<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-15502
COMVERSE TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 13-3238402
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
170 CROSSWAYS PARK DRIVE, WOODBURY, NY 11797
(Address of principal executive offices) (Zip Code)
(516) 677-7200
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of Common Stock, par value $0.10 per share,
outstanding as of May 8, 1995 was 19,952,708.
(Exhibit Index Appears on Page 12)
1
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements.
--------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Condensed Consolidated Balance Sheets as
of December 31, 1994 and March 31, 1995. 3
2. Condensed Consolidated Statements of Income
for the Three Month Periods Ended March 31, 1994
and March 31, 1995. 4
3. Condensed Consolidated Statements of
Stockholders' Equity for the Year Ended
December 31, 1994 and the Three Month
Period Ended March 31, 1995. 5
4. Condensed Consolidated Statements of Cash
Flows for the Three Month Periods Ended
March 31, 1994 and March 31, 1995. 6
5. Notes to Condensed Consolidated Financial
Statements. 7
</TABLE>
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 8
2
<PAGE>
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(In Thousands)
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1994* 1995
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 38,496 $ 47,978
Bank time deposits and
short-term investments 89,368 76,456
Accounts receivable, net 22,592 23,174
Inventories 12,427 15,539
Prepaid expenses and
other current assets 4,440 5,563
-------- --------
Total current assets 167,323 168,710
Long-term receivables, net 378 1,800
Property and equipment 13,789 14,774
Less: accumulated depreci-
ation and amortization (5,236) (5,773)
-------- --------
8,553 9,001
Investments 616 3,057
Goodwill, net 1,384 1,336
Software development costs, net 5,863 6,288
Other intangible assets, net 1,827 1,797
Deferred costs and other assets, net 1,733 1,684
-------- --------
$187,677 $193,673
======== ========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, March 31,
1994* 1995
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable and
accrued expenses $ 17,908 $ 19,616
Advance payments
from customers 3,496 3,863
Due to related parties 278 210
Other current liabilities 982 497
-------- --------
Total current liabilities 22,664 24,186
5-1/4% Convertible
Subordinated Debentures 60,000 60,000
Liability for severance pay 1,352 1,812
Other liabilities 676 776
Minority interest 413 393
-------- --------
Total liabilities 85,105 87,167
Stockholders' equity:
Common Stock, $.10 par value
authorized 100,000,000 shares;
issued and outstanding
19,902,512 and 19,931,010 1,990 1,993
Additional paid-in-capital 73,398 73,516
Cumulative translation adjustment (118) (93)
Unrealized gain on available for
sale securities, net of tax 15 286
Retained earnings 27,287 30,804
-------- --------
Total stockholders' equity 102,572 106,506
-------- --------
$187,677 $193,673
======== ========
</TABLE>
*The Condensed Consolidated Balance Sheet as of December 31, 1994 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.
3
<PAGE>
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
1994 1995
<S> <C> <C>
Revenues:
Sales $20,371 $26,606
Interest and other income 1,098 2,138
------- -------
Total revenues 21,469 28,744
Costs and expenses:
Research and development 3,444 5,293
Less reimbursement (1,009) (1,512)
------- -------
Net research and development 2,435 3,781
Cost of sales 8,740 11,288
Selling, general and administrative 5,714 8,010
Royalties and license fees 605 610
Minority interest and
equity in loss of affiliates 241 (10)
Interest expense and other 803 1,144
------- -------
Total costs and expenses 18,538 24,823
------- -------
Income before income tax provision 2,931 3,921
Income tax provision 474 404
------- -------
Net income $ 2,457 $ 3,517
======= =======
Primary and fully diluted earnings per share $ 0.12 $ 0.17
======= =======
</TABLE>
The accompanying notes are an integral part of these
financial statements.
4
<PAGE>
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Additional Cumulative Unrealized
Number Par Paid in Translation Gains Retained
of Shares Value Capital Adjustment (Losses) Earnings Total
---------- ------ --------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994 19,814,461 $1,981 $73,047 $ (95) - $15,517 $ 90,450
Adjustment to beginning balance for
unrealized gain on available-for-sale
securities, net of tax - - - - 353 - 353
Unrealized loss on available-for-sale
securities, net of tax - - - - (338) - (338)
Common stock issued in connection with
exercise of stock options and warrants 88,051 9 351 - - - 360
Translation adjustment - - - (23) - - (23)
Net income, year ended
December 31, 1994 - - - - - 11,770 11,770
---------- ------ ------- ----- ----- ------- --------
BALANCE AT DECEMBER 31, 1994 19,902,512 1,990 73,398 (118) 15 27,287 102,572
Unrealized gain on available-for-sale
securities, net of tax - - - - 271 - 271
Common stock issued in connection with
exercise of stock options 28,498 3 118 - - - 121
Translation adjustment - - - 25 - - 25
Net income, three months ended
March 31, 1995 - - - - - 3,517 3,517
---------- ------ ------- ----- ----- ------- --------
BALANCE AT MARCH 31, 1995 19,931,010 $1,993 $73,516 $ (93) $ 286 $30,804 $106,506
========== ====== ======= ===== ===== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
1994 1995
<S> <C> <C>
Cash flows from operating activities:
Net cash from operations after adjustment
for non-cash items $ 3,361 $ 4,310
Changes in assets and liabilities:
Accounts receivable (7,876) (2,004)
Inventories (1,585) (3,112)
Prepaid expenses and other current assets (1,043) (1,302)
Accounts payable and accrued expenses 3,651 1,708
Advance payments from customers 2,582 367
Due to related parties 2 (68)
Liability for severance pay 304 460
-------- -------
Net cash (used in) provided by operating activities (604) 359
Cash flows from investing activities:
Maturities and sales (purchase) of bank time deposits
and investments, net (2,010) 10,921
Purchases of property and equipment (725) (985)
Increase in software development costs (784) (931)
-------- -------
Net cash (used in) provided by investing activities (3,519) 9,005
Cash flows from financing activities:
Proceeds from issuance of common stock 118 121
Other 29 (3)
-------- -------
Net cash provided by financing activities 89 118
Net (decrease) increase in cash and cash equivalents (4,034) 9,482
Cash and cash equivalents, beginning of period 119,409 38,496
-------- -------
Cash and cash equivalents, end of period $115,375 $47,978
======== =======
</TABLE>
The accompanying notes are an integral part of these
financial statements.
6
<PAGE>
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, 1994. The financial information included herein
is unaudited; however, such information reflects all adjustments (consisting
solely of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of results for the interim periods. The results
of operations for the three month period ended March 31, 1995 are not
necessarily indicative of the results to be expected for the full year.
Inventories. The composition of inventories at December 31, 1994 and
March 31, 1995 is as follows:
<TABLE>
<CAPTION>
December 31, March 31,
1994 1995
(In thousands)
<S> <C> <C>
Raw materials $ 7,196 $ 6,894
Work in process 2,342 4,040
Finished goods 2,889 4,605
------- -------
$12,427 $15,539
======= =======
</TABLE>
Research and Development Expenses. The Company has historically
supported a substantial portion of its research and development activities
through participation in government sponsored funding programs, which in general
provide reimbursement for a portion of research and development expenditures
incurred under project budgets approved on an annual basis by the applicable
funding agencies. During the three month period ended March 31, 1995, gross
research and development expenses amounted to approximately $5,293,000, of which
approximately $1,512,000 was reimbursed.
Earnings Per Share. For the three month periods ended March 31, 1994 and
1995, 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 three month period ended March 31, 1995, further assumes the conversion
of the 5-1/4% Convertible Subordinated Debentures (the "Debentures"). For the
three month period ended March 31, 1994, the assumed conversion of the
Debentures was antidilutive. The shares used in the computations are as follows
(see Exhibit 11):
<TABLE>
<CAPTION>
Three months ended
December 31, March 31,
1994 1995
(In thousands)
<S> <C> <C>
Primary 20,822 21,060
Fully diluted 20,822 24,263
</TABLE>
7
<PAGE>
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
---------------------------------------------
Results of Operations.
Total Revenues. Total revenues for the three month period ended March
--------------
31, 1995 increased by approximately $7,275,000 (34%) from the corresponding
period in 1994. The increase is attributable primarily to a higher volume of
sales of systems and parts. Sales for the three month period ended March 31,
1995 increased by approximately $6,235,000 (31%) from the 1994 period. The
growth in sales occurred in both the TRILOGUE and AUDIODISK product lines, with
the larger increase occurring in the AUDIODISK product line. Interest and other
income for the three month period ended March 31, 1995 increased by
approximately $1,040,000 (95%) over the corresponding period in 1994, resulting
from increased interest rates and realized gains on sales of short-term
investments.
Cost of Sales. Cost of sales for the three month period ended March 31,
-------------
1995 increased by approximately $2,548,000 (29%) from the corresponding period
in 1994. The increase is attributable primarily to the increase in sales. Gross
margin (expressed as a percentage of sales) for the three month period ended
March 31, 1995 was approximately 58% in comparison with approximately 57% during
the corresponding 1994 period. The increase in gross margin is attributable to
increased revenues from projects with higher gross margins in comparison with
the corresponding period in 1994.
Research and Development Expenses. Gross research and development
---------------------------------
expenses for the three month period ended March 31, 1995 increased by
approximately $1,849,000 (54%) from the corresponding period in 1994. Net
research and development expenses, after reimbursement under government funding
programs, for the three month period ended March 31, 1995 increased by
approximately $1,346,000 (55%) from the corresponding period in 1994. Such
increases are due to the overall growth of research and development operations,
the initiation of significant new research and development projects for both
product lines and increases in salaries and other costs associated with research
and development operations in Israel.
Selling, General and Administrative Expenses. Selling, general and
--------------------------------------------
administrative expenses for the three month period ended March 31, 1995
increased by approximately $2,296,000 (40%) from the corresponding period in
1994. Such increase was the result of increased sales, marketing and
administrative activities associated with the overall growth of the Company's
operations, and particularly with the expansion of direct sales and marketing
activities internationally and in the United States.
Royalties and License Fees. Royalties and license fees for the three
--------------------------
month period ended March 31, 1995 increased by approximately $5,000 (1%) from
the corresponding period in 1994. Royalties and license fees as a percentage of
total sales decreased from approximately 3.0% in the 1994 period to
approximately 2.3% in the 1995 period as a result of increased sales of non-
royalty bearing products.
8
<PAGE>
Income Tax Provision. Provision for income taxes for the three month
--------------------
period ended March 31, 1995 decreased by approximately $70,000 (15%) from the
corresponding period in 1994. The Company's overall effective tax rate decreased
from approximately 16% during the three month period ended March 31, 1994 to
approximately 10% in the corresponding period of 1995. The Company's overall
rate of tax is reduced significantly by the tax benefits associated with
qualified activities of one of its subsidiaries in Israel.
Net Income. Net income after taxes for the three month period ended
----------
March 31, 1995 increased by approximately $1,060,000 (43%) from the
corresponding period in 1994, primarily as a result of the factors described
above. Net income after taxes as a percentage of total revenues increased to
approximately 12% in the three month period ended March 31, 1995 from
approximately 11% in the corresponding period in 1994.
Liquidity and Capital Resources. At March 31, 1995, the Company had cash
and cash equivalents of approximately $47,978,000, bank time deposits and short-
term investments of approximately $76,456,000 and working capital of
approximately $144,524,000. The Company believes that its existing working
capital, together with funds generated from operations, will be sufficient to
provide for its planned operations for the foreseeable future.
The Company regularly examines opportunities for strategic acquisitions
of other companies or lines of business and anticipates that it may from time to
time issue additional debt and/or equity securities either as direct
consideration for such acquisitions or to raise additional funds to be used (in
whole or in part) in payment for acquired securities or assets. The issuance of
such securities could be expected to have a dilutive impact on the Company's
shareholders, and there can be no assurance as to whether or when any acquired
business would contribute positive operating results commensurate with the
associated investment.
The Company's liquidity and capital resources have not been, and are not
anticipated to be, materially affected by restrictions pertaining to the ability
of its foreign subsidiaries to pay dividends or by withholding taxes associated
with any such dividend payments.
Certain Trends and Uncertainties. The industries in which the Company is
principally involved are highly competitive and characterized by frequent
technological and market changes.
The voice processing and message management industry has undergone
consolidation in recent periods, as a result of corporate acquisitions and
attrition. In addition, the industry has experienced a continuing evolution of
product offerings and alternatives for delivery of services. These trends have
affected and may be expected to have a significant continuing influence on
conditions in the industry, although the impact on the industry generally and on
the Company's position in the industry cannot be predicted with assurance.
Significant changes in the industry make planning decisions more difficult and
increase the risk inherent in the planning process.
9
<PAGE>
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. Sales to government customers may
also be affected by decisions of certain government agencies to increase their
internal product development capabilities, with a concomitant reduction in their
procurements from third party vendors. Competitive conditions in this sector
have also been affected by the efforts of government contractors, particularly
developers and integrators of technology products, to redirect their marketing
strategies and product plans in reaction to cut-backs in their traditional areas
of focus, resulting in an increase in the number of competitors and the range of
products offered in response to particular requests for proposals. The lack of
predictability in the timing and scope of government procurements have similarly
made planning decisions more difficult and have increased the associated risks.
The Company has historically derived a significant portion of its
revenue and operating profit from a relatively small number of contracts for
large system installations with customers in both the commercial and government
sectors. While the growth of the Company's business has reduced its dependence
on any specific customers, it continues to emphasize large capacity systems in
its product development and marketing strategies. Contracts for large system
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
these installations will continue to grow in both its commercial and government
markets, and intends to continue to expand its research and development,
manufacturing, sales and marketing and product support capabilities in
anticipation of such growth. However, the timing and scope of these
opportunities and the pricing and margins associated with any eventual contract
award are difficult to forecast, and may vary substantially from transaction to
transaction. The Company's future operating results may accordingly exhibit a
higher degree of volatility than the operating results of other companies in its
industries that have adopted different strategies, and than the Company has
experienced in prior periods. Although the Company is actively pursuing a number
of significant procurement opportunities in the United States and
internationally, both the timing of any eventual procurements and the
probability of the Company's receipt of significant contract awards are
uncertain. The degree of dependence by the Company on large orders, and the
investment required to enable the Company to perform such orders, without
assurance of continuing order flow from the same customers and predictability of
gross margins on any future orders, increase the risk associated with its
business.
The Company has significantly increased its expenditures in all areas of its
operations during recent periods, including the areas of research and
development and marketing and sales, and the Company plans to further increase
these expenditures during 1995. The increase in research and development
expenditures reflects the Company's concentration on enhancing the range of
features and capabilities of its existing product lines and developing new
generations of its products. The Company believes that these efforts are
essential for the long- and short- term competitiveness of its product offerings
and for positioning itself to participate in
10
<PAGE>
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
U.S. dollar, and accordingly has had a negative impact on the Company's overall
results of operations.
The Company currently derives a majority of its total revenues from
sales to customers outside of the United States. International transactions
involve particular risks, including political decisions affecting tariffs and
trade conditions, rapid and unforeseen changes in economic conditions in
individual countries, turbulence in foreign currency and credit markets, and
increased costs resulting from lack of proximity to the customer. Volatility in
international currency exchange rates may have a significant impact on the
Company's operating results to the extent that it is unable to completely hedge
the exchange rate risk of long term contracts denominated in foreign currencies,
or by the cost of such hedging.
The trading price of the Company's shares may be affected by the factors
noted above as well as prevailing economic and financial trends and conditions
in the public securities markets. During recent periods, share prices of
companies in technology and government contracting businesses, and particularly
smaller and medium-sized publicly traded companies such as the Company, have
exhibited a high degree of volatility. Shortfalls in revenues or earnings from
the levels anticipated by the public markets could have an immediate and
significant effect on the trading price of the Company's shares in any given
period. Such shortfalls may result from events that are beyond the Company's
immediate control, can be unpredictable and, since a significant proportion of
the Company's sales during each fiscal quarter tend to occur in the latter
stages of the quarter, may not be discernible until the end of a financial
reporting period, which may contribute to the volatility of the trading value of
its shares regardless of the Company's long-term prospects. The trading price of
the Company's shares may also be affected by developments, including reported
financial results and fluctuations in trading prices of the shares of other
publicly-held companies in the voice processing industry, which may not have any
direct relationship with the Company's business or prospects.
11
<PAGE>
PART II
Other Information
-----------------
ITEM 6. Exhibits and Reports on Form 8-K.
--------------------------------
<TABLE>
(a) Exhibit Index.
-------------
Item
Number Exhibit Page
------ ------- ----
<C> <S> <C>
11. Statement re: computation of
per share earnings. 14
27. Financial data schedule Filed electronically
(b) Reports on Form 8-K.
-------------------
None
</TABLE>
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMVERSE TECHNOLOGY, INC.
Dated: May 10, 1995 S/Kobi Alexander
--------------------------------
Kobi Alexander
President, Chairman of the Board
and Chief Executive Officer
Dated: May 10, 1995 S/Igal Nissim
--------------------------------
Igal Nissim
Vice President, Finance
and Chief Financial Officer
13
<PAGE>
Exhibit 11
COMVERSE TECHNOLOGY, INC.
Statement of Computation of Earnings Per Share
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
1994/(1)/ 1995
<S> <C> <C>
Primary earnings per share:
Net income $ 2,457 $ 3,517
======= =======
Weighted average number of outstanding
common shares 19,822 19,917
Additional shares assuming exercise of
stock options 1,000 1,143
------- -------
Weighted average number of outstanding common
and common equivalent shares 20,822 21,060
======= =======
Primary earnings per share $ 0.12 $ 0.17
------- -------
</TABLE>
Fully diluted earnings per share:
<TABLE>
<S> <C>
Net income $ 3,517
Interest expense on 5-1/4% Convertible Subordinated
Debentures, net of tax 496
-------
Fully diluted earnings $ 4,013
=======
Weighted average number of outstanding common shares 19,917
Additional shares assuming exercise of stock options 1,249
Additional shares assuming conversion of
5-1/4% Convertible Subordinated Debentures 3,097
-------
Weighted average number of outstanding common shares
assuming full dilution 24,263
=======
Fully diluted earnings per share $ 0.17
=======
</TABLE>
(1) Fully diluted earnings per share for the three month period ended March 31,
1994 were antidilutive and are omitted.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 47,978
<SECURITIES> 76,456
<RECEIVABLES> 23,174
<ALLOWANCES> 0
<INVENTORY> 15,539
<CURRENT-ASSETS> 168,710
<PP&E> 14,774
<DEPRECIATION> 5,773
<TOTAL-ASSETS> 193,673
<CURRENT-LIABILITIES> 24,186
<BONDS> 60,000
<COMMON> 1,993
0
0
<OTHER-SE> 104,513
<TOTAL-LIABILITY-AND-EQUITY> 193,673
<SALES> 26,606
<TOTAL-REVENUES> 28,744
<CGS> 11,288
<TOTAL-COSTS> 23,689
<OTHER-EXPENSES> (10)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,144
<INCOME-PRETAX> 3,921
<INCOME-TAX> 404
<INCOME-CONTINUING> 3,517
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,517
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
