<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, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-15502
COMVERSE TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 13-3238402
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
170 CROSSWAYS PARK DRIVE, WOODBURY, NY 11797
(Address of principal executive offices) (Zip Code)
(516) 677-7200
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of Common Stock, par value $0.10 per share,
outstanding as of May 10, 1996 was 21,493,977
Page 1 of 14 Total Pages
(Exhibit Index Appears on Page 12)
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements.
Page
----
1. Condensed Consolidated Balance Sheets as
of December 31, 1995 and March 31, 1996 3
2. Condensed Consolidated Statements of Income
for the Three Month Periods Ended March 31, 1995
and March 31, 1996 4
3. Condensed Consolidated Statements of
Stockholders' Equity for the Three Month
Period Ended March 31, 1996 5
4. Condensed Consolidated Statements of Cash
Flows for the Three Month Periods Ended
March 31, 1995 and March 31, 1996 6
5. Notes to Condensed Consolidated Financial
Statements 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 8
Page 2 of 14 Total Pages
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COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
DECEMBER 31, MARCH 31,
1995* 1996
(Unaudited)
Current assets:
Cash and cash equivalents $ 99,862 $ 95,840
Bank time deposits and
short-term investments 23,070 31,469
Accounts receivable, net 43,009 41,093
Inventories 15,773 16,209
Prepaid expenses and
other current assets 8,536 9,162
-------- --------
Total current assets 190,250 193,773
Long-term receivables, net 2,105 2,121
Property and equipment 22,718 23,842
Less: accumulated depreci-
ation and amortization (10,887) (11,608)
-------- --------
11,831 12,234
Investments 3,880 4,452
Goodwill, net 1,106 1,057
Software development costs, net 8,756 9,071
Other intangible assets, net 1,597 1,530
Deferred costs and other assets, net 1,929 1,782
-------- --------
$221,454 $226,020
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, MARCH 31,
1995* 1996
(Unaudited)
Current liabilities:
Accounts payable and
accrued expenses $ 27,230 $ 30,126
Advance payments
from customers 4,988 2,975
Due to related parties 364 278
Other current liabilities 2,604 285
------------ ----------
Total current liabilities 35,186 33,664
5-1/4% Convertible
Subordinated Debentures 60,000 60,000
Liability for severance pay 2,299 2,796
Other liabilities 1,939 1,883
Minority interest 264 217
------------ ----------
Total liabilities 99,688 98,560
Stockholders' equity:
Common Stock, $.10 par value
authorized 100,000,000 shares;
issued and outstanding
21,362,598 and 21,472,976 2,136 2,147
Additional paid-in-capital 75,752 76,276
Cumulative translation adjustment (136) (111)
Unrealized gain on available for
sale securities, net of tax 646 273
Retained earnings 43,368 48,875
------------ ----------
Total stockholders' equity 121,766 127,460
------------ ----------
$221,454 $226,020
============ ==========
*The Condensed Consolidated Balance Sheet as of December 31, 1995 has been
summarized from the Company's audited Consolidated Balance Sheet as of that
date.
The accompanying notes are an integral part of these financial statements.
Page 3 of 14 Total Pages
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COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31,
1995 1996
Revenues:
Sales $29,383 $40,410
Interest and other income 2,139 1,786
------- -------
Total revenues 31,522 42,196
Costs and expenses:
Research and development 5,912 7,773
Less reimbursement (1,512) (1,817)
------- -------
Net research and development 4,400 5,956
Cost of sales 12,921 17,352
Selling, general and administrative 9,098 10,787
Royalties and license fees 610 839
Minority interest and
equity in loss of affiliates (10) -
Interest expense and other 1,210 1,139
------- -------
Total costs and expenses 28,229 36,073
Income before income tax provision 3,293 6,123
Income tax provision 404 616
------- -------
Net income $ 2,889 $ 5,507
======= =======
Primary and fully diluted earnings
per share $0.13 $0.24
======== =======
The accompanying notes are an integral part of these
financial statements.
Page 4 of 14 Total Pages
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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 - - - - (373) - (373)
Common stock issued in connection with
exercise of stock options 110,378 11 524 - - - 535
Translation adjustment - - - 25 - - 25
Net income, three months ended
March 31, 1996 - - - - - 5,507 5,507
-----------------------------------------------------------------------------
BALANCE, MARCH 31, 1996 21,472,976 $2,147 $76,276 $(111) $273 $48,875 $127,460
==============================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 5 of 14 Total Pages
<PAGE>
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
1995 1996
Cash flows from operating activities:
Net cash from operations after adjustment
for non-cash items $ 3,664 $ 5,196
Changes in assets and liabilities:
Accounts receivable and long-term receivables (2,721) 1,900
Inventories (3,112) (436)
Prepaid expenses and other current assets (1,073) (599)
Accounts payable and accrued expenses 1,945 2,896
Advance payments from customers 640 (2,013)
Due to related parties (68) (86)
Liability for severance pay 460 497
------- --------
Net cash (used in) provided by operating activities (265) 7,355
Cash flows from investing activities:
Maturities and sales (purchase) of bank time deposits
and investments, net 10,742 (9,432)
Purchases of property and equipment (1,088) (1,124)
Increase in software development costs (1,333) (1,152)
Other - 87
------- --------
Net cash provided by (used in) investing activities 8,321 (11,621)
Cash flows from financing activities:
Increase (decrease) in short and long term debt, net 702 (291)
Proceeds from issuance of common stock 121 535
------- --------
Net cash provided by financing activities 823 244
Net increase (decrease) in cash and cash equivalents 8,879 (4,022)
Cash and cash equivalents, beginning of period 39,225 99,862
------- --------
Cash and cash equivalents, end of period $48,104 $ 95,840
======= ========
The accompanying notes are an integral part of these
financial statements.
Page 6 of 14 Total Pages
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COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION. The accompanying financial information should
be read in conjunction with the financial statements, including the notes
thereto, for the year ended December 31, 1995. The financial information
included herein is unaudited; however, such information reflects all adjustments
(consisting solely of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the interim periods.
The results of operations for the three month period ended March 31, 1996 are
not necessarily indicative of the results to be expected for the full year.
INVENTORIES. The composition of inventories at
December 31, 1995 and March 31, 1996 is as follows:
DECEMBER 31, MARCH 31,
1995 1996
(In thousands)
-----------------
Raw materials $10,364 $10,722
Work in process 2,638 2,963
Finished goods 2,771 2,524
------- -------
$15,773 $16,209
======= =======
RESEARCH AND DEVELOPMENT EXPENSES. The Company has historically
supported a substantial portion of its research and development activities
through participation in government sponsored funding programs, which in general
provide reimbursement for a portion of research and development expenditures
incurred under project budgets approved on an annual basis by the applicable
funding agencies. During the three month period ended March 31, 1996, gross
research and development expenses amounted to approximately $7,773,000, of which
approximately $1,817,000 was reimbursed.
EARNINGS PER SHARE. For the three month periods ended March 31, 1995
and 1996, the computation of earnings per share is based on the weighted average
number of outstanding common shares and additional shares assuming the exercise
of stock options. The shares used in the computations are as follows:
THREE MONTHS ENDED
MARCH 31,
1995 1996
(In thousands)
Primary 22,139 23,002
Fully diluted 22,246 23,155
Page 7 of 14 Total Pages
<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, 1996 increased by approximately $10,674,000 (34%) from the corresponding
period in 1995. The increase is attributable to a higher volume of sales of
systems and parts. Sales for the three month period ended March 31, 1996
increased by approximately $11,027,000 (38%) from the 1995 period. The growth
in sales occurred in both the TRILOGUE and AUDIODISK product lines. Interest
and other income for the three month period ended March 31, 1996 decreased by
approximately $353,000 (17%) from the corresponding period in 1995, resulting
from decreased interest rates and lower realized gains on sales of short-term
investments.
Cost of Sales. Cost of sales for the three month period ended March
-------------
31, 1996 increased by approximately $4,431,000 (34%) from the corresponding
period in 1995. The increase is attributable primarily to the increase in
sales. Gross margin (expressed as a percentage of sales) for the three month
period ended March 31, 1996 increased to approximately 57% from approximately
56% during the corresponding 1995 period.
Research and Development Expenses. Gross research and development
---------------------------------
expenses for the three month period ended March 31, 1996 increased by
approximately $1,861,000 (31%) from the corresponding period in 1995. Net
research and development expenses, after reimbursement under government funding
programs, for the three month period ended March 31, 1996 increased by
approximately $1,556,000 (35%) from the corresponding period in 1995. Such
increases are due to the overall growth of research and development operations,
the initiation of significant new research and development projects for both
product lines, and increases in salaries and other costs associated with
research and development operations in Israel.
Selling, General and Administrative Expenses. Selling, general and
--------------------------------------------
administrative expenses for the three month period ended March 31, 1996
increased by approximately $1,689,000 (19%) from the corresponding period in
1995. Such increase was the result of increased sales, marketing and
administrative activities associated with the overall growth of the Company's
operations, and particularly with the expansion of direct sales and marketing
activities internationally and in the United States.
Royalties and License Fees. Royalties and license fees for the three
--------------------------
month period ended March 31, 1996 increased by approximately $229,000 (38%) from
the corresponding period in 1995. Royalties and license fees as a percentage of
total sales was approximately 2.1% in the 1995 and 1996 periods.
Income Tax Provision. Provision for income taxes for the three month
--------------------
period ended March 31, 1996 increased by approximately $212,000 (52%) from the
corresponding
Page 8 of 14 Total Pages
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period in 1995. The Company's overall effective tax rate decreased
from approximately 12% during the three month period ended March 31, 1995 to
approximately 10% in the corresponding period of 1996. The Company's overall
rate of tax is reduced significantly by the tax benefits associated with
qualified activities of one of its subsidiaries in Israel.
Net Income. Net income after taxes for the three month period ended
----------
March 31, 1996 increased by approximately $2,618,000 (91%) from the
corresponding period in 1995, primarily as a result of the factors described
above. Net income after taxes as a percentage of total revenues increased to
approximately 13.1% in the three month period ended March 31, 1996 from
approximately 9.2% in the corresponding period in 1995.
LIQUIDITY AND CAPITAL RESOURCES. At March 31, 1996, the Company had
cash and cash equivalents of approximately $95,840,000, bank time deposits and
short-term investments of approximately $31,469,000 and working capital of
approximately $160,109,000. The Company believes that its existing working
capital, together with funds generated from operations, will be sufficient to
provide for its planned operations for the foreseeable future.
The Company regularly examines opportunities for strategic
acquisitions of other companies or lines of business and anticipates that it may
from time to time issue additional debt and/or equity securities either as
direct consideration for such acquisitions or to raise additional funds to be
used (in whole or in part) in payment for acquired securities or assets. The
issuance of such securities could be expected to have a dilutive impact on the
Company's shareholders, and there can be no assurance as to whether or when any
acquired business would contribute positive operating results commensurate with
the associated investment.
The Company's liquidity and capital resources have not been, and are
not anticipated to be, materially affected by restrictions pertaining to the
ability of its foreign subsidiaries to pay dividends or by withholding taxes
associated with any such dividend payments.
CERTAIN TRENDS AND UNCERTAINTIES. The industries in which the
Company is principally involved are highly competitive and characterized by
frequent technological and market changes.
The voice processing and message management industry has undergone
consolidation in recent periods, as a result of corporate acquisitions and
attrition. In addition, the industry has experienced a continuing evolution of
product offerings and alternatives for delivery of services. These trends have
affected and may be expected to have a significant continuing influence on
conditions in the industry, although the impact on the industry generally and on
the Company's position in the industry cannot be predicted with assurance.
Significant changes in the industry make planning decisions more difficult and
increase the risk inherent in the planning process.
The market for telecommunications monitoring systems is also in a
period of significant transition. Budgetary constraints, uncertainties
resulting from the introduction of new technologies in the telecommunications
environment and shifts in the pattern of government
Page 9 of 14 Total Pages
<PAGE>
expenditures resulting from geopolitical events have increased uncertainties in
the market, resulting in certain instances in the attenuation of government
procurement programs beyond their originally expected performance periods and an
increased incidence of delay, cancellation or reduction of planned projects.
Competitive conditions in this sector have also been affected by the efforts of
government contractors, particularly developers and integrators of technology
products, to redirect their marketing strategies and product plans in reaction
to cut-backs in their traditional areas of focus, resulting in an increase in
the number of competitors and the range of products offered in response to
particular requests for proposals. The lack of predictability in the timing and
scope of government procurements have similarly made planning decisions more
difficult and have increased the associated risks.
The Company has historically derived a significant portion of its
revenue and operating profit from a relatively small number of contracts for
large system installations with customers in both the commercial and government
sectors. While the growth of the Company's business has reduced its dependence
on any specific customers, it continues to emphasize large capacity systems in
its product development and marketing strategies. Contracts for large
installations typically involve a lengthy and complex bidding and selection
process, and the ability of the Company to obtain particular contracts is
inherently difficult to predict. The Company believes that opportunities for
large installations will continue to grow in both its commercial and government
markets, and intends to continue to expand its research and development,
manufacturing, sales and marketing and product support capabilities in
anticipation of such growth. However, the timing and scope of these
opportunities and the pricing and margins associated with any eventual contract
award are difficult to forecast, and may vary substantially from transaction to
transaction. The Company's future operating results may accordingly exhibit a
higher degree of volatility than the operating results of other companies in its
industries that have adopted different strategies, and than the Company has
experienced in prior periods. Although the Company is actively pursuing a
number of significant procurement opportunities in the United States and
internationally, both the timing of any eventual procurements and the
probability of the Company's receipt of significant contract awards are
uncertain. The degree of dependence by the Company on large orders, and the
investment required to enable the Company to perform such orders, without
assurance of continuing order flow from the same customers and predictability of
gross margins on any future orders, increase the risk associated with its
business.
The Company has significantly increased its expenditures in all areas
of its operations during recent periods, including the areas of research and
development and marketing and sales, and the Company plans to further increase
these expenditures during 1996. The increase in research and development
expenditures reflects the Company's concentration on enhancing the range of
features and capabilities of its existing product lines and developing new
generations of its products. The Company believes that these efforts are
essential for the long- and short- term competitiveness of its product offerings
and for positioning itself to participate in future growth opportunities in both
the commercial and government sectors. The increase in sales and marketing
expenditures primarily results from the Company's decision to expand its
activities and direct presence in a number of world markets. The Company's
costs of operations have also been affected by increases in the cost of its
operations in Israel, resulting both from general inflation and increases in the
cost of attracting and retaining qualified scientific, engineering and
Page 10 of 14 Total Pages
<PAGE>
technical personnel in Israel, where the demand for such personnel is growing
rapidly with the expansion of technology-based industries in that country. The
increase in these costs in recent periods has not been offset by proportional
devaluation of the Israeli shekel against the U.S. dollar, and accordingly has
had a negative impact on the Company's overall results of operations.
The Company currently derives a majority of its total revenues from
sales to customers outside of the United States. International transactions
involve particular risks, including political decisions affecting tariffs and
trade conditions, rapid and unforeseen changes in economic conditions in
individual countries, turbulence in foreign currency and credit markets, and
increased costs resulting from lack of proximity to the customer. Volatility in
international currency exchange rates may have a significant impact on the
Company's operating results to the extent that it is unable to completely hedge
the exchange rate risk of long term contracts denominated in foreign currencies,
or by the cost of such hedging.
The trading price of the Company's shares may be affected by the
factors noted above as well as prevailing economic and financial trends and
conditions in the public securities markets. During recent periods, share
prices of companies in technology and government contracting businesses, and
particularly smaller and medium-sized publicly traded companies such as the
Company, have exhibited a high degree of volatility. Shortfalls in revenues or
earnings from the levels anticipated by the public markets could have an
immediate and significant effect on the trading price of the Company's shares in
any given period. Such shortfalls may result from events that are beyond the
Company's immediate control, can be unpredictable and, since a significant
proportion of the Company's sales during each fiscal quarter tend to occur in
the latter stages of the quarter, may not be discernible until the end of a
financial reporting period, which may contribute to the volatility of the
trading value of its shares regardless of the Company's long-term prospects.
The trading price of the Company's shares may also be affected by developments,
including reported financial results and fluctuations in trading prices of the
shares of other publicly-held companies in the voice processing industry, which
may not have any direct relationship with the Company's business or prospects.
Page 11 of 14 Total Pages
<PAGE>
PART II
Other Information
-----------------
ITEM 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibit Index.
-------------
Item
Number Exhibit Page
------ -------- ----
11. Statement re computation of
per share earnings. 14
27. Financial data schedule Filed electronically
(b) Reports on Form 8-K.
-------------------
None
Page 12 of 14 Total Pages
<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 14, 1996 S/Kobi Alexander
----------------
Kobi Alexander
President, Chairman of the Board
and Chief Executive Officer
Dated: May 14, 1996 S/Igal Nissim
-------------
Igal Nissim
Vice President, Finance
and Chief Financial Officer
Page 13 of 14 Total Pages
<PAGE>
EXHIBIT 11
COMVERSE TECHNOLOGY, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31,
1995 1996
Primary earnings per share:
Net income $ 2,889 $ 5,507
======= =======
Weighted average number of outstanding common shares 20,996 21,394
Additional shares assuming exercise of stock options 1,143 1,608
------- -------
Weighted average number of outstanding common
and common equivalent shares 22,139 23,002
======= =======
Primary earnings per share $ 0.13 $ 0.24
======= =======
Fully diluted earnings per share:
Net income $2,889 $5,507
====== ======
Weighted average number of outstanding common shares 20,996 21,394
Additional shares assuming exercise of stock options 1,250 1,761
------- -------
Weighted average number of outstanding common shares
assuming full dilution 22,246 23,155
======= =======
Fully diluted earnings per share $ 0.13 $ 0.24
======= =======
Page 14 of 14 Total Pages
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-Q FOR
3/31/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 95840
<SECURITIES> 31469
<RECEIVABLES> 41093
<ALLOWANCES> 0
<INVENTORY> 16209
<CURRENT-ASSETS> 193773
<PP&E> 23842
<DEPRECIATION> (11608)
<TOTAL-ASSETS> 226020
<CURRENT-LIABILITIES> 33664
<BONDS> 60000
2147
0
<COMMON> 0
<OTHER-SE> 125313
<TOTAL-LIABILITY-AND-EQUITY> 226020
<SALES> 40410
<TOTAL-REVENUES> 42196
<CGS> 17352
<TOTAL-COSTS> 36073
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1139
<INCOME-PRETAX> 6123
<INCOME-TAX> 616
<INCOME-CONTINUING> 5507
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5507
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
