<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 September 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-15502
COMVERSE TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 13-3238402
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
170 CROSSWAYS PARK DRIVE, WOODBURY, NY 11797
(Address of principal executive offices) (Zip Code)
(516) 677-7200
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of Common Stock, par value $0.10 per share,
outstanding as of November 7, 1996 was 21,628,743.
Page 1 of 18 Total Pages
(Exhibit Index Appears on Page 15)
<PAGE>
PART I
FINANCIAL INFORMATION
Page
----
ITEM 1. Financial Statements
1. Condensed Consolidated Balance Sheets as
of December 31, 1995 and September 30, 1996 3
2. Condensed Consolidated Statements of Income
for the Three Month and Nine Month Periods
Ended September 30, 1995 and September 30, 1996 4
3. Condensed Consolidated Statements of Stockholders'
Equity for the Year Ended December 31, 1995 and the
Nine Month Period Ended September 30, 1996 5
4. Condensed Consolidated Statements of Cash Flows
for the Nine Month Periods Ended
September 30, 1995 and September 30, 1996 6
4. Notes to Condensed Consolidated Financial
Statements 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Page 2 of 18
<PAGE>
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1995* 1996 1995* 1996
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Current assets: Current liabilities:
Cash and cash equivalents $ 99,862 $ 81,530 Accounts payable and
Bank time deposits and accrued expenses $ 27,230 $ 40,036
short-term investments 23,070 35,368 Advance payments
Accounts receivable, net 43,009 57,956 from customers 4,988 3,368
Inventories 15,773 29,565 Due to related parties 364 415
Prepaid expenses and Other current liabilities 2,604 314
other current assets 8,536 11,821 -------- --------
-------- -------- Total current liabilities 35,186 44,133
Total current assets 190,250 216,240 5-1/4% Convertible
Subordinated Debentures 60,000 60,000
Long-term receivables, net 2,105 1,382
Liability for severance pay 2,299 3,120
Property and equipment 22,718 28,560 Other liabilities 1,939 2,054
Less: accumulated depreciation Minority interest 264 -
and amortization (10,887) (13,371) -------- --------
-------- --------
11,831 15,189 Total liabilities 99,688 109,307
Investments 3,880 6,205 Stockholders' equity:
Common Stock, $.10 par value
Goodwill, net 1,106 377 authorized 100,000,000 shares;
issued and outstanding
Software development costs, net 8,756 9,740 21,362,598 and 21,622,730 2,136 2,162
Additional paid-in-capital 75,752 77,299
Cumulative translation adjustment (136) (44)
Unrealized gain on available for
Other intangible assets, net 1,597 1,397 sale securities, net of tax 646 612
Retained earnings 43,368 62,961
-------- --------
Deferred costs and other assets, net 1,929 1,767 Total stockholders' equity 121,766 142,990
-------- -------- -------- --------
$221,454 $252,297 $221,454 $252,297
======== ======== ======== ========
</TABLE>
*The Condensed Consolidated Balance Sheet as of December 31, 1995 has been
summarized from the Company's audited Consolidated Balance Sheet
as of that date.
The accompanying notes are an integral part of these financial statements.
Page 3 of 18
<PAGE>
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1995 1996
<S> <C> <C> <C> <C>
Revenues:
Sales $ 99,126 $138,931 $36,116 $51,892
Interest and other income 6,533 6,080 2,209 2,216
-------- -------- ------- -------
Total revenues 105,659 145,011 38,325 54,108
Costs and expenses:
Research and development 19,806 25,911 7,078 9,537
Less reimbursement (5,148) (6,339) (1,846) (2,414)
-------- -------- ------- -------
Net research and development 14,658 19,572 5,232 7,123
Cost of sales 42,879 59,476 15,665 22,110
Selling, general and administrative 29,594 37,612 10,643 13,998
Royalties and license fees 1,828 2,948 551 1,188
Minority interest and equity
in loss of affiliates (105) (232) (60) (82)
Interest expense and other 3,459 4,289 1,017 1,668
-------- -------- ------- -------
Total costs and expenses 92,313 123,665 33,048 46,005
-------- -------- ------- -------
Income before gain on issuance of
subsidiary shares and income tax provision 13,346 21,346 5,277 8,103
Gain on issuance of subsidiary shares - 535 - -
-------- -------- ------- -------
Income before income tax provision 13,346 21,881 5,277 8,103
Income tax provision 1,474 2,288 570 868
-------- -------- ------- -------
Net income $ 11,872 $ 19,593 $ 4,707 $ 7,235
======== ======== ======= =======
Earnings per share:
Primary $0.53 $0.84 $ 0.21 $ 0.31
======== ======== ======= =======
Fully diluted $0.53 $0.82 $ 0.21 $0.30
======== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4 of 18
<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, DECEMBER 31, 1995 21,362,598 $2,136 $ 75,752 $ (136) $ 646 $ 43,368 $ 121,766
Unrealized loss on available-for-sale
securities, net of tax - - - - (34) - (34)
Common stock issued in connection with
exercise of stock options 254,632 25 1,399 - - - 1,424
Common stock issued in connection with
acquisition of additional interest in
majority-owned subsidiary 5,500 1 148 - - - 149
Translation adjustment - - - 92 - - 92
Net income, nine months ended
September 30, 1996 - - - - - 19,593 19,593
---------- ------ ---------- ----------- ---------- -------- --------
BALANCE, SEPTEMBER 30, 1996 21,622,730 $2,162 $ 77,299 $ (44) $ 612 $ 62,961 $142,990
========== ====== ========== =========== ========== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 5 of 18
<PAGE>
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
1995 1996
Cash flows from operating activities:
Net cash from operations after adjustments
for non-cash items $ 16,013 $ 21,293
Changes in assets and liabilities:
Accounts receivable and long-term receivables (12,275) (14,224)
Inventories ( 3,588) (13,792)
Prepaid expenses and other receivables ( 2,485) (2,898)
Accounts payable and accrued expenses 8,016 12,806
Advance payments from customers ( 256) (1,620)
Due to related parties 60 51
Liability for severance pay 979 821
------- --------
Net cash provided by operating activities 6,464 2,437
Cash flows from investing activities:
Maturities and sales (purchases) of
bank time deposits and investments, net 43,130 (12,784)
Purchases of property and equipment ( 4,298) (5,842)
Increase in software development costs ( 3,688) (3,443)
Other - 4
------- --------
Net cash provided by (used in) investing activities 35,144 (22,065)
Cash flows from financing activities:
Proceeds from issuance of common stock 1,359 1,572
Decrease in short- and long-term debt, net ( 1,856) (276)
------- --------
Net cash (used in) provided by financing activities ( 497) 1,296
Net increase (decrease) in cash and cash equivalents 41,111 (18,332)
Cash and cash equivalents, beginning of period 39,225 99,862
------- --------
Cash and cash equivalents, end of period $80,336 $ 81,530
======= ========
The accompanying notes are an integral part of these
financial statements.
Page 6 of 18
<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, 1995. The financial
information included herein is unaudited; however, such information reflects
all adjustments (consisting solely of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair statement of results for
the interim periods. The results of operations for the three month and nine
month periods ended September 30, 1996 are not necessarily indicative of the
results to be expected for the full year.
INVENTORIES. The composition of inventories at December 31, 1995
and September 30, 1996 is as follows:
DECEMBER 31, SEPTEMBER 30,
1995 1996
(In thousands)
---------------------------
Raw materials $10,364 $16,753
Work in process 2,638 9,772
Finished goods 2,771 3,040
------- -------
$15,773 $29,565
======= =======
RESEARCH AND DEVELOPMENT EXPENSES. The Company has historically
supported a substantial portion of its research and development activities
through participation in government sponsored funding programs, which in
general provide reimbursement for a portion of research and development
expenditures incurred under project budgets approved on an annual basis by the
applicable funding agencies. During the nine month and three month periods
ended September 30, 1996, gross research and development expenses amounted to
approximately $25,911,000 and $9,537,000, respectively, of which approximately
$6,339,000 and $2,414,000, respectively, was reimbursed.
EARNINGS PER SHARE. For the nine month and three month periods ended
September 30, 1995 and 1996, the computation of primary earnings per share is
based on the weighted average number of outstanding common shares and
additional shares assuming the exercise of stock options. The computation of
fully diluted earnings per share for the nine month and three month periods
ended September 30, 1996, further assumes the conversion of the 5-1/4%
Convertible Subordinated Debentures (the "Debentures"). For the nine month
and three month periods ended September 30, 1995,
Page 7 of 18
<PAGE>
the assumed conversion of the Debentures was antidilutive. The shares used in
the computations are as follows (also see Exhibit 11):
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1995 1996
(In thousands)
Primary 22,468 23,243 22,827 23,615
Fully diluted 22,612 26,486 22,929 26,864
SUBSEQUENT EVENTS. In October 1996, the Company issued
$115,000,000 of convertible subordinated debentures bearing interest at 5-3/4%
per annum, payable semi-annually. The debentures mature on October 1, 2006.
The debentures are convertible into shares of the Company's common stock at a
conversion price of $45.75 per share, subject to adjustment in certain events.
The debentures are subordinated in right of payment to all existing and future
senior indebtedness of the Company. The debentures are redeemable at the
option of the Company, in whole or in part, at prices decreasing from 102% of
the face amount on October 12, 1999 to par on October 1, 2001. The debenture
holders may require the Company to repurchase the debentures at par in the
event that the common stock ceases to be publicly traded and, in certain
instances, upon a change in control of the Company.
In October 1996, holders of approximately $2,000,000 of the 5-1/4%
convertible subordinated debentures due 2003 surrendered the debentures for
conversion into approximately 103,000 shares of common stock of the Company.
In November 1996, the Company called for redemption the remaining $58,000,000
of the 5-1/4% convertible subordinated debentures due 2003. Based on the
current trading price of the Company's common stock, it is likely that the
holders of the debentures will convert the debentures into approximately
2,994,000 shares of the Company's common stock.
Page 8 of 18
<PAGE>
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
---------------------------------------------
RESULTS OF OPERATIONS.
Total Revenues. Total revenues for the nine month and three month
--------------
periods ended September 30, 1996 increased by approximately $39,352,000 (37%)
and approximately $15,783,000 (41%), respectively, from the corresponding
periods in 1995. The increase is attributable primarily to a higher volume of
sales of systems, parts and related services. Sales for the nine month and
three month periods ended September 30, 1996 increased by approximately
$39,805,000 (40%) and approximately $15,776,000 (44%), respectively, from the
1995 periods. The growth in sales for the nine month and three month periods
ended September 30, 1996 occurred primarily in the TRILOGUE product line.
Interest and other income for the nine month period ended September 30, 1996
decreased by approximately $453,000 (7%) and for the three-month period ended
September 30, 1996 increased by approximately $7,000 over the corresponding
periods in 1995.
Cost of Sales. Cost of sales for the nine month and three month
-------------
periods ended September 30, 1996 increased by approximately $16,597,000 (39%)
and approximately $6,445,000 (41%), respectively, from the corresponding
periods in 1995. The increase is attributable primarily to the increase in
sales. Gross margin (expressed as a percentage of sales) for the nine month
and three month periods ended September 30, 1996 and 1995 were approximately
57%.
Research and Development Expenses. Gross research and development
---------------------------------
expenses for the nine month and three month periods ended September 30, 1996
increased by approximately $6,105,000 (31%) and approximately $2,459,000
(35%), respectively, from the corresponding periods in 1995. Net research and
development expenses, after reimbursement under government funding programs,
for the nine month and three month periods ended September 30, 1996 increased
by approximately $4,914,000 (34%) and approximately $1,891,000 (36%),
respectively, from the corresponding periods in 1995. Such increases are due
to the overall growth of research and development operations, new research and
development projects, and increases in salaries and other costs associated
with research and development operations in Israel.
Selling, General and Administrative Expenses. Selling, general and
--------------------------------------------
administrative expenses for the nine month and three month periods ended
September 30, 1996 increased by approximately $8,018,000 (27%) and
approximately $3,355,000 (32%), respectively, from the corresponding periods
in 1995. Such increases were the result of increased sales, marketing, and
administrative activities associated with the overall growth of the Company's
operations, and particularly with the expansion of direct sales and marketing
activities internationally and in the United States.
Royalties and License Fees. Royalties and license fees for the nine
--------------------------
month and three month periods ended September 30, 1996 increased by
approximately
Page 9 of 18
<PAGE>
$1,120,000 (61%) and approximately $637,000 (116%), respectively, from the
corresponding periods in 1995. Royalties and license fees for the nine and
three month periods ended September 30, 1996, as a percentage of total sales,
increased from approximately 1.8% and approximately 1.5%, respectively, in the
1995 periods, to approximately 2.1% and approximately 2.3%, respectively, in
the 1996 periods reflecting an increase in the royalty rate owed to a funding
agency that became effective in 1996 (See "Certain Trends and Uncertainties").
Income Tax Provision. Provision for income taxes for the nine month
--------------------
and three month periods ended September 30, 1996 increased by approximately
$814,000 (55%) and approximately $298,000 (52%), respectively, from the
corresponding periods in 1995. The Company's overall effective tax rate
decreased from approximately 11.0% and 10.8% during the nine month and three
month periods ended September 30, 1995 to approximately 10.5% and 10.7% in the
corresponding periods of 1996. The Company's overall rate of tax is reduced
significantly by the tax benefits associated with qualified activities of one
of its subsidiaries in Israel.
Net Income. Net income after taxes for the nine month and three
----------
month periods ended September 30, 1996 increased by approximately $7,721,000
(65%) and approximately $2,528,000 (54%), respectively, from the corresponding
periods in 1995, primarily as a result of the factors described above. Net
income after taxes as a percentage of total revenues increased to
approximately 13.5% and approximately 13.4%, respectively, in the nine month
and three month periods ended September 30, 1996 from approximately 11.2% and
approximately 12.3%, respectively, in the corresponding periods in 1995.
LIQUIDITY AND CAPITAL RESOURCES. The Company believes that its
existing working capital, together with funds generated from operations, will
be sufficient to provide for its planned operations for the foreseeable
future. At September 30, 1996, the Company had cash and cash equivalents of
approximately $81,530,000, short-term investments of approximately $35,368,000
and working capital of approximately $172,107,000. In October 1996, the
Company issued ten-year 5-3/4% Convertible Subordinated Debentures in the
aggregate original principal amount of $115,000,000. The Company also called
for redemption the outstanding balance of the $60,000,000 principal amount of
its 5-1/4% Convertible Subordinated Debentures, originally due in 2003 (the
"5-1/4% Debentures"). Based on the current trading price of the Company's
common stock, it is expected that substantially all of the 5-1/4% Debentures
will be converted into common shares.
The Company has experienced rapid growth in recent periods, and
intends to continue to grow, both through internal expansion and acquisitions.
The Company regularly examines opportunities to acquire additional companies,
businesses, technologies or product lines. Although the Company's management
believes that acquisitions present potentially cost-effective opportunities
for growth, they also present significant financial, operational and legal
risks to the Company. In order to maintain and improve operating results, the
Company's management will be required to manage
Page 10 of 18
<PAGE>
growth and expansion effectively. The Company's failure to effectively manage
growth, including growth resulting from acquisitions, could have a material
adverse effect on the Company's results of operations and financial condition.
The Company may from time to time issue additional debt and/or equity
securities either as direct consideration for acquisitions or to raise
additional funds to be used (in whole or in part) in payment for acquired
securities or assets. The issuance of such securities could be expected to
have a dilutive impact on the Company's shareholders, and there can be no
assurance as to whether or when any acquired business would contribute
positive operating results commensurate with the associated investment.
The Company maintains a portion of its assets in a variety of
financial instruments, including government obligations, commercial paper,
bank time deposits, money-market accounts and common and preferred stocks,
both for purposes of cash management and, to some extent, as strategic and
portfolio investments. Such activities subject the Company to the risks
inherent in the capital markets generally, and to the performance of other
businesses over which its has no direct control. The Company has made several
investments in early-stage technology ventures and expects to make additional
similar investments, primarily in Israel and in the United States. Such
investments entail substantial risks due to factors such as the limited
operating histories of such ventures and the typical illiquidity of their
securities. While the Company does not regard its portfolio and strategic
investment activities as a primary element of its overall business plan, it
expects to continue to allocate some of its liquid assets, comprising a
portion of funds not required for working capital or acquisition plans, for
these purposes and, in particular, to increase its holdings in Israeli and
United States technology companies as part of its long-term growth strategy.
Given the magnitude of the Company's liquid assets relative to its overall
size, the results of its operations in the future may, to a greater degree
than in the past, be affected by the results of the Company's capital
management and investment activities and the risks associated with those
activities.
The Company's liquidity and capital resources have not been, and are
not anticipated to be, materially affected by restrictions pertaining to the
ability of its foreign subsidiaries to pay dividends or by withholding taxes
associated with any such dividend payments.
CERTAIN TRENDS AND UNCERTAINTIES. The industries in which the
Company is principally involved are highly competitive and characterized by
frequent technological and market changes.
The voice processing and message management industry has experienced
a continuing evolution of product offerings and alternatives for delivery of
services. These trends have affected and may be expected to have a
significant continuing influence on conditions in the industry, although the
impact on the industry generally and on the Company's position in the industry
cannot be predicted with assurance. Significant changes in the industry make
planning decisions more difficult and increase the risk inherent in the
planning process.
Page 11 of 18
<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.
Competitive conditions in this sector have also been affected by the
increasing use by certain potential government customers of their own internal
development resources rather than outside vendors to provide certain technical
solutions. In addition, a number of established government contractors,
particularly developers and integrators of technology products, have taken
steps to redirect their marketing strategies and product plans in reaction to
cut-backs in their traditional areas of focus, resulting in an increase in the
number of competitors and the range of products offered in response to
particular requests for proposals. The lack of predictability in the timing
and scope of government procurements have similarly made planning decisions
more difficult and have increased the associated risks.
The Company has historically derived a significant portion of its
revenue and operating profit from a relatively small number of contracts for
large system installations with customers in both the commercial and
government sectors. While the growth of the Company's business has reduced
its dependence on any specific customers, it continues to emphasize large
capacity systems in its product development and marketing strategies.
Contracts for large installations typically involve a lengthy and complex
bidding and selection process, and the ability of the Company to obtain
particular contracts is inherently difficult to predict. The Company believes
that opportunities for large installations will continue to grow in both its
commercial and government markets, and intends to continue to expand its
research and development, manufacturing, sales and marketing and product
support capabilities in anticipation of such growth. However, the timing and
scope of these opportunities and the pricing and margins associated with any
eventual contract award are difficult to forecast, and may vary substantially
from transaction to transaction. The Company's future operating results may
accordingly exhibit a higher degree of volatility than the operating results
of other companies in its industries that have adopted different strategies,
and than the Company has experienced in prior periods. Although the Company
is actively pursuing a number of significant procurement opportunities in the
United States and internationally, both the timing of any eventual
procurements and the probability of the Company's receipt of significant
contract awards are uncertain. The degree of dependence by the Company on
large orders, and the investment required to enable the Company to perform
such orders, without assurance of continuing order flow from the same
customers and predictability of gross margins on any future orders, increase
the risk associated with its business.
The Company has significantly increased its expenditures in all
areas of its operations during recent periods, including the areas of research
and development and marketing and sales, and the Company plans to further
increase these expenditures in the
Page 12 of 18
<PAGE>
foreseeable future. The increase in research and development expenditures
reflects the Company's concentration on enhancing the range of features and
capabilities of its existing product lines and developing new generations of
its products. The Company believes that these efforts are essential for the
continuing competitiveness of its product offerings and for positioning itself
to participate in future growth opportunities in both the commercial and
government sectors. The increase in sales and marketing expenditures primarily
results from the Company's decision to expand its activities and direct
presence in a number of world markets. The Company's costs of operations have
also been affected by increases in the cost of its operations in Israel,
resulting both from general inflation and increases in the cost of attracting
and retaining qualified scientific, engineering and technical personnel in
Israel, where the demand for such personnel is growing rapidly with the
expansion of technology-based industries in that country. The increase in
these costs in recent periods has not been offset by proportional devaluation
of the Israeli shekel against the United States dollar, and accordingly has
had a negative impact on the Company's overall results of operations.
A significant portion of the Company's research and development and
manufacturing operations are located in Israel and may be affected by
regulatory, political, military and economic conditions in that country. The
Company's historical operating results reflect substantial benefits from
programs sponsored by the Israeli government for the support of research and
development, as well as favorable tax rates available to "Approved
Enterprises" in Israel. The Israeli government has indicated its intention to
reexamine certain of its policies in these areas. It recently acted to
increase, from between 2% and 3% of associated product sales to between 3% and
5% of associated product revenues (including service and other related
revenues), the annual rate of royalties to be applied to repayment of benefits
under the conditional grant program administered by the Office of the Chief
Scientist of the Ministry of Industry and Trade, a program in which the
Company has regularly participated and under which it continues to receive
significant benefits through reimbursement of qualified research and
development expenditures. The Company's repayment of amounts received under
the program will be accelerated through these higher royalty rates until
repayment is completed. The Israeli authorities have also indicated that this
funding program may be reduced in the future. The Israeli government has also
shortened the period of the tax moratorium applicable to "Approved
Enterprises" from four years to two years. Although this change does not
affect the tax status of any of the Company's current projects, it will apply
to any future "Approved Enterprises" of the Company. If further changes in
the law or government policies regarding those programs were to result in
their termination or adverse modification, or if the Company were to become
unable to participate in or take advantage of those programs, the cost to the
Company of its operations in Israel would materially increase and there would
be an adverse effect on the results of the Company's operations as a whole.
The Company currently derives a majority of its total sales from
customers outside of the United States. International transactions involve
particular risks, including political decisions affecting tariffs and trade
conditions, rapid and unforeseen changes in economic conditions in individual
countries, turbulence in foreign currency and credit
Page 13 of 18
<PAGE>
markets, and increased costs resulting from lack of proximity to the customer.
Volatility in international currency exchange rates may have a significant
impact on the Company's operating results to the extent that it does not hedge
the exchange rate risk of contracts denominated in foreign currencies, or by
the cost of such hedging.
The trading price of the Company's shares may be affected by the factors
noted above as well as prevailing economic and financial trends and conditions
in the public securities markets. During recent periods, share prices of
companies in technology and government contracting businesses, and
particularly smaller and medium-sized publicly traded companies such as the
Company, have exhibited a high degree of volatility. Shortfalls in revenues
or earnings from the levels anticipated by the public markets could have an
immediate and significant effect on the trading price of the Company's shares
in any given period. Such shortfalls may result from events that are beyond
the Company's immediate control, can be unpredictable and, since a significant
proportion of the Company's sales during each fiscal quarter tend to occur in
the latter stages of the quarter, may not be discernible until the end of a
financial reporting period, which may contribute to the volatility of the
trading value of its shares regardless of the Company's long-term prospects.
The trading price of the Company's shares may also be affected by
developments, including reported financial results and fluctuations in trading
prices of the shares of other publicly-held companies in the voice processing
industry, which may not have any direct relationship with the Company's
business or prospects.
Page 14 of 18
<PAGE>
PART II
Other Information
-----------------
ITEM 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibit Index.
--------------
Item
Number Exhibit Page
------ ------- ----
11. Statement of Computation of
Earnings Per Share 17 - 18
27. Financial data schedule Filed electronically
(b) Reports on Form 8-K.
-------------------
None
Page 15 of 18
<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: November 13, 1996 S / Kobi Alexander
------------------
Kobi Alexander
President, Chairman of the Board
and Chief Executive Officer
Dated: November 13, 1996 S / Igal Nissim
---------------
Igal Nissim
Chief Financial Officer
Page 16 of 18
<PAGE>
EXHIBIT 11
COMVERSE TECHNOLOGY, INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
SEPTEMBER 30,
1995 1996
Primary earnings per share:
Net income $ 4,707 $ 7,235
======= =======
Weighted average number of outstanding common shares 21,146 21,596
Additional shares assuming exercise of stock options 1,681 2,019
------- -------
Weighted average number of outstanding common
and common equivalent shares 22,827 23,615
======= =======
Primary earnings per share $ 0.21 $ 0.31
======= =======
Fully diluted earnings per share:
Net income $ 4,707 $ 7,235
Interest expense on 5-1/4% Convertible
Subordinated Debentures, net of tax /(1)/ - 709
------- -------
Fully diluted earnings $ 4,707 $ 7,944
======= =======
Weighted average number of outstanding common shares 21,146 21,596
Additional shares assuming exercise of stock options 1,783 2,171
Additional shares assuming conversion of
5-1/4% Convertible Subordinated Debentures/(1)/ - 3,097
------- -------
Weighted average number of outstanding common shares
assuming full dilution 22,929 26,864
======= =======
Fully diluted earnings per share $ 0.21 $0.30
======= =======
(1) The assumed conversion of the 5-1/4% Convertible Subordinated Debentures for
the three month period ended September 30, 1995 was antidilutive and is
omitted.
Page 17 of 18
<PAGE>
EXHIBIT 11
(continued)
COMVERSE TECHNOLOGY, INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED
SEPTEMBER 30,
1995/(1)/ 1996
Primary earnings per share:
Net income $ 11,872 $19,593
======== =======
Weighted average number of outstanding common shares 21,061 21,503
Additional shares assuming exercise of stock options 1,407 1,740
-------- -------
Weighted average number of outstanding common
and common equivalent shares 22,468 23,243
======== =======
Primary earnings per share $ 0.53 $ 0.84
======== =======
Fully diluted earnings per share:
Net income $11,872 $19,593
Interest expense on 5-1/4% Convertible
Subordinated Debentures, net of tax /(1)/ - 2,126
------- -------
Fully diluted earnings $11,872 $21,719
======= =======
Weighted average number of outstanding common shares 21,061 21,503
Additional shares assuming exercise of stock options 1,551 1,886
Additional shares assuming conversion of
5-1/4% Convertible Subordinated Debentures/(1)/ - 3,097
------- -------
Weighted average number of outstanding common shares
assuming full dilution 22,612 26,486
======= =======
Fully diluted earnings per share $ 0.53 $0.82
======= =======
(1) The assumed conversion of the 5-1/4% Convertible Subordinated Debentures for
the nine month period ended September 30, 1995 was antidilutive and is
omitted.
Page 18 of 18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-Q FOR
9/30/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 81,530
<SECURITIES> 35,368
<RECEIVABLES> 57,956
<ALLOWANCES> 0
<INVENTORY> 29,565
<CURRENT-ASSETS> 216,240
<PP&E> 28,560
<DEPRECIATION> 13,371
<TOTAL-ASSETS> 252,297
<CURRENT-LIABILITIES> 44,133
<BONDS> 60,000
2,162
0
<COMMON> 0
<OTHER-SE> 140,828
<TOTAL-LIABILITY-AND-EQUITY> 252,297
<SALES> 138,931
<TOTAL-REVENUES> 145,011
<CGS> 59,476
<TOTAL-COSTS> 123,665
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,289
<INCOME-PRETAX> 21,881
<INCOME-TAX> 2,288
<INCOME-CONTINUING> 19,593
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,593
<EPS-PRIMARY> 0.84
<EPS-DILUTED> 0.82
</TABLE>
