of Comverse at September 30, 1997 with the unaudited historical consolidated balance sheet of BTI at October 31, 1997. The unaudited pro forma condensed combined statements of income combine the unaudited historical consolidated statements of income of Comverse for the nine months ended September 30, 1997 and 1996 and for the years ended December 31, 1996, 1995 and 1994 with the unaudited historical consolidated statements of income of BTI for the nine months ended October 31, 1997 and 1996 and for the fiscal years ended January 31, 1997, 1996 and 1995. Certain amounts reflected in the historical financial statement presentations of both companies have been reclassified to conform to the unaudited pro forma condensed combined presentation. The unaudited pro forma condensed combined financial information excludes costs associated with the integration and consolidation of the companies, the total amount of which is not expected to exceed $70 million. The pro forma combined primary and fully diluted earnings per share for the respective periods represented is based on the combined weighted average number of common shares and share equivalents of Comverse and BTI. The number of common shares and share equivalents of BTI is based on an Exchange Ratio of 0.65 shares of Comverse Common Stock for each issued and outstanding share of BTI Common Stock (including share equivalents). (2) Adjustment to eliminate sales between Comverse and BTI. (3) Adjustment to reflect the estimated direct costs for investment banking, legal and miscellaneous transactions costs associated with the Merger. (4) Adjustment to reflect the issuance of Comverse Common Stock for BTI Common Stock. (c) Exhibits. See the Index to Exhibits attached hereto. Item 8. Change in Fiscal Year On January 22, 1998, the Board of Directors of Comverse acted to change the fiscal year of Comverse to correspond with BTI's fiscal year, ending January 31 of each year. Comverse intends to file its report covering the transition period of January 1, 1998 thorugh January 31, 1998 on Form 10-K. 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. (Registrant) Date: January 27, 1998 By:/s/ William F. Sorin --------------------- Name: William F. Sorin Title: Corporate Secretary EXHIBIT INDEX Exhibit Description Page 2.1(1) Agreement and Plan of Merger between Comverse Technology, Inc. and Boston Technology, Inc. dated as of August 20, 1997. 99.1 Press Release dated January 14, 1998. 35 - ------------------- (1) Incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on August 20, 1997. EXHIBIT 99.1 CONTACT: Kobi Alexander/Paul D. Baker Comverse Technology, Inc. 170 Crossways Park Drive Woodbury, NY 11797 (516) 677-7200 Comverse Technology, Inc. and Boston Technology, Inc. Complete Merger: Combination Creates the World Leader in the Supply of Enhanced Services Platforms to Both Wireless and Wireline Network Operators WOODBURY, NY, January 14, 1998 -- Comverse Technology, Inc. (NASDAQ: CMVT) and Boston Technology, Inc. (formerly NYSE: BSN) announced today the completion of the merger of Boston Technology with Comverse Technology in a tax- free, stock-for-stock transaction, which will be accounted for as a pooling of interests. As a result of the merger, each share of Boston Technology common stock is converted into 0.65 of a share of Comverse Technology common stock. The combined company is called Comverse Technology, Inc., and will continue to be listed on the NASDAQ exchange. The company headquarters will remain in Woodbury, NY. The operations of Boston Technology will be combined with Comverse's Network Systems Division, the largest operating unit of Comverse Technology. Comverse Network Systems Division will be headquartered in Wakefield, MA. Kobi Alexander, Comverse Technology's Chairman, President and Chief Executive Officer, will continue in his present role. Francis E. Girard, Boston Technology's President and Chief Executive Officer, becomes President and Chief Executive Officer of Comverse Network Systems Division. Mr. Alexander said, "The strategic benefits of this merger are compelling for a number of reasons. This merger positions us as the world's leading supplier of enhanced services platforms to both wireless and wireline telecommunications network operators. Together, we have a powerful combination of technology, research and development capabilities, customer service and support, sales and marketing, and a blue chip customer base that includes seven of the ten largest telecommunications network operators in the world. As these and other telephone companies continue to launch and expand revenue- generating services such as voice mail, unified messaging, information services, voice recognition-based services, text messaging, and other personal assistant and personal communications services, we are well-positioned to participate in this growth." "Our companies are complementary in a number of ways," continued Alexander. "Boston Technology is a leader in several important regions, including the United States and Japan, while Comverse is a leader in Europe and other important regions. Boston Technology is a leader among wireline network operators and Comverse is a leader among digital wireless network operators. Together, we have more than 200 telecommunications network operator customers, including thirteen of the world's twenty largest telephone companies, with very little customer overlap." "The addition of Boston Technology's excellent management and employees to our team," concluded Alexander, "brings to us a wide range of strengths, including top-notch account management, first-class training, service and support, and solid technical resources. They will add significant value to our organization, and will allow us, our shareholders and our customers to enjoy the full opportunity presented in this rapidly growing market." Mr. Girard said, "We are excited about this opportunity to, in one step, expand our customer base, and increase and leverage our technological and managerial strengths and resources to take full advantage of the continued growth we see in the enhanced services arena. This combination will bring together two teams of highly experienced, dedicated employees, with similar corporate cultures, values and goals. This team will be able to provide our customers with an unmatched level of engineering resources, along with a wider range of products and services to serve their rapidly expanding needs for world- class enhanced services." "Comverse's excellent and experienced management team, considerable financial resources, and strong engineering staff, which includes a large team of Advanced Intelligent Network specialists, will enable our combined company to compete and serve our customers on a higher level," continued Girard. "Together, we will be able to offer our customers the best of both companies' products, resources, technology, research and development, and service and support." The combined company is committed to preserving the investment of all of its customers, and will continue to market, support and enhance both companies' platforms. Both platforms will evolve over time, to take advantage of the expanded technology and resource strengths of the two companies. Comverse Technology Inc., headquartered in Woodbury, New York, designs, develops, manufactures and markets computer and telecommunications systems for a variety of communications processing applications, including multimedia messaging, personal communications and information processing systems marketed to telecommunications network operators under the names Access NP(R) and TRILOGUE(R), multiple channel, multimedia digital monitoring systems marketed under the name AUDIODISK(TM), and multiple channel, multimedia digital recording systems marketed under the name ULTRA(TM). Internet users: For additional information, you may visit Comverse's web site at: http://www.comverse.com. Information contained in this release with respect to the expected financial impact of the merger is forward-looking. These statements represent the company's reasonable judgment with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially. Such factors include, but are not limited to, material adverse changes in economic and competitive conditions in the markets served by the company, material adverse changes in the business and financial condition of the company and their respective customers, and uncertainties concerning technological changes and future product performance. -----END PRIVACY-ENHANCED MESSAGE-----