<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, 1997
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 6, 1997 was 25,200,257
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, 1996 and September 30, 1997 3
2. Condensed Consolidated Statements of Income
for the Three Month and Nine Month Periods
Ended September 30, 1996 and September 30, 1997 4
3. Condensed Consolidated Statements of Cash Flows
for the Nine Month Periods Ended
September 30, 1996 and September 30, 1997 5
4. Notes to Condensed Consolidated Financial
Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Page 2 of 18
<PAGE>
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
DECEMBER 31, SEPTEMBER 30,
1996* 1997
(Unaudited)
Current assets:
Cash and cash equivalents $ 196,724 $ 149,074
Bank time deposits and
short-term investments 49,464 113,600
Accounts receivable, net 63,540 79,233
Inventories 31,494 35,030
Prepaid expenses and
other current assets 9,755 20,265
----------- ----------
Total current assets 350,977 397,202
Long-term receivables, net 1,033 860
Property and equipment 32,463 41,626
Less: accumulated depreci-
ation and amortization (14,422) (18,910)
----------- ----------
18,041 22,716
Investments 5,788 6,473
Goodwill, net 308 262
Software development costs, net 10,143 12,028
Other intangible assets, net 1,330 1,105
Deferred costs and other assets, net 3,281 5,252
----------- ----------
$ 390,901 $ 445,898
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, SEPTEMBER 30,
1996* 1997
(Unaudited)
Current liabilities:
Accounts payable and
accrued expenses $ 40,531 $ 48,586
Bank loans 11,195 16,916
Advance payments
from customers 6,400 9,247
Due to related parties 502 812
Other current liabilities 100 103
----------- ----------
Total current liabilities 58,728 75,664
Convertible
Subordinated Debentures 115,000 115,000
Liability for severance pay 2,708 3,526
Other liabilities 2,407 3,353
----------- ----------
Total liabilities 178,843 197,543
Stockholders' equity:
Common Stock, $.10 par value
authorized 100,000,000 shares;
issued and outstanding
24,741,228 and 25,152,303 2,474 2,515
Additional paid-in-capital 136,737 139,806
Cumulative translation adjustment (56) (43)
Unrealized gain on available for
sale securities, net of tax 1,547 3,026
Retained earnings 71,356 103,051
----------- ----------
Total stockholders' equity 212,058 248,355
----------- ----------
$ 390,901 $ 445,898
=========== ==========
*The Condensed Consolidated Balance Sheet as of December 31, 1996 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 PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1996 1997
<S> <C> <C> <C> <C>
Revenues:
Sales $ 138,931 $ 202,681 $ 51,892 $ 72,193
Interest and other income 6,080 11,973 2,216 3,751
----------- ----------- ----------- -----------
Total revenues 145,011 214,654 54,108 75,944
Costs and expenses:
Research and development 25,911 39,121 9,537 14,174
Less reimbursement ( 6,339) (11,344) ( 2,414) ( 4,159)
----------- ----------- ----------- -----------
Net research and development 19,572 27,777 7,123 10,015
Cost of sales 59,476 85,953 22,110 30,581
Selling, general and administrative 37,612 53,756 13,998 19,007
Royalties and license fees 2,948 4,981 1,188 1,768
Minority interest and equity
in loss of affiliates ( 232) ( 30) ( 82) 98
Interest expense and other 4,289 6,997 1,668 1,890
----------- ----------- ----------- -----------
Total costs and expenses 123,665 179,434 46,005 63,359
----------- ----------- ----------- -----------
Income before gain on issuance of
subsidiary shares and income tax provision 21,346 35,220 8,103 12,585
Gain on issuance of subsidiary shares 535 - - -
----------- ----------- ----------- -----------
Income before income tax provision 21,881 35,220 8,103 12,585
----------- ----------- ----------- -----------
Income tax provision 2,288 3,525 868 1,247
----------- ----------- ----------- -----------
Net income $ 19,593 $ 31,695 $ 7,235 $ 11,338
=========== ========== ========== ===========
Earnings per share:
Primary $ 0.84 $ 1.17 $ 0.31 $ 0.42
=========== ========== ========= ===========
Fully diluted $ 0.82 $ 1.17 $ 0.30 $ 0.42
=========== ========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4 of 18
<PAGE>
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1997
<S> <C> <C>
Cash flows from operating activities:
Net cash from operations after adjustments
for non-cash items $ 21,293 $ 38,320
Changes in assets and liabilities:
Accounts receivable and long-term receivables ( 14,224) ( 15,520)
Inventories ( 13,792) ( 3,536)
Prepaid expenses and other receivables ( 2,898) ( 10,629)
Accounts payable and accrued expenses 12,806 8,055
Advance payments from customers ( 1,620) 2,847
Due to related parties 51 310
Liability for severance pay 821 818
---------- ----------
Net cash provided by operating activities 2,437 20,665
Cash flows from investing activities:
Maturities and sales (purchases) of
bank time deposits and investments, net ( 12,784) ( 63,342)
Purchases of property and equipment ( 5,842) ( 9,163)
Increase in software development costs ( 3,443) ( 4,574)
Other 4 -
---------- ----------
Net cash used in investing activities ( 22,065) ( 77,079)
Cash flows from financing activities:
(Decrease) increase in short- and
long-term debt, net ( 276) 5,654
Proceeds from issuance of common stock 1,572 3,110
---------- ----------
Net cash provided by financing activities 1,296 8,764
Net (decrease) in cash and cash equivalents ( 18,332) ( 47,650)
Cash and cash equivalents, beginning of period 99,862 196,724
---------- ----------
Cash and cash equivalents, end of period $ 81,530 $ 149,074
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
Page 5 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, 1996. 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,
1997 are not necessarily indicative of the results to be expected for the full
year.
INVENTORIES. The composition of inventories at December 31, 1996 and
September 30, 1997 is as follows:
DECEMBER 31, SEPTEMBER 30,
1996 1997
(In thousands)
Raw materials $ 17,681 $ 16,823
Work in process 7,853 8,331
Finished goods 5,960 9,876
----------- -----------
$ 31,494 $ 35,030
=========== ===========
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 that must be submitted for approval on an annual basis to
the applicable funding agencies. During the nine month and three month periods
ended September 30, 1997, gross research and development expenses amounted to
approximately $39,121,000 and $14,174,000, respectively, of which approximately
$11,344,000 and $4,159,000, respectively, was reimbursed. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations Certain
Trends and Uncertainties."
EARNINGS PER SHARE. For the nine month and three month periods ended
September 30, 1996 and 1997, 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 assumed conversion of the
convertible subordinated debentures was antidilutive for the nine and three
month periods ended September 30, 1997. The shares used in the computations are
as follows:
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1996 1997
(In thousands)
Primary 23,243 27,081 23,615 27,207
Fully diluted 26,486 27,188 26,864 27,315
Page 6 of 18 Total Pages
<PAGE>
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share," ("FAS 128")
which is required to be adopted on December 31, 1997. At that time, the Company
will be required to change the method currently used to compute earnings per
share and to restate all prior periods. FAS 128 requires the disclosure of
"basic" and "diluted" earnings per share (as those terms are defined in FAS
128), replacing "primary" and "fully diluted" earnings per share (as currently
reported). Basic earnings per share, determined in accordance with FAS 128,
would have been $0.91 and $0.34 for the nine and three month periods ended
September 30, 1996, respectively, and $1.27 and $0.45 for the nine and three
month periods ended September 30, 1997, respectively. Diluted earnings per
share, determined in accordance with FAS 128, would have been $0.82 and $0.30
for the nine month and three month periods ended September 30, 1996,
respectively, and $1.17 and $0.42 for the nine and three month periods ended
September 30, 1997, respectively.
MERGER WITH BOSTON TECHNOLOGY, INC. On August 21, 1997, the Company announced
that it had agreed to merge with Boston Technology, Inc. ("Boston") in a stock
merger in which the Company would issue .65 share of its common stock for each
outstanding share of common stock of Boston. The merger, which is subject to
various conditions, including approval by the shareholders of the Company and
Boston, is expected to be completed toward the end of 1997 or the beginning of
1998. The merger of the companies will result in duplicate facilities,
distribution channels and other relationships and the incurring of certain
liabilities, which will result in adjustments and write-offs to the carrying
value of certain assets and the accrual of certain liabilities upon the
completion of the merger. The amount of these restructuring charges is not
expected to exceed $70,000,000. In addition, approximately $10,000,000 of direct
merger costs will be expensed upon the completion of the merger.
Page 7 of 18 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 nine month and three month periods
--------------
ended September 30, 1997 increased by approximately $69,643,000 (48%) and
approximately $21,836,000 (40%), respectively, from the corresponding periods in
1996. The increase is attributable primarily to a higher volume of sales of
systems and parts. Sales for the nine month and three month periods ended
September 30, 1997 increased by approximately $63,750,000 (46%) and
approximately $20,301,000 (39%), respectively, from the 1996 periods. The growth
in sales occurred primarily in the TRILOGUE product line. Interest and other
income for the nine month and three month periods ended September 30, 1997
increased by approximately $5,893,000 (97%) and $1,535,000 (69%), respectively,
from the corresponding periods in 1996, resulting from increased interest and
dividend income, the investment of funds generated through the issuance of
convertible subordinated debentures in October 1996, and realized gains on sales
of investments.
Cost of Sales. Cost of sales for the nine month and three month periods
-------------
ended September 30, 1997 increased by approximately $26,477,000 (45%) and
approximately $8,471,000 (38%), respectively, from the corresponding periods in
1996. 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, 1997 increased to approximately 57.6% from
approximately 57.2% and 57.4%, respectively, from the corresponding 1996
periods.
Research and Development Expenses. Gross research and development expenses
---------------------------------
for the nine month and three month periods ended September 30, 1997 increased by
approximately $13,210,000 (51%) and approximately $4,637,000 (49%),
respectively, from the corresponding periods in 1996. Net research and
development expenses, after reimbursement under government funding programs, for
the nine month and three month periods ended September 30, 1997 increased by
approximately $8,205,000 (42%) and approximately $2,892,000 (41%), respectively,
from the corresponding periods in 1996. Such increases are due to the overall
growth of research and development operations, the initiation of significant new
research and development projects, and increases in salaries and other costs
associated with research and development operations, primarily in Israel.
Selling, General and Administrative Expenses. Selling, general and
--------------------------------------------
administrative expenses for the nine month and three month periods ended
September 30, 1997 increased by approximately $16,144,000 (43%) and
approximately $5,009,000 (36%), respectively, from the corresponding periods in
1996. 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.
Page 8 of 18
<PAGE>
Royalties and License Fees. Royalties and license fees for the nine month
--------------------------
and three month periods ended September 30, 1997 increased by approximately
$2,033,000 (69%) and approximately $580,000 (49%), respectively, from the
corresponding periods in 1996. Royalties and license fees, for the nine month
and three month periods ended September 30, 1997, as a percentage of sales
increased from approximately 2.1% and 2.3%, respectively, in the 1996 periods to
approximately 2.5% and 2.4%, respectively, in the 1997 periods, reflecting an
increase in the royalty rate payable to a funding agency.
Income Tax Provision. Provision for income taxes for the nine month and
--------------------
three month periods ended September 30, 1997 increased by approximately
$1,237,000 (54%) and approximately $379,000 (44%), respectively, from the
corresponding periods in 1996. The Company's overall effective tax rate was
approximately 10.5% and 10.7% in the nine and three month periods ended
September 30, 1996, respectively, and 10.0% and 9.9% in the nine and three month
periods ended September 30, 1997, respectively. 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, 1997 increased by approximately $12,102,000 (62%)
and approximately $4,103,000 (57%), respectively, from the corresponding periods
in 1996, primarily as a result of the factors described above. Net income after
taxes as a percentage of total revenues increased to approximately 14.8% and
14.9%, respectively, in the nine month and three month periods ended September
30, 1997 from approximately 13.5% and 13.4%, respectively, in the corresponding
periods in 1996.
LIQUIDITY AND CAPITAL RESOURCES. At September 30, 1997, the Company had
cash and cash equivalents of approximately $149,074,000, bank time deposits and
short-term investments of approximately $113,600,000 and working capital of
approximately $321,538,000. 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. See "Notes to
Condensed Consolidated Financial Statements - Merger with Boston Technology,
Inc." 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
Page 9 of 18
<PAGE>
subsidiaries to pay dividends or by withholding taxes associated with any such
dividend payments.
CERTAIN TRENDS AND UNCERTAINTIES. 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. See
"Notes to Condensed Consolidated Financial Statements - Merger with Boston
Technology, Inc." 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 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 maintains a portion of its assets in a variety of financial
instruments, including government and corporate debt obligations, commercial
paper, bank time deposits, money-market accounts, common and preferred stocks
and mutual funds, 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. 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 encounters strong competition in all of its markets, and such
competition may be expected to continue to intensify in the foreseeable future.
Such competition affects both the prices that the Company is able to obtain for
its products and the associated payment terms. Rapid growth and increased
competition throughout the telecommunications industry, and particularly the
increase in the number of new telecommunications services operators that have
been organized in recent periods to take advantage of emerging opportunities,
such as personal communication services licensees, have increased the
competitive pressure on equipment vendors, such as the Company, to provide
financing for customers and to extend the payment terms that it offers to
customers. This trend is likely to continue for the foreseeable future, and may
draw increasingly on the Company's financial resources and liquidity and
increase its exposure to uncollectable accounts.
Page 10 of 18
<PAGE>
The industries in which the Company is principally involved are highly
competitive and characterized by frequent technological and market changes. The
voice processing and enhanced services platform 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 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. Boston's business is also
heavily dependent on large system installations for major service providers, and
it has historically derived a large portion of its revenues from a relatively
small number of customers. See "Notes to Condensed Consolidated Financial
Statements Merger with Boston Technology, Inc." 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
Page 11 of 18
<PAGE>
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 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 cost to the
Company of attracting and retaining qualified scientific, engineering and
technical personnel is increasing and may be expected to continue to increase as
the demand for such personnel is growing rapidly worldwide. In particular, the
Company's costs of operations have been affected by significant increases in the
cost of its operations in Israel, resulting both from general inflation and
increases in personnel costs reflecting the rapid 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.
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 amounts received as reimbursement of
qualified research and development expenditures under a program administered by
the Office of the Chief Scientist of the Ministry of Industry and Trade, in
which the Company has regularly participated and under which it continues to
receive significant reimbursement. 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 generally, and that consideration is being given
to limiting the funding available to larger entities, such as the Company.
Accordingly, the Company anticipates that the percentage of its total research
and development expenditures reimbursed under this program, which has
Page 12 of 18
<PAGE>
declined significantly in recent years, will continue to decline in the future.
The Israeli government has also recently 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
significant 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 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 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,
either as a result of adverse changes in exchange rates or by the cost of
hedging the risk of such changes. The Company is not always able to hedge the
exchange rate risks associated with its contracts denominated in foreign
currencies, and in certain instances elects not to hedge such risks as a result
of cost and other factors. The failure to hedge in certain instances has had an
adverse impact on the Company's operating results in recent periods.
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. Share prices of companies in technology and
government contracting businesses, and particularly smaller and medium-sized
publicly traded companies such as the Company, tend to exhibit 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 computer and telecommunications industries generally, and in the voice
processing industry in particular, which may not have any direct relationship
with the Company's business or prospects.
Forward-Looking Statements. From time to time, the Company makes
forward-looking statements. Forward-looking statements include financial
projections, statements of plans and objectives for future operations,
statements of future economic performance, and statements of assumptions
relating thereto.
Page 13 of 18
<PAGE>
The Company may include forward-looking statements in its periodic reports
to the Securities and Exchange Commission on Forms 10-K, 10-Q, and 8-K, in its
annual report to shareholders, in its proxy statements, in its press releases,
in other written materials, and in statements made by employees to analysts,
investors, representatives of the media, and others.
By their very nature, forward-looking statements are subject to
uncertainties, both general and specific, and risks exist that predictions,
forecasts, projections and other forward-looking statements will not be
achieved. Actual results may differ materially due to a variety of factors,
including without limitation those discussed under "Certain Trends and
Uncertainties" and elsewhere in this report. Investors and others should
carefully consider these and other uncertainties and events, whether or not the
statements are described as forward-looking.
Forward-looking statements made by the Company are intended to apply only
at the time they are made, unless explicitly stated to the contrary. Moreover,
whether or not stated in connection with a forward-looking statement, the
Company undertakes no obligation to correct or update a forward-looking
statement should the Company later become aware that it is not likely to be
achieved. If the Company were in any particular instance to update or correct a
forward-looking statement, investors and others should not conclude that the
Company will make additional updates or corrections thereafter.
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 re computation of
per share earnings. 17 and 18
27. Financial data schedule Filed electronically
(b) Reports on Form 8-K.
--------------------
On August 22, 1997, the Company filed a Current Report on Form 8-K
reporting the execution of a definitive agreement providing for the merger of
the Company with Boston Technology, Inc. See "Notes to Condensed Consolidated
Financial Statements - Merger with Boston Technology, Inc."
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 10, 1997 S/ Kobi Alexander
--------------------------------
Kobi Alexander
President, Chairman of the Board
and Chief Executive Officer
Dated: November 10, 1997 S/ Igal Nissim
--------------------------------
Igal Nissim
Chief Financial Officer
Page 16 or 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,
1996 1997
Primary earnings per share:
Net income $ 7,235 $ 11,338
========== ============
Weighted average number of outstanding common shares 21,596 25,069
Additional shares assuming exercise of stock options 2,019 2,138
---------- ------------
Weighted average number of outstanding common
and common equivalent shares 23,615 27,207
========== ============
Primary earnings per share $ 0.31 $ 0.42
========== ============
Fully diluted earnings per share:
Net income $ 7,235 $ 11,338
Interest expense on Convertible
Subordinated Debentures, net of tax (1) 709 -
---------- -----------
Fully diluted earnings $ 7,944 $ 11,338
========== ===========
Weighted average number of outstanding common shares 21,596 25,069
Additional shares assuming exercise of stock options 2,171 2,246
Additional shares assuming conversion of
Convertible Subordinated Debentures 3,097 -
---------- ------------
Weighted average number of outstanding common shares
assuming full dilution 26,864 27,315
========== ============
Fully diluted earnings per share $ 0.30 $ 0.42
========== ============
(1) The assumed conversion of the Convertible Subordinated Debentures for the
three month period ended September 30, 1997 was antidilutive and is omitted.
Page 17 or 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,
1996 1997
Primary earnings per share:
Net income $ 19,593 $ 31,695
========== ========
Weighted average number of outstanding common shares 21,503 24,927
Additional shares assuming exercise of stock options 1,740 2,154
---------- --------
Weighted average number of outstanding common
and common equivalent shares 23,243 27,081
---------- --------
Primary earnings per share $ 0.84 $ 1.17
========== ========
Fully diluted earnings per share:
Net income $ 19,593 $ 31,695
Interest expense on Convertible
Subordinated Debentures, net of tax (1) 2,126 -
---------- --------
Fully diluted earnings $ 21,719 $ 31,695
========== ========
Weighted average number of outstanding common shares 21,503 24,927
Additional shares assuming exercise of stock options 1,886 2,261
Additional shares assuming conversion of
Convertible Subordinated Debentures 3,097 -
---------- --------
Weighted average number of outstanding common shares
assuming full dilution 26,486 27,188
========== ========
Fully diluted earnings per share $ 0.82 $ 1.17
========== ========
(1) The assumed conversion of the Convertible Subordinated Debentures for the
three month period ended September 30, 1997 was antidilutive and is omitted.
Page 18 of 18
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<PAGE>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-q FOR
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