<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 June 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 August 4, 1997 was 25,145,907
Page 1 of 18 Total Pages
(Exhibit Index Appears on Page 15)
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements.
Page
----
1. Condensed Consolidated Balance Sheets as
of December 31, 1996 and June 30, 1997 3
2. Condensed Consolidated Statements of Income
for the Three Month and Six Month Periods Ended
June 30, 1996 and June 30, 1997 4
3. Condensed Consolidated Statements of Cash
Flows for the Six Month Periods Ended
June 30, 1996 and June 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 Total Pages
<PAGE>
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30,
1996* 1997 1996* 1997
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Current assets: Current liabilities:
Cash and cash equivalents $196,724 $142,710 Accounts payable and
Bank time deposits and accrued expenses $ 40,531 $ 51,436
short-term investments 49,464 111,175 Bank loans 11,195 11,647
Accounts receivable, net 63,540 76,549 Advance payments
Inventories 31,494 31,959 from customers 6,400 6,762
Prepaid expenses and Due to related parties 502 520
other current assets 9,755 18,400 Other current liabilities 100 101
-------- -------- -------- --------
Total current assets 350,977 380,793 Total current liabilities 58,728 70,466
Convertible
Subordinated Debentures 115,000 115,000
Long-term receivables, net 1,033 891 Liability for severance pay
2,708 3,140
Other liabilities 2,407 2,214
-------- --------
Property and equipment 32,463 38,250
Less: accumulated depreci- Total liabilities 178,843 190,820
ation and amortization (14,422) (17,354) 18,041 20,896
-------- -------- -------- --------
Stockholders' equity:
Common Stock, $.10 par value
Investments 5,788 6,092 authorized 100,000,000 shares;
issued and outstanding
Goodwill, net 308 278 24,741,228 and 25,103,103 2,474 2,510
Additional paid-in-capital 136,737 139,389
Software development costs, net 10,143 11,372 Cumulative translation adjustment (56) (61)
Unrealized gain on available for
Other intangible assets, net 1,330 1,171 sale securities, net of tax 1,547 1,106
Retained earnings 71,356 91,713
-------- --------
Deferred costs and other assets, net 3,281 3,984 Total stockholders' equity 212,058 234,657
-------- -------- -------- --------
$390,901 $425,477 $390,901 $425,477
======== ======== ======== ========
</TABLE>
*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 Total Pages
<PAGE>
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
1996 1997 1996 1997
<S> <C> <C> <C> <C>
Revenues:
Sales $87,039 $130,488 $46,629 $67,015
Interest and other income 3,864 8,222 2,078 4,176
------- -------- ------- -------
Total revenues 90,903 138,710 48,707 71,191
Costs and expenses:
Research and development 16,374 24,947 8,601 12,837
Less reimbursement (3,925) (7,185) (2,108) (3,751)
------- -------- ------- -------
Net research and development 12,449 17,762 6,493 9,086
Cost of sales 37,366 55,372 20,014 28,439
Selling, general and administrative 23,614 34,749 12,827 17,672
Royalties and license fees 1,760 3,213 921 1,622
Minority interest and
equity in loss of affiliates (150) (128) (150) 98
Interest expense and other 2,621 5,107 1,482 2,309
------- -------- ------- -------
Total costs and expenses 77,660 116,075 41,587 59,226
------- -------- ------- -------
Income before gain on issuance of subsidiary shares
and income tax provision 13,243 22,635 7,120 11,965
Gain on issuance of subsidiary shares 535 - 535 -
------- -------- ------- -------
Income before income tax provision 13,778 22,635 7,655 11,965
Income tax provision 1,420 2,278 804 1,195
------- -------- ------- -------
Net income $12,358 $ 20,357 $ 6,851 $10,770
======= ======== ======= =======
Earnings per share:
Primary $0.53 $0.75 $0.29 $0.40
======= ======== ======= =======
Fully diluted $0.52 $0.75 $0.29 $0.40
======= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4 of 18 Total Pages
<PAGE>
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1996 1997
<S> <C> <C>
Cash flows from operating activities:
Net cash from operations after adjustment
for non-cash items $ 12,257 $ 24,636
Changes in assets and liabilities:
Accounts receivable and long-term receivables (6,057) (12,867)
Inventories (6,145) (465)
Prepaid expenses and other current assets (4,232) (8,785)
Accounts payable and accrued expenses 10,290 10,905
Advance payments from customers (1,167) 362
Due to related parties 79 18
Liability for severance pay 487 432
-------- --------
Net cash provided by operating activities 5,512 14,236
Cash flows from investing activities:
Maturities and sales (purchase) of bank time deposits
and investments, net (13,493) (62,456)
Purchases of property and equipment (2,619) (5,787)
Increase in software development costs (2,322) (3,066)
Other 25 -
-------- --------
Net cash used in investing activities (18,409) (71,309)
Cash flows from financing activities:
(Decrease) increase in short and long term debt, net (224) 371
Proceeds from issuance of common stock 1,092 2,688
-------- --------
Net cash provided by financing activities 868 3,059
Net decrease in cash and cash equivalents (12,029) (54,014)
Cash and cash equivalents, beginning of period 99,862 196,724
-------- --------
Cash and cash equivalents, end of period $ 87,833 $142,710
======== ========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
Page 5 of 18 Total Pages
<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 six month periods ended June
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
June 30, 1997 is as follows:
December 31, June 30,
1996 1997
(In thousands)
Raw materials $17,681 $17,183
Work in process 7,853 8,439
Finished goods 5,960 6,337
------- -------
$31,494 $31,959
======= =======
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 six month and three month
periods ended June 30, 1997, gross research and development expenses amounted to
approximately $24,947,000 and $12,837,000, respectively, of which approximately
$7,185,000 and $3,751,000, 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 six month and three month periods ended
June 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 is antidilutive. The shares used in the
computations are as follows:
Six months ended Three months ended
June 30, June 30,
1996 1997 1996 1997
(In thousands)
Primary 23,105 27,018 23,280 27,047
Fully diluted 26,345 27,125 26,512 27,261
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 $0.58 and $0.32 for the six and three month periods ended June
30, 1996, respectively, and $0.82 and $0.43 for the six and three month periods
ended June 30, 1997, respectively. Diluted earnings per share, determined in
accordance with FAS 128, would have been $0.53 and $0.29 for the six month and
three month periods ended June 30, 1996, respectively, and $0.75 and $0.40 for
the six and three month periods ended June 30, 1997, respectively.
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 six month and three month
--------------
periods ended June 30, 1997 increased by approximately $47,807,000 (53%) and
approximately $22,484,000 (46%), 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 six month and three month periods ended June
30, 1997 increased by approximately $43,449,000 (50%) and approximately
$20,386,000 (44%), respectively, from the 1996 periods. The growth in sales
occurred primarily in the TRILOGUE product line. Interest and other income for
the six month and three month periods ended June 30, 1997 increased by
approximately $4,358,000 (113%) and approximately $2,098,000 (101%),
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 six month and three month
-------------
periods ended June 30, 1997 increased by approximately $18,006,000 (48%) and
approximately $8,425,000 (42%), 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 six month and three month
periods ended June 30, 1997 increased to approximately 57.6% from approximately
57.1% during the corresponding 1996 periods.
Research and Development Expenses. Gross research and development
---------------------------------
expenses for the six month and three month periods ended June 30, 1997 increased
by approximately $8,573,000 (52%) and approximately $4,236,000 (49%),
respectively, from the corresponding periods in 1996. Net research and
development expenses, after reimbursement under government funding programs, for
the six month and three month periods ended June 30, 1997 increased by
approximately $5,313,000 (43%) and approximately $2,593,000 (40%),
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 in Israel.
Selling, General and Administrative Expenses. Selling, general and
--------------------------------------------
administrative expenses for the six month and three month periods ended June 30,
1997 increased by approximately $11,135,000 (47%) and approximately $4,845,000
(38%), 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 Total Pages
<PAGE>
Royalties and License Fees. Royalties and license fees for the six
--------------------------
month and three month periods ended June 30, 1997 increased by approximately
$1,453,000 (83%) and approximately $701,000 (76%), respectively, from the
corresponding periods in 1996. Royalties and license fees, for the six month
and three month periods ended June 30, 1997, as a percentage of sales increased
from approximately 2.0% 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 six month
--------------------
and three month periods ended June 30, 1997 increased by approximately $858,000
(60%) and approximately $391,000 (49%), respectively, from the corresponding
periods in 1996. The Company's overall effective tax rate was approximately
10.3% and 10.5% in the six and three month periods ended June 30, 1996,
respectively, and 10.1% and 10.0% in the six and three month periods ended June
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 six month and three month
----------
periods ended June 30, 1997 increased by approximately $7,999,000 (65%) and
approximately $3,919,000 (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 14.7% and
15.1%, respectively, in the six month and three month periods ended June 30,
1997 from approximately 13.6% and 14.1%, respectively, in the corresponding
periods in 1996.
LIQUIDITY AND CAPITAL RESOURCES. At June 30, 1997, the company had
cash and cash equivalents of approximately $142,710,000, bank time deposits and
short-term investments of approximately $111,175,000 and working capital of
approximately $310,327,000. 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.
Page 9 of 18 Total Pages
<PAGE>
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.
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.
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
Page 10 of 18 Total Pages
<PAGE>
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. 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 foreseeable future. The increase in research and
development expenditures reflects the Company's concentration on
Page 11 of 18 Total Pages
<PAGE>
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 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 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 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
Page 12 of 18 Total Pages
<PAGE>
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. 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 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.
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.
Page 13 of 18 Total Pages
<PAGE>
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 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. 17 and 18
27. Financial data schedule Filed electronically
(b) Reports on Form 8-K.
--------------------
None
Page 15 of 18 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: August 5, 1997 /s/ Kobi Alexander
--------------------------------
Kobi Alexander
President, Chairman of the Board
and Chief Executive Officer
Dated: August 5, 1997 /s/ Igal Nissim
--------------------------------
Igal Nissim
Chief Financial Officer
Page 16 of 18 Total Pages
<PAGE>
EXHIBIT 11
COMVERSE TECHNOLOGY, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
1996 1997
<S> <C> <C>
Primary earnings per share:
Net income $ 6,851 $10,770
======= =======
Weighted average number of outstanding common shares 21,518 24,918
Additional shares assuming exercise of stock options 1,762 2,129
------- -------
Weighted average number of outstanding common
and common equivalent shares 23,280 27,047
======= =======
Primary earnings per share $ 0.29 $ 0.40
======= =======
Fully diluted earnings per share:
Net income $ 6,851 $10,770
Interest expense on Convertible Subordinated
Debentures, net of tax (1) 709 -
------- -------
Fully diluted earnings $ 7,560 $10,770
======= =======
Weighted average number of outstanding common shares 21,518 24,918
Additional shares assuming exercise of stock options 1,897 2,343
Additional shares assuming conversion of
Convertible Subordinated Debentures 3,097 -
------- -------
Weighted average number of outstanding common shares
assuming full dilution 26,512 27,261
======= =======
Fully diluted earnings per share $0.29 $ 0.40
======= =======
</TABLE>
(1) The assumed conversion of the Convertible Subordinated Debentures for the
three month period ended June 30, 1997 was antidilutive and is omitted.
Page 17 of 18 Total Pages
<PAGE>
EXHIBIT 11
(Continued)
COMVERSE TECHNOLOGY, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1996 1997
<S> <C> <C>
Primary earnings per share:
Net income $12,358 $20,357
======= =======
Weighted average number of outstanding common shares 21,456 24,856
Additional shares assuming exercise of stock options 1,649 2,162
------- -------
Weighted average number of outstanding common
and common equivalent shares 23,105 27,018
======= =======
Primary earnings per share $ 0.53 $ 0.75
======= =======
Fully diluted earnings per share:
Net income $12,358 $20,357
Interest expense on Convertible Subordinated
Debentures, net of tax (1) 1,418 -
------- -------
Fully diluted earnings $13,776 $20,357
======= =======
Weighted average number of outstanding common shares 21,456 24,856
Additional shares assuming exercise of stock options 1,792 2,269
Additional shares assuming conversion of
Convertible Subordinated Debentures 3,097 -
------- -------
Weighted average number of outstanding common shares
assuming full dilution 26,345 27,125
======= =======
Fully diluted earnings per share $0.52 $ 0.75
======= =======
</TABLE>
(1) The assumed conversion of the Convertible Subordinated Debentures for the
six month period ended June 30, 1997 was antidilutive and is omitted.
Page 18 of 18 Total Pages
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
10-Q FOR 6/30/97 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 142,710
<SECURITIES> 111,175
<RECEIVABLES> 76,549
<ALLOWANCES> 0
<INVENTORY> 31,959
<CURRENT-ASSETS> 380,793
<PP&E> 38,250
<DEPRECIATION> 17,354
<TOTAL-ASSETS> 425,477
<CURRENT-LIABILITIES> 70,466
<BONDS> 115,000
0
0
<COMMON> 2,510
<OTHER-SE> 232,147
<TOTAL-LIABILITY-AND-EQUITY> 425,477
<SALES> 130,488
<TOTAL-REVENUES> 138,710
<CGS> 55,372
<TOTAL-COSTS> 116,075
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,107
<INCOME-PRETAX> 22,635
<INCOME-TAX> 2,278
<INCOME-CONTINUING> 20,357
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,357
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.75
</TABLE>
