SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
---------------------
Date of Report (Date of earliest event reported):
January 14, 1998
Comverse Technology, Inc.
-----------------------------
(Exact name of registrant
as specified in its charter)
New York 0-15502 13-3238402
- ---------------------------- ----------------------- ----------------------
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification Number)
170 Crossways Park Drive, Woodbury, New York 11797
- -------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
(516) 677-7200
-------------------------------
(Registrant's telephone number,
including area code)
None
-------------------------------
(Former Name or Former Address,
if Changed Since Last Report)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On January 14, 1998, Boston Technology, Inc., a
Delaware corporation ("BTI"), merged with and into Comverse
Technology, Inc., a New York corporation ("Comverse"),
pursuant to which each outstanding share of common stock, par
value $.001 per share, of BTI was converted into the right to
receive 0.65 of a share of common stock, par value $.10, of
Comverse (the "Merger").
Attached and incorporated herein by reference as
Exhibit 99.1 is a copy of the press release of Comverse
announcing the completion of the Merger.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Boston Technology, Inc.:
We have audited the accompanying consolidated balance sheets
of Boston Technology, Inc. as of January 31, 1997 and 1996,
and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three
fiscal years in the period ended January 31, 1997. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Boston Technology, Inc. as of January
31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three fiscal
years in the period ended January 31, 1997 in conformity with
generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 24, 1997
<PAGE>
BOSTON TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
January 31,
---------------
1997 1996
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 14,032 $ 13,929
Accounts receivable, less allowances of
$3,656,000 and $1,554,000 54,405 28,892
Net investment in sales type leases 645 2,771
Inventories 19,046 16,951
Net taxes receivable -- 3,886
Prepaid expenses and other current assets 2,771 2,130
-------- --------
Total current assets 90,899 68,559
Net investment in sales type leases -- 357
Property and equipment, net 25,568 10,597
Deferred taxes 4,284 2,080
Other assets 7,422 3,068
-------- --------
TOTAL ASSETS $128,173 $ 84,661
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,000 $ 275
Accounts payable 15,235 11,253
Net taxes payable 2,618 --
Accrued expenses 21,556 9,981
AT&T contract accrual -- 2,060
Deferred customer funding 1,140 2,825
Deferred revenues 8,939 3,536
-------- --------
Total current liabilities 50,488 29,930
Long-term debt and other long-term liabilities 1,193 417
Commitments and contingencies (Note 11)
Stockholders' equity:
Common stock, $.001 par value, 60,000,000
shares authorized; 25,501,691 and
25,344,814 shares issued 25 25
Additional paid-in capital 60,557 57,048
Retained earnings 15,516 5,557
Treasury stock, at cost, none and 613,119 shares -- (8,599)
Cumulative translation adjustment 394 283
-------- --------
Total stockholders' equity 76,492 54,314
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $128,173 $ 84,661
======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
<TABLE>
BOSTON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<CAPTION>
For the Years Ended January 31,
-------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues $ 192,458 $ 105,267 $ 89,056
Costs and expenses:
Cost of revenues 91,283 46,585 31,544
Research and development 38,787 21,884 13,709
Marketing, general and administrative 40,257 31,565 26,217
Warrants & other costs associated with AT&T
contract acquisition (see Note 8) -- 21,000 --
--------- --------- ---------
170,327 121,034 71,470
Income (loss) from operations 22,131 (15,767) 17,586
Interest income 881 1,169 1,098
Interest expense (1,186) (165) (207)
Other expense (865) (22) (6)
--------- --------- ---------
Income (loss) before provision for income taxes 20,961 (14,785) 18,471
Provision for income taxes 6,812 105 5,527
--------- --------- ---------
Net income (loss) $ 14,149 $ (14,890) $ 12,944
========= ========= =========
Net income (loss) per share $ .51 $ (.60) $ .50
========= ========= =========
Weighted average number of common and
common equivalent shares outstanding 27,585 24,859 25,751
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
BOSTON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended January 31, 1995, 1996 and 1997
(in thousands, except share data)
<CAPTION>
Additional Cumulative Treasury
Common Stock Stock Total
---------------- Paid-In Retained ------------------- Translation Stockholders'
Shares Amount Capital Earnings Shares Amount Adjustment Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1994 24,217,183 $24 $32,072 $ 8,745 -- -- -- $ 40,841
Exercise of stock options 482,431 1 1,470 -- -- -- -- 1,471
Employee stock purchase
plan 59,688 -- 500 -- -- -- -- 500
Tax benefit of
disqualifying
dispositions of incentive
stock options -- -- 1,052 -- -- -- -- 1,052
Translation adjustments (16) (16ASSETS)
Net income for the year
ended January 31, 1995 -- -- -- 12,944 -- -- -- 12,944
- -----------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1995 24,759,302 25 35,094 21,689 -- -- (16) 56,792
Common stock purchased -- -- -- -- (750,000) (10,663) -- (10,663)
Issuance of treasury stock
upon exercise of stock
options -- -- -- (1,146) 109,334 1,649 -- 503
Exercise of stock options 557,967 -- 2,003 -- -- -- -- 2,003
Employee stock purchase
plan 27,545 -- 296 -- -- -- -- 296
Tax benefit of
disqualifying
dispositions of incentive
stock options -- -- 1,055 -- -- -- -- 1,055
Stock warrants issued -- -- 18,600 -- -- -- -- 18,600
Translation adjustments -- -- -- -- -- -- 299 299
Net loss for the year ended
January 31, 1996 -- -- -- (14,890) -- -- -- (14,890)
- -----------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1996 25,344,814 25 57,048 5,557 (613,119) (8,599) 283 54,314
Issuance of treasury stock
upon exercise of stock
options -- -- -- (3,993) 542,456 7,534 -- 3,541
Issuance of treasury stock
for employee stock
purchase plan -- -- -- (197) 70,663 1,065 -- 868
Exercise of stock options 156,877 -- 1,338 -- -- -- -- 1,338
Tax benefit of
disqualifying
dispositions
of incentive stock
options -- -- 2,171 -- -- -- -- 2,171
Translation adjustments -- -- -- -- -- -- 111 111
Net income for the year
ended January 31, 1997 -- -- -- 14,149 -- -- -- 14,149
- -----------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1997 25,501,691 $25 $60,557 $ 15,516 -- -- $ 394 $ 76,492
=======================================================================================================================
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
BOSTON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
For the Years Ended January 31,
----------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss) $ 14,149 $(14,890) $ 12,944
Reconciliation of net income (loss) to cash flows provided
by (used in ) operating activities:
Depreciation and amortization 8,361 4,822 3,756
Provision for bad debt 2,102 755 509
Payments in excess of rent expense (192) (195) (153)
Deferred income taxes (2,204) (1,897) (92)
Loss on disposal of fixed assets 127 -- --
Non-cash charge for warrants issued -- 18,600 --
Changes in operating assets and liabilities:
Accounts receivable (27,615) 829 (15,692)
Net investment in sales type leases 2,483 1,224 (1,679)
Inventories (2,095) (8,653) (2,958)
Prepaid expenses and other current assets (641) (1,266) (102)
Accounts payable 3,982 6,373 923
Accrued expenses 9,515 1,812 4,799
Deferred revenues 5,403 1,795 15
Deferred customer funding (1,685) (1,442) (5,914)
Other long-term liabilities (32) (57) 147
Income taxes 8,675 (3,500) 454
-------- -------- --------
Cash flows provided by (used in) operating activities 20,333 4,310 (3,043)
Cash flows used in investing activities:
Purchase of property and equipment (22,482) (6,546) (4,442)
Purchase of investments -- (3,429) (14,946)
Redemption of investments -- 9,486 12,694
Investment in joint venture (2,000) (1,000) --
Purchase of license agreements and other assets (1,331) (597) (390)
-------- -------- --------
Cash flows used in investing activities (25,813) (2,086) (7,084)
Cash flows provided by (used in) financing activities:
Principal payments under financing obligations (275) (767) (155)
Proceeds from issuance of common stock 4,879 2,506 1,471
Proceeds from employee stock purchase plan 868 615 500
Purchases of treasury stock -- (10,663) --
Borrowing under revolving line of credit 30,600 -- --
Repayments under revolving credit agreements (30,600) -- --
-------- -------- --------
Cash flows provided by (used in) financing activities 5,472 (8,309) 1,816
-------- -------- --------
Effect of exchange rate changes on cash 111 299 (17)
Net increase (decrease) in cash and cash equivalents 103 (5,786) (8,328)
Cash and cash equivalents at beginning of year 13,929 19,715 28,043
-------- -------- --------
Cash and cash equivalents at end of year $ 14,032 $ 13,929 $ 19,715
======== ======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 138 $ 185 $ 163
Income taxes paid 2,234 5,047 4,300
Supplemental disclosures of non-cash investing
and financing activities:
Tax benefit of disqualifying dispositions of incentive
stock options $ 2,171 $ 1,055 $ 1,052
License agreement acquired for debt 2,000 -- --
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
Notes To Consolidated Financial Statements
1. DESCRIPTION OF BUSINESS
Boston Technology, Inc. ("Boston Technology" or the
"Company") is a leading worldwide provider of communications and
information processing systems and applications that enable
telecommunications carriers to provide their residential, business,
wireless and cable subscribers with enhanced services, such as call
answering, voice messaging, fax processing, pager notification and
other multimedia capabilities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All intercompany
balances and transactions have been eliminated. The equity method of
accounting is used for an investment in a joint venture.
Reclassifications
Certain amounts in fiscal 1996 and fiscal 1995 financial
statements have been reclassified to conform to the fiscal 1997
presentation. Certain customer service expenses classified as
marketing, general and administrative expenses for fiscal 1993 through
1996 have been reclassified to cost of revenues to conform to the
fiscal 1997 presentation. These reclassifications from marketing,
general and administrative expenses to cost of goods sold were
$5,498,000, $3,287,000, $2,330,000 and $2,014,000 for the years ending
January 31, 1996, 1995, 1994 and 1993, respectively.
Cash and Cash Equivalents
All highly liquid investments purchased with an original
maturity of three months or less are considered to be cash
equivalents. The Company estimates the fair value of cash and cash
equivalents to approximate its carrying value.
Risks, Uncertainties, and Estimates
Financial instruments that potentially expose the Company to
concentrations of credit risk consist primarily of cash equivalents
and accounts receivable. Management believes the Company's cash
equivalents are maintained in high quality securities placed with
major international banks and financial institutions. The Company's
investment policy limits its exposure to concentrations of credit
risk. The Company's customer base includes telephone companies in
North America, South America, Australia, and Asia. Although the
Company is directly affected by the strength of the telecommunications
industry, management does not believe significant credit risk exists
at January 31, 1997 and addresses this risk on a regular basis.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
<PAGE>
revenues and expenses during the reporting period. Actual results
could differ from those estimates. Significant estimates included in
these financial statements include the reserve for bad debts, reserve
for warranty, inventory valuation reserve, and certain accrued
liabilities.
Inventories
Inventories are carried and charged to revenue at standard
cost, which is updated regularly and which approximates the lower of
cost (first-in, first-out) or market. Inventories are subject to rapid
technological obsolescence.
Property and Equipment
Property and equipment are stated at cost and depreciated on
a straight line basis over the estimated useful life of the assets as
follows:
Manufacturing and test equipment 3 - 7 years
Office equipment and furniture 5 - 7 years
Equipment leased to others 5 years
Leasehold improvements and other assets 3 - 8 years
Leasehold improvements and assets under capital lease are amortized on
a straight line basis over the estimated useful life of the asset or
the related lease term, whichever is shorter. Certain manufacturing
and test equipment is subject to technological obsolescence.
Maintenance and repair costs are charged to operations when incurred;
additions and improvements are capitalized. Upon retirement or sale,
the cost of the asset disposed of and the related accumulated
depreciation are removed from the accounts and any resulting gain or
loss is credited or charged to income.
Intangible Assets
Patent and software license agreements are carried at cost
less accumulated amortization, which is calculated on a straight-line
basis over their estimated useful lives. These assets are amortized
generally over periods from three to ten years. At January 31, 1997
and 1996, approximately $4,253,000 and $1,975,000, respectively, of
net intangible assets are included in other assets. At January 31,
1997 and 1996, accumulated amortization is $2,009,000 and $1,032,000,
respectively. In fiscal 1996, the Company wrote off approximately
$200,000 of intangible assets considered to be impaired. The carrying
value of intangible assets is reviewed on a regular basis for the
existence of facts or circumstance that may suggest impairment. The
Company measures the amount of impairment based on the discounted
expected future cash flows. Cash flow estimates used contain
management's best estimates, using appropriate and customary
assumptions and projections at that time.
Forward Foreign Exchange Contracts
The Company periodically enters into forward foreign
exchange contracts to hedge specific scheduled foreign currency
denominated sales. Effects of changes in
<PAGE>
currency rates are therefore minimized and any gains or losses are
recognized as part of the underlying transactions being hedged. The
parties to these financial instruments consist of large financial
institutions. The Company monitors its positions and the credit
ratings of the parties to these financial instruments, and by policy
limits the amounts of credit exposure to any one party. While the
Company may be exposed to potential losses due to credit risk in the
event of non-performance by the parties to these financial
instruments, it does not anticipate losses. There were no open foreign
exchange contracts at January 31, 1997.
Royalty Expense
Royalty expense with respect to sales of product under
royalty agreements is recorded when revenue is recognized.
Warranty Costs
The Company generally warrants its products for one year
after delivery. A provision for estimated warranty costs is recorded
at the time revenue is recognized.
Revenue Recognition
Product revenues are recognized at the time the hardware
and/or software is shipped, collection is probable and no significant
post shipment obligations remain. Unearned billings are recorded as
deferred revenues. Products shipped for customer trials are carried in
finished goods inventory until customer acceptance is obtained, at
which time revenue is recognized. Installation fees are recognized
when products are installed. Revenue from sales-type leases and the
associated cost of revenue is recognized upon shipment of the
equipment to customers. Interest income is recognized over the life of
the sales-type lease. Rental income on equipment under operating
leases is recognized ratably over the lease term, and the related
equipment is depreciated over its estimated useful life. Maintenance
revenue is recognized ratably over the term of the maintenance
contract.
The Company's products are standard hardware and software
configurations which are developed according to internally generated
product specifications. Development costs for standard product
configurations are charged to research and development expense as
incurred. Development work is frequently required for new customers in
order to adapt otherwise standard products to specific languages, user
interfaces and network interfaces. From time to time, customers may
contract for custom modifications and enhancements to standard product
configurations. The proceeds from the sale of such modifications and
enhancements as well as the excess of customer funding received over
and above associated costs are included in revenues upon shipment of
the related hardware and/or software. Such revenues for the fiscal
years ended January 31, 1997, 1996, and 1995 were approximately
$3,263,000, $2,978,000 and $10,483,000, respectively.
Software Development Costs
Software development costs are expensed as incurred until
technological feasibility has been established. At the present time,
the Company believes that under its current process for developing
software, the software is essentially completed
<PAGE>
concurrently with the establishment of technological feasibility.
Software development costs incurred after the establishment of
technological feasibility, which would be eligible for capitalization,
have not been significant.
Contract Accounting
Earnings on long-term contracts are determined on the
percentage of completion method, based on the ratio of costs incurred
to date to the total estimated costs or the ratio of the number of
units completed to date to the total number of units to be completed.
Provisions are made currently for all known or anticipated losses.
Costs or earnings in excess of billings are classified in inventory as
work-in-process and represent amounts not yet billed under the terms
of the contract but which are recoverable from customers. As of
January 31, 1997 and 1996, the Company has included in inventory
$1,249,000 and $675,000, respectively, in costs related to custom
development contracts.
Customer Funding
The Company is involved in several software research and
development programs that are funded in whole or in part by its
customers. Customer funding is recognized as a reduction to research
and development expense, and is recognized as development activities
occur. Amounts received from customers for research and development
funding are included on the balance sheet as deferred customer funding
until they are recognized. Customer funding offsets against research
and development expense for the years ended January 31, 1997, 1996 and
1995 amounted to approximately $3,349,000, $5,051,000 and $8,162,000,
respectively.
Income Taxes
Deferred tax assets and liabilities are determined based on
the difference between the financial statements and tax bases of
assets and liabilities using enacted tax rates in effect in the years
in which the differences are expected to reverse.
Net Income Per Share
Net income per share is computed based on the weighted
average number of common and dilutive common equivalent shares
outstanding. Dilutive common equivalent shares consist of stock
options and warrants using the treasury stock method. Fully diluted
earnings per share are not materially different from reported primary
earnings per share for all periods presented.
Newly Issued Accounting Standard
In February 1997, the Financial Accounting Standards Board
issued Statements of Financial Accounting Standards (FAS) No. 128,
"Earnings per Share". FAS 128 specifies the computation, presentation
and disclosure requirements for earnings per share and is designed to
improve earnings per share information by simplifying the existing
computational guidelines, revising the disclosure requirements, and
increasing the comparability of per share data on an international
basis. FAS 128 must be adopted in the Company's fiscal 1998 financial
statements. The Company is
<PAGE>
currently reviewing the adoption and impact of this standard, but does
not expect it to have a material impact on the Company's results of
operations or its financial position.
3. SALES TYPE LEASES
The Company has entered into several sales-type leases for
its products. At January 31, 1997, the future minimum payments
receivable under these arrangements are as follows:
Sales-type
leases
Year Ending January 31, 1998
$1,450,000
Less: unearned income
(805,000)
Net current investment in sales type leases
$ 645,000
4. INVENTORIES
Inventories at January 31, consist of:
1997 1996
---- ----
Materials and purchased parts $ 7,735,000 $ 8,179,000
Work in process 9,585,000 6,858,000
Finished goods 1,726,000 1,914,000
----------- -----------
$19,046,000 $16,951,000
=========== ===========
5. PROPERTY AND EQUIPMENT
Property and equipment at January 31, consist of:
1997 1996
---- ----
Manufacturing and test equipment $34,939,000 $20,531,000
Office equipment and furniture 12,279,000 5,741,000
Equipment leased to others 227,000 207,000
Leasehold improvements and other assets 1,104,000 542,000
----------- -----------
48,549,000 27,021,000
Less: accumulated depreciation and
amortization (22,981,000) (16,424,000)
----------- ------------
$25,568,000 $10,597,000
=========== ===========
Depreciation expense totaled $7,384,000, $4,423,000 and
$3,108,000 for the years ended January 31, 1997, 1996 and 1995,
respectively.
In fiscal 1997, the Company disposed of gross assets of
approximately $954,000 with accumulated depreciation of $827,000.
<PAGE>
6. JOINT VENTURE
During fiscal 1996, the Company entered into a joint venture
with a company that formerly acted as distributor of the Company's
products in Brazil. Under the terms of the joint venture agreement,
the Company was committed to provide a minimum of $3,000,000 for
working capital purposes, of which $1,000,000 was paid at January 31,
1996. The remaining $2,000,000 was paid in January 1997. There are no
further capital contribution requirements. The Company's ownership
interest in the joint venture is 30%, which is accounted for using the
equity method.
In addition to all necessary personnel, assets and related
business activities, the former distributor has assigned its exclusive
distribution agreement with the Company to the joint venture, thereby
establishing the joint venture as the exclusive distributor of the
Company's products in Brazil. The Company has committed to provide all
necessary marketing, sales and customer service personnel to assist
the joint venture in developing marketing and sales plans, and to
provide technical assistance on customer service matters. The
Company's share of the net loss of the joint venture for fiscal 1997
was $479,000 and is included in other expenses.
At January 31, 1997 and 1996, the joint venture partner owed
the Company approximately $2,298,000 and $7,321,000, respectively,
resulting from transactions with the Company prior to the
establishment of the joint venture, which is included in accounts
receivable and investment in sales type leases.
7. ACCRUED EXPENSES
Accrued expenses at January 31, consist of:
1997 1996
---- ----
Accrued payroll, vacation and bonuses $ 3,365,000 $1,664,000
Accrued commissions 3,050,000 1,683,000
Accrued warranty 2,964,000 1,352,000
Accrued cost of sales 4,898,000 --
Other accrued expenses 7,279,000 5,282,000
----------- ----------
$21,556,000 $9,981,000
=========== ==========
8. AT&T CONTRACT ACCRUAL
In November 1995 the Company entered into an agreement with
AT&T to supply its Access NP Network Services Platform and AccessMAX
object-oriented software. Pursuant to this agreement, the Company
issued to AT&T warrants to purchase 4,908,800 shares of its common
stock at an exercise price of $14.00 per share. The warrants become
exercisable in five equal annual increments of 981,760 shares each,
commencing with the first anniversary date of the grant, and remain
exercisable for thirty months after first becoming exercisable. In the
event that any person or entity acquires a majority of the Company's
outstanding voting securities, the warrants will become immediately
exercisable in full. Any stock issued as a result of the exercise of
the warrants would be for AT&T's investment purposes only, and would
be "restricted securities" under Rule 144 of the Securities Act of
1933. Through December 31, 2000, AT&T is restricted from acquiring
greater than a 30% ownership of Boston Technology's
<PAGE>
outstanding common stock. As of January 31, 1997, warrants to purchase
981,760 shares of common stock are vested and exercisable; none have
been exercised.
At commencement of the contract, the Company estimated that
compliance with the terms of the agreement would result in a
$21,000,000 loss, which was recognized in the fourth quarter of fiscal
1996, establishing the AT&T Contract Accrual. Included in the
$21,000,000 was a charge of $18,600,000 relating to the value of the
warrants issued to AT&T, based on an evaluation performed by an
independent investment banking firm. As of January 31, 1997, all of
the related expenses have been paid and no accrual balance remains.
9. FINANCING ARRANGEMENTS
Long-term debt at January 31, consists of:
1997 1996
---- ----
Notes payable--patent license agreements $ 2,000,000 $ 275,000
Less: current portion (1,000,000) (275,000)
$ 1,000,000 $ --
=========== =========
The note payable of $2,000,000 at January 31, 1997
represents the amount due to AudioFAX resulting from a patent license
settlement agreement and is payable in four equal installments in each
of February and August of both 1997 and 1998. The Company estimates
the fair value of the outstanding notes payable to approximate its
carrying value.
The Company has entered into several patent license
agreements (the "Agreements") whereby the Company obtained a
non-exclusive license to make, have made, use and sell certain
inventions relating to voice messaging, voice processing, and
facsimile applications covered by the claims of the patents. The
license fees are due in installments through fiscal year 1999. In
addition, certain of the Agreements provide that the Company shall pay
to the licensor a royalty based on a percentage of defined revenues
derived by the Company from the use, sale, lease or rental of the
products incorporating the licensed technology. Royalty expense
relating to the Agreements was $6,076,000, $902,000 and $199,000 for
the years ended January 31, 1997, 1996 and 1995, respectively.
Credit Agreements
The Company maintains a $35,000,000 revolving credit
facility with two banks. Borrowings are collateralized by the
Company's accounts receivable and inventories and bear interest at the
prime rate (8.25% at January 31, 1997) or the LIBOR rate plus 175
basis points. The credit facility is scheduled to expire on November
19, 1998. This revolving credit facility also has a 1/2 of 1% annual
commitment fee on the unused portion. The facility contains quarterly
covenants which, among other things, require the Company to maintain
certain financial ratios, specified levels of equity, and other
restrictions. Stand-by letters of credit reduce the amount available
from the $35,000,000 revolving credit facility. At January 31, 1997
and 1996, stand-by letters of credit of approximately $3,476,000 and
$203,000, respectively, had been issued under this agreement.
<PAGE>
The Company also has available an aggregate $50,000,000 of
uncollateralized lines of credit for foreign exchange contracts with
two banks. These lines of credit are scheduled to expire on July 6,
1997. At January 31, 1997 and 1996, there were no outstanding forward
foreign exchange contracts.
10. INCOME TAXES
The provision for income taxes at January 31, consists of the following:
1997 1996 1995
---- ---- ----
Federal and foreign income taxes:
Currently payable $ 8,341,000 $ 1,689,000 $ 5,135,000
Deferred (2,095,000) (1,584,000) (95,000)
----------- ----------- -----------
6,246,000 105,000 5,040,000
State income taxes:
Currently payable 675,000 313,000 483,000
Deferred (109,000) (313,000) 4,000
----------- ----------- -----------
566,000 -- 487,000
Total $ 6,812,000 $ 105,000 $ 5,527,000
=========== =========== ==========
The difference between taxes at the statutory federal income
tax rate and the Company's effective income tax rate for the years
ended January 31, is as follows:
1997 1996 1995
---- ---- ----
Tax at the federal income tax rate $ 7,336,000 $(5,105,000) $ 6,465,000
State income tax, net of federal tax
benefit 368,000 -- 539,000
Tax credits (978,000) (708,000) (1,723,000)
Tax effect of AT&T warrants issued
for which no deduction is available -- 6,510,000 --
Meals and entertainment 321,000 53,000 60,000
Foreign sales corporation benefit (477,000) (466,000) (204,000)
Other 242,000 (179,000) 390,000
----------- ----------- -----------
Provision for income taxes $ 6,812,000 $ 105,000 $ 5,527,000
=========== =========== ===========
A valuation reserve against net deferred tax assets is
required if, based upon weighted available evidence, it is more likely
than not that some or all of the deferred tax assets will not be
realized. Based on the Company's projection of future earnings,
management believes that sufficient income will be generated in the
future to realize the deferred tax asset. Accordingly, the Company has
provided no valuation reserve for deferred tax assets at January 31,
1997. The amount of the deferred tax asset considered realizable,
however, could be reduced in the near term if future taxable income is
reduced.
<PAGE>
The components of the net deferred tax asset as of January 31, consist of:
1997 1996
---- ----
Deferred tax assets:
Reserves $ 5,284,000 $3,081,000
Inventory capitalization (460,000) --
Equity in joint venture 176,000 --
Other 75,000 131,000
----------- ----------
Total deferred tax assets 5,075,000 3,212,000
----------- ----------
Deferred tax liabilities:
Depreciation 588,000 665,000
Deferred compensation (21,000) 22,000
Sales type lease 224,000 445,000
----------- ----------
Total deferred tax liabilities 791,000 1,132,000
----------- ----------
Net deferred tax asset $ 4,284,000 $2,080,000
=========== ==========
At January 31, 1997, the Company had income tax payable of
$2,618,000. At January 31, 1996, the Company had income taxes
receivable of $3,886,000, primarily representing estimated refunds
receivable resulting from federal and state income tax payments made
during fiscal 1996. The tax benefits related to the $18,600,000 charge
for the AT&T warrants (see Note 8 to the Consolidated Financial
Statements) are contingent upon the timing of the exercise of the
warrants and the stock value at that time. The tax benefit, if any, is
not included in the deferred tax asset.
11. COMMITMENTS AND CONTINGENCIES
The Company leases a building in Wakefield, Massachusetts
which is used as its principal manufacturing facility and corporate
headquarters. The lease expires in fiscal 2009. In addition, the
Company has the option to purchase the property at the greater of
$35,500,000 or fair market value, at any time after November 15, 1995.
The Company also has a commitment to lease an additional space of
approximately 168,000 square feet in a new office building to be
constructed adjacent to its Corporate headquarters in Wakefield,
Massachusetts. Approval of the building permit is expected in April
1997, and occupancy is expected by mid May 1998 for a lease term of
twelve years.
The Company also leases office facilities and certain
equipment under various operating leases, expiring at various dates
through fiscal 2002.
<PAGE>
As of January 31, 1997, the future minimum payments under
real estate operating leases are as follows:
Years Ending January 31,
1998 $ 5,111,000
1999 5,672,000
2000 7,000,000
2001 6,934,000
2002 6,942,000
Beyond 52,794,000
----------
Total minimum lease payments $ 84,453,000
============
Rent expense was $4,328,000, $2,875,000 and $2,071,000 for
the years ended January 31, 1997, 1996 and 1995, respectively.
On or about November 16, 1995, a complaint was filed in the
United States District Court for the Eastern District of Pennsylvania
captioned John Eades v. Boston Technology, Inc., Greg C. Carr, Francis
E. Girard, Joseph E. Norberg, Paul W. DeLacey, William J. Burke and
John C.W. Taylor, Civil Action No. 95-CV-7236. On or about November 20
and 21, 1995, respectively, essentially identical complaints were
filed in the same court captioned Jacob Turner v. Boston Technology,
Inc., Greg C. Carr, Francis E. Girard, Joseph E. Norberg, Paul W.
DeLacey, William J. Burke and John C.W. Taylor, Civil Action No.
95-CV-7295, and Gerald Tobin v. Boston Technology, Inc., Greg C. Carr,
Francis E. Girard, Joseph E. Norberg, Paul W. DeLacey, William J.
Burke and John C.W. Taylor, Civil Action No. 95-CV-7317. Each of the
plaintiffs purports to represent a class of purchasers of the common
stock of the Company between and including May 17, 1995 through
November 15, 1995. Each complaint claims that the named defendants
violated Section 10(b) of the Securities Exchange Act of 1934 and SEC
Rule 10b-5 promulgated pursuant thereto, by virtue of false or
misleading statements made during the class period. Each complaint
claims that the individual defendants are liable as "control persons"
under Section 20(a) of that Act. In addition, the complaints claim
that the individual defendants sold some of their own common stock of
the Company, during the purported class period, at times when the
market price for the stock allegedly was inflated. No response has
been made to the three complaints, which have been consolidated by the
Court. The plaintiffs filed an Amended Complaint on May 6, 1996, and
on June 20, 1996 the defendants filed a Motion to Transfer the case to
the Eastern District of Massachusetts. On November 14, 1996, the
United States District Court of the Eastern District of Pennsylvania
ordered the cases transferred to the United States District Court for
the District of Massachusetts. On January 19, 1997, the defendants
filed a Motion to Dismiss on the grounds that the Amended Complaint
fails to state a claim under the relevant sections of the Securities
Exchange Act of 1934, and under the law of the United States Federal
Courts for the First Circuit. Oral argument was held on the Motion to
Dismiss and the Plaintiffs Reply to the Motion on March 20, 1997. A
decision is expected by August 1997. Boston Technology and the
defendants continue to deny the allegations and will continue to
contest these cases vigorously. The outcome of this lawsuit is neither
probable or estimable, accordingly, no loss provisions has been made
for this lawsuit.
<PAGE>
12. STOCKHOLDER RIGHTS PLAN
In May 1991, the Board of Directors of the Company adopted a
Stockholder Rights Plan, as amended, pursuant to which common stock
purchase rights ("Rights") were distributed as a dividend at the rate
of one Right for each share of common stock held as of May 31, 1991,
and one Right will be issued for each share of common stock issued
after May 31, 1991 and before the Rights become exercisable. Each
Right entitles the holder of common stock to purchase four-tenths of
one share of common stock at an exercise price of $12.40 per Right
($31.00 per share). The Rights will be exercisable only if a person or
group has acquired beneficial ownership of 20 percent or more of
common stock (excluding persons or groups beneficially owning 20
percent or more as of May 9, 1991) or announces a tender or exchange
offer that would result in such person or group owning 30 percent or
more of the common stock. If any person becomes the beneficial owner
of 25 percent or more of the common stock, except pursuant to a tender
or exchange offer for all shares at a fair price as determined by the
outside Board members, or if a 20 percent or more shareholder
consolidates or merges into or engages in certain self-dealing
transactions with the Company, or if there occurs any
reclassification, merger or other transaction or transactions which
increases by more than one percent the proportionate share of the
Company's outstanding common stock held by a 20 percent or more
shareholder, each Right not owned by a 20 percent or more shareholder
will enable its holder to purchase that number of shares of common
stock which equals the exercise price of the Right divided by one-half
of the current market price of such common stock at the date of the
occurrence of the event. The Company will generally be entitled to
redeem the Rights at $.02 per Right at any time until the tenth day
following the public announcement that a 20 percent stock position has
been acquired and in certain other circumstances. The Rights expire on
May 31, 2001 unless earlier redeemed or exchanged.
<PAGE>
13. STOCK OPTIONS
The Company has issued options to purchase shares of common
stock to officers and employees under employment agreements, and to
officers, employees and directors under various Company stock option
plans. The following table summarizes stock option transactions under
all plans:
<TABLE>
<CAPTION>
Weighted
Average
Option Exercise Number
Shares Option Price Range Price Exercisable
<S> <C> <C> <C> <C>
Outstanding, January 31, 1994 2,551,439 $ 2.00 - $11.50 $ 4.97 947,470
Granted 941,714 $ 8.75 - $17.75 $10.92
Exercised (482,431) $ 2.00 - $12.31 $ 3.05
Canceled (101,265) $ 2.13 - $11.50 $ 8.46
Outstanding, January 31, 1995 2,909,457 $ 2.00 - $17.75 $ 7.09 1,252,007
Granted 899,317 $11.06 - $15.75 $14.05
Exercised (667,301) $ 2.00 - $14.33 $ 3.76
Canceled (152,408) $ 3.25 - $12.75 $ 9.85
Outstanding, January 31, 1996 2,989,065 $ 2.00 - $17.75 $ 9.79 1,376,467
Granted 1,164,404 $13.25 - $29.75 $19.32
Exercised (699,333) $ 2.00 - $17.75 $ 7.10
Canceled (175,110) $ 2.75 - $17.75 $12.81
Outstanding, January 31, 1997 3,279,026 $ 2.00 - $29.75 $13.59 1,546,773
Exercisable at January 31, 1997 1,546,773 $ 2.00 - $16.56 $ 9.39
</TABLE>
<TABLE>
The following table summarizes information concerning
currently outstanding and exercisable options:
<CAPTION>
Number Weighted Weighted Weighted
Outstanding Average Average Average
Range of Remaining Exercise Number Exercise
Exercise prices Contractual life Price Exercisable Price
<S> <C> <C> <C> <C> <C> <C>
$ 2.00 - $ 9.00 816,939 6.01 $ 6.21 775,108 $ 6.06
9.25 - 14.00 867,359 7.66 12.48 617,864 12.61
14.19 - 14.75 758,528 9.08 14.42 135,351 14.27
$14.88 - $29.75 836,200 9.63 $21.18 36,450 $15.00
---------- ---------
Total 3,279,026 1,564,773
========== ==========
</TABLE>
<PAGE>
In October 1995, the Financial Accounting Standards
Board issued FAS No. 123 Accounting for Stock Based Compensation,
which requires the measurement of the fair value of stock options or
warrants to be included in the statement of operations or disclosed in
the notes to the financial statements. The Company has determined that
it will continue to account for stock-based compensation for employees
under Accounting Principles Board Opinion No. 25 and elect the
disclosure-only alternative under FAS No. 123 for options granted in
1997 and 1996 using the Black-Scholes option pricing model. The
weighted average assumptions are as follows:
1997 1996
---- ----
Risk-free interest rate 6.63% 6.63%
Expected dividend yield --- ---
Expected lives 4 years 4 years
Expected volatility 57.76% 57.76%
Had compensation cost for these plans been determined consistent with
FAS No. 123, the Company's net pro forma income (loss) and pro forma
net income (loss) per share would have been as follows:
1997 1996
---- ----
Net Income (Loss) As Reported $ 14,149 $ (14,890)
Pro Forma 11,863 (16,077)
Net Income (Loss) Per Share As Reported $ .51 $ (.60)
Pro Forma 0 (1)
The above compensation costs does not include the fair
value of the warrants issued to AT&T (see Note 8 to the Consolidated
Financial Statements) as the fair value of such warrants were included
in the 1996 Statement of Operations.
The affects of applying FAS 123 in this disclosure are
indicative of future amounts. FAS 123 does not apply to grants prior
to 1995 and additional grants in the future years are anticipated.
Directors' Stock Option Plan
In connection with the election of directors, the
Company granted options to purchase 20,000 shares of common stock at
an exercise price of $2.81, vesting immediately and exercisable at any
time prior to December 5, 2001, in fiscal 1992. The exercise price for
all options was the fair market value at date of grant.
During fiscal 1993, the stockholders of the Company
approved the 1992 Directors' Stock Option Plan (the "1992 Directors'
Plan"). The 1992 Directors' Plan provides for the granting of
non-transferable non-qualified options to purchase a maximum of
135,000 shares of the Company's common stock to outside (i.e., non-
employee) directors of the Company. The option price is equal to the
fair market value at date of grant. Each eligible director was granted
an option to purchase 15,000 shares of common stock annually
commencing March 1, 1992 through and including March 1, 1994, provided
the individual was an eligible director on the date of grant. All
options granted under the 1992 Directors' Plan are immediately
exercisable in full upon grant;
<PAGE>
provided, however, that no options granted under the 1992 Directors'
Plan may be exercised more than six months after the optionee ceases
to serve as a director of the Company, and all options terminate on
the tenth anniversary of the date of grant. The 1992 Directors' Plan
terminates upon the earlier of December 31, 1994 or the date on which
all shares available for issuance under the 1992 Directors' Plan have
been issued.
During fiscal 1995, the stockholders of the Company
approved an Amendment to the 1992 Directors' Plan which increased the
number of shares authorized to be issued under the 1992 Directors'
Plan from 135,000 to 150,000 shares of the Company's common stock to
outside directors of the Company. All other terms and conditions of
the 1992 Directors' Plan remained the same. During fiscal 1995, 1994
and 1993, options to purchase 60,000, 45,000 and 45,000 shares of
common stock, respectively, were automatically issued to eligible
directors; options to purchase 15,000 shares were exercised during
1996.
During fiscal 1996, the stockholders of the Company
approved the 1995 Director Stock Option Plan (the "1995 Director
Plan"). The 1995 Director Plan provides for the granting of
non-transferable non-qualified options to purchase a maximum of
180,000 shares of the Company's common stock to eligible outside
(i.e., non-employee) directors of the Company on March 1, 1995.
Accordingly, on March 1, 1995, 120,000 shares of the Company's common
stock were issued to the eligible directors at an exercise price of
$13.63 per share, the closing sale price of the Company's common stock
on the Nasdaq National Market on the date of grant. The 1995 Director
Plan also provides that an option to purchase 30,000 shares shall be
granted to an eligible director upon his or her initial election as a
director. All options granted under the 1995 Director Plan vest and
become exercisable in increments of 10,000 each on the date of the
first, second and third annual meetings of the stockholders following
the date of grant.
Employment Agreements
Under employment agreements, certain officers and
employees have been granted non-qualified options to purchase 394,450
shares of the Company's common stock at prices ranging from $2.00 to
$24.38, which equaled fair market value at the date of grant. Options
become exercisable in annual installments over one to ten years and
expire ten years from the date of grant. Options to purchase 5,242,
17,500 and 30,967 shares of common stock were exercised during the
years ended January 31, 1997, 1996 and 1995, respectively. As of
January 31, 1997, no shares remained available for future option
grants.
1989 Stock Option Plan
During fiscal 1993, the stockholders of the Company
approved an increase in the number of shares reserved for issuance
under the 1989 Stock Option Plan ("the Plan") to an aggregate of
3,500,000 shares. The Plan was also amended to authorize the grant of
non-statutory options, in addition to incentive stock options intended
to qualify under Section 422 of the Internal Revenue Code of 1986. The
maximum term for options granted under the Plan is ten years (five
years for holders of more than 10% of the Company's common stock). The
exercise price at which shares of common stock may be purchased upon
exercise of options granted under the Plan must equal at least 100%
(110% for holders of more than 10% of the Company's common stock) of
the fair
<PAGE>
market value of the common stock on the date of grant. The aggregate
fair market value (determined at the time of grant) of shares for
which incentive stock options granted under the Plan are exercisable
for the first time by the optionee in any one calendar year may not
exceed $100,000. During the year ended January 31, 1997, options to
purchase 91,608 shares of common stock had been granted and were
exercisable at $24.38. As of January 31, 1997, 2,691,944 shares had
been issued upon option exercises and no shares remain available for
future stock option grants.
1994 Stock Incentive Plan
During fiscal 1995, the stockholders of the Company,
approved the 1994 Stock Incentive Plan (the "1994 Incentive Plan").
The 1994 Incentive Plan provides for the granting of a maximum of
1,500,000 shares issuable pursuant to incentive stock options,
non-statutory stock options, stock appreciation rights, performance
shares, restricted stock awards or non-restricted stock awards to
employees, officers, directors, consultants and advisors of the
Company and its subsidiaries. During the years ended January 31, 1997,
1996, and 1995, 161,843, 921,600, and 839,714 stock options had been
granted at prices ranging from $14.88 to $24.38, $11.06 to $15.75, and
$8.75 to $17.75, respectively. As of January 31, 1997, 276,242 shares
had been issued upon exercise of options, and 1,333 shares remained
available for future option grants.
1996 Stock Incentive Plan
During fiscal year 1997, the stockholders of the
Company approved the 1996 Stock Incentive Plan (the "1996 Incentive
Plan"). The 1996 Incentive Plan provides for the granting of up to
1,000,000 shares of common stock under terms that are in all material
respects similar to the 1994 Incentive Plan. As of January 31, 1997,
974,691 stock options have been granted at prices ranging from $13.25
to $29.75. No shares had been issued upon exercise of stock options
and 33,309 shares remained available for future option grants.
Options Granted by Stockholders
During fiscal 1993, the two founding stockholders of
the Company, who were also directors of the Company at the time the
options were granted, granted options to purchase an aggregate of
187,500 shares of common stock owned by them to certain employees of
the Company in recognition of the contributions made by these
employees to the Company. The options were granted at fair market
value at the time of grant. As of January 31, 1997, options to
purchase 130,000 shares have been exercised at prices ranging from
$3.31 to $5.00, and options to purchase 57,500 shares remain
outstanding and exercisable at prices ranging from $3.31 to $5.00 per
share.
<PAGE>
14. MAJOR CUSTOMERS
Substantially all of the Company's revenues were
attributable to sales to the network operator market. The following
table summarizes revenues from major customers for the years ended
January 31:
1997 1996 1995
---- ---- ----
AT&T 23% * *
SBC Communications 17 11% *
DDI 13 13 10%
Bell Atlantic 10 13 48
NTT DoCoMo * 22 *
* Represents less than 10% of total revenue.
Geographically, the Company's revenues for the years ended January 31,
are as follows:
1997 1996 1995
---- ---- ----
North America 70% 40% 67%
Asia 26 52 29
South America 2 4 4
Other 2 4 --
---- ---- ----
Total 100% 100% 100%
==== ==== ====
15. EMPLOYEE BENEFIT PLANS
The Company has an Employee Savings and Profit Sharing
Plan (the "Savings Plan"), under Section 401(k) of the Internal
Revenue Code of 1986, as amended. All employees of the Company,
including executive officers, are eligible to participate in the
Savings Plan. A participating employee may elect to defer up to 15% of
his or her salary on a pre-tax basis. This amount, plus a matching
amount provided by the Company, is contributed to the Savings Plan.
All amounts granted vest in their entirety upon completion of one year
of service. The full amount vested in a participant's account will be
distributed to a participant upon termination of employment,
retirement, disability or death. Company contributions to the Savings
Plan for the years ended January 31, 1997, 1996 and 1995 amounted to
$472,000, $321,000 and $268,000, respectively.
The Company does not currently offer post-retirement
benefits, and the effect of post-employment benefits is immaterial. As
of December 31, 1993, the Company implemented the Officers' Deferred
Compensation Plan (the "Plan") providing elected officers with the
opportunity to participate in an unfunded, deferred compensation
program. Under the Plan, officers may defer up to 100% of their base
salary and/or incentive compensation until retirement, separation or a
fixed date at least five (5) years from the date of election. The
deferred amounts are retained as Company assets and are included in
other assets on the Consolidated Balance Sheets. The deferred amounts
are invested, at the officer's election, in either treasury bonds or a
designated mutual fund. Officers are 100% vested in their deferral
balances at all times. The total
<PAGE>
amount deferred under the Plan, which is reflected in other long-term
liabilities, was $57,000 and $90,000 as of January 31, 1997 and 1996,
respectively. The expense for the Plan was $9,000 in fiscal 1995,
there was no expense in fiscal 1996 or fiscal 1997.
16. EMPLOYEE STOCK PURCHASE PLANS
Under the 1991 Employee Stock Purchase Plan (the "1991
Stock Purchase Plan"), all employees who had completed three months of
employment, except for those employees who possessed at least 5% of
the voting power of the Company's common stock were entitled, through
payroll deductions of amounts up to 10% of his or her base salary, to
purchase shares of the Company's common stock at the lesser of 85% of
the market price at the offering commencement date or the offering
termination date.
During fiscal 1994, the stockholders of the Company
approved the 1993 Employee Stock Purchase Plan (the "1993 Stock
Purchase Plan"). The 1993 Stock Purchase Plan was in all material
respects identical to the 1991 Employee Stock Purchase Plan. This plan
was terminated during fiscal 1996 and was replaced by the 1995
Employee Stock Purchase Plan (the "1995 Stock Purchase Plan").
During fiscal 1996, the stockholders of the Company
approved the 1995 Stock Purchase Plan. The 1995 Stock Purchase Plan is
in all material respects identical to the 1991 and 1993 Employee Stock
Purchase Plans. The number of shares available for issuance under the
1995 Stock Purchase Plan is 200,000. For the offering period ended
February 28, 1997, 41,384 shares of common stock were issued to
employees at a price of $12.96 per share. The number of shares
available for subsequent offerings may be increased, at the election
of the Board of Directors, by the shares, if any, which were made
available but not purchased during any previous offerings.
<TABLE>
17. UNAUDITED QUARTERLY FINANCIAL INFORMATION
<CAPTION>
1997 Fiscal Quarter Ended
April 30 July 31 October 31 January 31
-------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue $35,751 $41,455 $52,818 $62,434
Gross Profit 17,775 22,263 27,097 34,040
Operating income 2,804 4,930 6,923 7,474
Net income 1,830 2,791 4,171 5,357
Net income per share (a) .07 .10 .15 .19
1996 Fiscal Quarter Ended
April 30 July 31 October 31 January 31
-------- ------- ---------- ----------
Revenue $26,021 $26,127 $19,519 $33,600
Gross Profit 15,185 16,674 9,547 17,276
Operating income (loss) 4,176 4,102 (4,991) (19,054)
Net income (loss) 3,278 2,960 (3,378) (17,750)
Net income (loss) per share (a) .13 .11 (.14) (.72)
</TABLE>
<PAGE>
(a) Earnings per common share calculations for each of
the quarters were based on the weighted average number of shares
outstanding for each period, and the sum of the quarters may not
necessarily be equal to the full year earnings per common share
amount.
18. SUBSEQUENT EVENTS
On February 20, 1997, the Company acquired all of the
outstanding stock of Enhanced Communications Corporation ("ECC"), a
company providing outsourcing of voice messaging for Bell South
Telecommunications, Inc. and Bell South Personal Communications, Inc.
for 250,000 shares of the Company's Common Stock. The combination will
be accounted for as a pooling of interests in accordance with APB 16.
(b) Pro Forma Financial Information.
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined balance
sheet as of September 30, 1997 combines the unaudited historical
balance sheets of Comverse as of September 30, 1997 and BTI as of
October 31, 1997, giving effect to the Merger as though it had been
consummated as of September 30, 1997. The following unaudited pro
forma condensed combined statements of income for each of the three
years in the period ended December 31, 1996 combine the historical
consolidated statements of income of Comverse for each of the three
years in the period ended December 31, 1996 and BTI for each of the
three years in the period ended January 31, 1997, giving effect to the
Merger as though it had been consummated at the beginning of each
period presented. The following unaudited pro forma condensed combined
statements of income for each of the nine-month periods ended
September 30, 1997 and 1996 combine the unaudited historical
consolidated statements of income of Comverse for each of the
nine-month periods ended September 30, 1997 and 1996 and BTI for each
of the nine-month periods ended October 31, 1997 and 1996, giving
effect to the Merger as though it had been consummated at the
beginning of each period presented. The Merger is intended to be
accounted for as a pooling of interests. The following unaudited pro
forma condensed combined financial statements, including the notes
thereto, are qualified in their entirety by reference to, and should
be read in conjunction with, the historical consolidated financial
statements of Comverse and BTI, including the notes thereto, which are
included herein or otherwise publicly available. This unaudited pro
forma condensed combined financial information is not necessarily
indicative of the operating results and financial position that might
have been achieved had the Merger occurred as of the beginning of the
earliest period presented, nor are they necessarily indicative of
operating results and financial position which may occur in the
future.
The pro forma data do not reflect any costs associated with the
integration and consolidation of the companies anticipated by Comverse
management as a result of the Merger.
<PAGE>
<TABLE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
September 30, 1997
(in thousands)
<CAPTION>
Comverse BTI
September 30, October 31, Pro Forma
1997 1997 Adjustments Combined(1)
------------ --------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $149,074 $ 15,934 $165,008
Bank time deposits and short-term investments........ 113,600 -- 113,600
Accounts receivable, net............................. 79,233 89,386 168,619
Inventories.......................................... 35,030 26,893 61,923
Prepaid expenses and other current assets............ 20,265 11,323 31,588
---------- ---------- ----------
Total current assets............................. 397,202 143,536 540,738
Long-term receivables, net................................ 860 -- 860
Property and equipment, net............................... 22,716 36,999 (694) 59,021
Investments............................................... 6,473 -- 6,473
Software development costs, net........................... 12,028 -- 12,028
Deferred costs and other assets, net...................... 6,619 8,144 14,763
----------- ------------ ----------- ----------
$445,898 $188,679 $ (694) $633,883
======== ======== ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................ $ 48,586 $ 38,716 $ 10,000(3) $ 97,302
Bank loans........................................... 16,916 2,644 19,560
Advance payments from customers...................... 9,247 16,738 25,985
Other current liabilities............................ 915 -- -- 915
------------ ----------- ----------- ------------
Total current liabilities........................ 75,664 58,098 10,000 143,762
Convertible subordinated debentures....................... 115,000 -- 115,000
Long-term debt and other liabilities...................... 6,879 15,507 22,386
----------- ----------------------- ----------
Total liabilities................................ 197,543 73,605 10,000 281,148
Stockholders' equity:
Common stock......................................... 2,515 27 1,755(4) 4,297
Additional paid-in capital........................... 139,806 74,909 (1,755)(4) 212,960
Cumulative translation adjustment.................... (43) 488 445
Unrealized gain on available for sale securities, net
of tax........................................... 3,026 -- 3,026
Retained earnings.................................... (694)(2)
103,051 39,650 (10,000)(3) 132,007
--------- ---------- -------- ---------
Total stockholders' equity....................... 248,355 115,074 10,694 352,735
--------- --------- ------- ---------
$445,898 $188,679 $ (694) $633,883
======== ======== ========= ========
See Notes to Unaudited Pro Forma Condensed Combined Financial Information
</TABLE>
<PAGE>
<TABLE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF
INCOME
For Year Ended December 31, 1996
(In Thousands, Except Per Share Data)
<CAPTION>
Comverse BTI
Twelve Months Twelve Months
Ended Ended
December 31, 1996 January 31, 1997 Pro Forma
Historical Historical Combined(1)
<S> <C> <C> <C>
Revenues:
Sales............................................. $197,181 $192,458 $389,639
Interest and other income......................... 10,130 881 11,011
---------- ------------ ----------
Total revenues............................... 207,311 193,339 400,650
Costs and expenses:
Research and development.......................... 36,613 42,136 78,749
Less reimbursement................................ (9,172) (3,349) (12,521)
---------- ---------- ----------
Net research and development...................... 27,441 38,787 66,228
Cost of sales..................................... 84,319 85,205 169,524
Selling, general and administrative............... 53,347 40,257 93,604
Royalties and license fees........................ 4,365 6,078 10,443
Minority interest and equity in loss of
affiliate.................................... (35) 479 444
Interest expense and other........................ 7,063 1,572 8,635
---------- ---------- ----------
Total costs and expenses..................... 176,500 172,378 348,878
---------- ---------- ----------
Income before gain on issuance of subsidiary shares
and income tax provision.......................... 30,811 20,961 51,772
Gain on issuance of subsidiary shares................ 535 -- 535
----------- ----------- -----------
Income before income tax provision................... 31,346 20,961 52,307
Income tax provision................................. 3,358 6,812 10,170
----------- ----------- -----------
Net income........................................... $ 27,988 $ 14,149 $ 42,137
=========== =========== ===========
Earnings per share:
Primary........................................... $ 1.16 $ 0.51 $ 1.01
=========== =========== ===========
Fully diluted..................................... $ 1.15 $ 0.51 $ 1.00
=========== =========== ===========
Weighted average number of common and common
equivalent shares outstanding:
Primary........................................... 26,447 27,585 44,377
=========== =========== ===========
Fully diluted..................................... 26,572 27,585 44,502
=========== =========== ===========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Information
<PAGE>
<TABLE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF
INCOME
For Year Ended December 31, 1995
(In Thousands, Except Per Share Data)
<CAPTION>
Comverse
Twelve Months BTI
Ended Twelve Months
December 31, Ended
1995 January 31, 1996 Pro Forma
Historical Historical Combined(1)
------------- ---------------- -----------
<S> <C> <C> <C>
Revenues:
Sales.................................................. $137,149 $105,267 $242,416
Interest and other income.............................. 8,747 1,169 9,916
------------ --------- -----------
Total revenues......................................... 145,896 106,436 252,332
Costs and expenses:
Research and development............................... 27,161 26,935 54,096
Less reimbursement..................................... (7,735) (5,051) (12,786)
------------ ---------- -----------
Net research and development........................... 19,426 21,884 41,310
Cost of sales.......................................... 59,297 45,683 104,980
Selling, general and administrative.................... 41,388 31,565 72,953
Royalties and license fees............................. 2,419 902 3,321
Minority interest and equity in loss of affiliate...... (147) -- (147)
Warrants and other expenses associated with AT&T
contract acquisition................................... -- 21,000 21,000
Interest expense and other 4,406 187 4,593
------------ ----------- ----------
Total costs and expenses............................... 126,789 121,221 248,010
------------ ----------- ----------
Income before income tax provision..................... 19,107 (14,785) 4,322
Income tax provision................................... 2,057 105 2,162
------------ ----------- ----------
Net income............................................. $ 17,050 $(14,890) $ 2,160
============ =========== ===========
Earnings per share:
Primary................................................ $ 0.75 $ (0.60) $ 0.06
============ =========== ===========
Fully diluted.......................................... $ 0.75 $ (0.60) $ 0.06
============ =========== ===========
Weighted average number of common and common
equivalent shares outstanding:
Primary................................................. 22,602 24,859 38,760
============ ============ ===========
Fully diluted............................................. 22,709 24,859 38,867
============ ============ ===========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Information
<PAGE>
<TABLE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF
INCOME
For Year Ended December 31, 1994
(In Thousands, Except Per Share Data)
<CAPTION>
Comverse
Twelve Months BTI
Ended Twelve Months
December 31, Ended
1994 January 31, 1995 Pro Forma
Historical Historical Combined(1)
------------- ---------------- -----------
<S> <C> <C> <C>
Revenues:
Sales................................................ $ 108,150 $ 89,056 $ 197,206
Interest and other income............................ 6,162 1,098 7,260
----------- --------- ----------
Total revenues................................... 114,312 90,154 204,466
Costs and expenses:
Research and development............................. 18,117 21,871 39,988
Less reimbursement.................................. (5,477) (8,162) (13,639)
----------- --------- ----------
Net research and development......................... 12,640 13,709 26,349
Cost of sales........................................ 47,715 31,345 79,060
Selling, general and administrative.................. 33,681 26,217 59,898
Royalties and license fees........................... 2,186 199 2,385
Minority interest and equity in loss of affiliate.... 262 -- 262
Interest expense and other........................... 3,947 213 4.160
----------- ---------- ----------
Total costs and expenses......................... 100,431 71,683 172,114
----------- ---------- ----------
Income before gain on issuance of subsidiary shares and
income tax provision................................. 13,881 18,471 32,352
Income tax provision...................................... 1,783 5,527 7,310
----------- ---------- -----------
Net income................................................ $ 12,098 $ 12,944 $ 25,042
=========== ========== ===========
Earnings per share:
Primary.............................................. $ 0.55 $ 0.50 $ 0.65
=========== ========== ===========
Fully diluted........................................ $ 0.55 $ 0.50 $ 0.65
=========== ========== ===========
Weighted average number of common and common
equivalent shares outstanding:
Primary.............................................. 21,868 25,751 38,606
=========== ========== ==========
Fully diluted........................................ 21,868 25,751 38,606
=========== ========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Information
<PAGE>
<TABLE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF
INCOME
For Nine Months Ended September 30, 1997
(In Thousands, Except Per Share Data)
<CAPTION>
Comverse BTI
Nine Months Nine Months
Ended Ended
September 30, October 31,
1997 1997 Pro Forma
Historical Historical Adjustments Combined(1)
<S> <C> <C> <C> <C>
Revenues:
Sales.......................................... $202,681 $ 198,342 $(836)(2) $400,187
Interest and other income...................... 11,973 686 12,659
---------- ---------- ----------- ----------
Total revenues............................. 214,654 199,028 (836) 412,846
Costs and expenses:
Research and development....................... 39,121 50,133 89,254
Less reimbursement............................. (11,344) (4,863) (16,207)
---------- ---------- ---------
Net research and development................... 27,777 45,270 73,047
Cost of sales.................................. 85,953 74,973 (142)(2) 160,784
Selling, general and administrative............ 53,756 41,255 95,011
Royalties and license fees..................... 4,981 5,413 10,394
Minority interest and equity in loss of
affiliate.................................. (30) (122) (152)
Interest expense and other..................... 6,997 1,792 8,789
----------- ---------- ---------- ----------
Total costs and expenses................... 179,434 168,581 (142) 347,873
----------- ---------- ----------
Income before income tax provision.................. 35,220 30,447 (694) 64,973
Income tax provision................................ 3,525 6,682 10,207
----------- --------- ---------- ----------
Net income.......................................... $ 31,695 $ 23,765 $(694) $ 54,766
=========== ========= ========== ==========
Earnings per share:
Primary........................................ $ 1.17 $ 0.84 $ 1.20
=========== ========= ==========
Fully diluted.................................. $ 1.17 $ 0.84 $ 1.20
=========== ========= ==========
Weighted average number of common and
common equivalent shares outstanding:
Primary........................................ 27,081 28,373 45,523
=========== ========= ==========
Fully diluted.................................. 27,188 28,373 45,630
=========== ========= ==========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Information
<PAGE>
<TABLE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF
INCOME
For Nine Months Ended September 30, 1996
(In Thousands, Except Per Share Data)
<CAPTION>
Comverse
Nine Months BTI
Ended Nine Months
September 30, Ended
1996 October 31, 1996 Pro Forma
Historical Historical Combined
------------ ---------------- ---------
<S> <C> <C>
Revenues:
Sales................................................ $138,931 $130,024 $268,955
Interest and other income............................ 6,080 470 6,550
------------ --------------- -----------
Total revenues................................... 145,011 130,494 275,505
Costs and expenses:
Research and development............................. 25,911 28,549 54,460
Less reimbursement................................... (6,339) (3,204) (9,543)
------------ -------------- ----------
Net research and development......................... 19,572 25,345 44,917
Cost of sales........................................ 59,476 58,411 117,887
Selling, general and administrative.................. 37,612 27,133 64,745
Royalties and license fees........................... 2,948 4,478 7,426
Minority interest and equity in loss of affiliate.... (232) 597 365
Interest expense and other........................... 4,289 1,004 5,293
------------ ----------- -----------
Total costs and expenses......................... 123,665 116,968 240,633
------------ ----------- -----------
Income before gain on issuance of subsidiary shares and
income tax provision................................. 21,346 13,526 34,872
Gain on issuance of subsidiary shares..................... 535 -- 535
------------ ------------ ------------
Income before income tax provision........................ 21,881 13,526 35,407
Income tax provision...................................... 2,288 4,734 7,022
------------ ------------ ------------
Net income................................................ $ 19,593 $ 8,792 $ 28,385
============ ============ ============
Earnings per share:
Primary.............................................. $ 0.84 $ 0.32 $ 0.69
============ ============ ============
Fully diluted........................................ $ 0.82 $ 0.32 $ 0.68
============ ============ ============
Weighted average number of common and common
equivalent shares outstanding:
Primary.............................................. 23,243 27,823 41,328
============ ============ ==========
Fully diluted........................................ 26,486 27,823 44,571
============ ============ ==========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Information
<PAGE>
Notes to Unaudited Pro Forma Condensed Combined Financial Information
(1) The unaudited pro forma condensed combined balance sheet
combines the unaudited historical consolidated balance sheet of
Comverse at September 30, 1997 with the unaudited historical
consolidated balance sheet of BTI at October 31, 1997. The unaudited
pro forma condensed combined statements of income combine the
unaudited historical consolidated statements of income of Comverse for
the nine months ended September 30, 1997 and 1996 and for the years
ended December 31, 1996, 1995 and 1994 with the unaudited historical
consolidated statements of income of BTI for the nine months ended
October 31, 1997 and 1996 and for the fiscal years ended January 31,
1997, 1996 and 1995. Certain amounts reflected in the historical
financial statement presentations of both companies have been
reclassified to conform to the unaudited pro forma condensed combined
presentation.
The unaudited pro forma condensed combined financial information
excludes costs associated with the integration and consolidation of
the companies, the total amount of which is not expected to exceed $70
million.
The pro forma combined primary and fully diluted earnings per
share for the respective periods represented is based on the combined
weighted average number of common shares and share equivalents of
Comverse and BTI. The number of common shares and share equivalents of
BTI is based on an Exchange Ratio of 0.65 shares of Comverse Common
Stock for each issued and outstanding share of BTI Common Stock
(including share equivalents).
(2) Adjustment to eliminate sales between Comverse and BTI.
(3) Adjustment to reflect the estimated direct costs for
investment banking, legal and miscellaneous transactions costs
associated with the Merger.
(4) Adjustment to reflect the issuance of Comverse Common Stock
for BTI Common Stock.
<PAGE>
(c) Exhibits.
See the Index to Exhibits attached hereto.
Item 8. Change in Fiscal Year
On January 22, 1998, the Board of Directors of Comverse acted
to change the fiscal year of Comverse to correspond with BTI's fiscal
year, ending January 31 of each year. Comverse intends to file its
report covering the transition period of January 1, 1998 thorugh
January 31, 1998 on Form 10-K.
<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 hereunto duly authorized.
COMVERSE TECHNOLOGY, INC.
(Registrant)
Date: January 27, 1998 By:/s/ William F. Sorin
---------------------
Name: William F. Sorin
Title: Corporate Secretary
<PAGE>
EXHIBIT INDEX
Exhibit Description Page
2.1(1) Agreement and Plan of Merger
between Comverse Technology, Inc.
and Boston Technology, Inc. dated
as of August 20, 1997.
99.1 Press Release dated January 14, 1998. 35
- -------------------
(1) Incorporated by reference to Exhibit 2.1 to Current Report on Form
8-K filed by the Registrant with the Securities and Exchange Commission
on August 20, 1997.
<PAGE>
EXHIBIT 99.1
CONTACT:
Kobi Alexander/Paul D. Baker
Comverse Technology, Inc.
170 Crossways Park Drive
Woodbury, NY 11797
(516) 677-7200
Comverse Technology, Inc. and Boston Technology, Inc. Complete Merger:
Combination Creates the World Leader in the Supply of
Enhanced Services Platforms to Both Wireless and Wireline Network Operators
WOODBURY, NY, January 14, 1998 -- Comverse Technology, Inc. (NASDAQ:
CMVT) and Boston Technology, Inc. (formerly NYSE: BSN) announced today
the completion of the merger of Boston Technology with Comverse
Technology in a tax- free, stock-for-stock transaction, which will be
accounted for as a pooling of interests. As a result of the merger,
each share of Boston Technology common stock is converted into 0.65 of
a share of Comverse Technology common stock.
The combined company is called Comverse Technology, Inc., and will
continue to be listed on the NASDAQ exchange. The company headquarters
will remain in Woodbury, NY. The operations of Boston Technology will
be combined with Comverse's Network Systems Division, the largest
operating unit of Comverse Technology. Comverse Network Systems
Division will be headquartered in Wakefield, MA.
Kobi Alexander, Comverse Technology's Chairman, President and Chief
Executive Officer, will continue in his present role. Francis E.
Girard, Boston Technology's President and Chief Executive Officer,
becomes President and Chief Executive Officer of Comverse Network
Systems Division.
Mr. Alexander said, "The strategic benefits of this merger are
compelling for a number of reasons. This merger positions us as the
world's leading supplier of enhanced services platforms to both
wireless and wireline telecommunications network operators. Together,
we have a powerful combination of technology, research and development
capabilities, customer service and support, sales and marketing, and a
blue chip customer base that includes seven of the ten largest
telecommunications network operators in the world. As these and other
telephone companies continue to launch and expand revenue- generating
services such as voice mail, unified messaging, information services,
voice recognition-based services, text messaging, and other personal
assistant and personal communications services, we are well-positioned
to participate in this growth."
"Our companies are complementary in a number of ways," continued
Alexander. "Boston Technology is a leader in several important regions,
including the United States and Japan, while Comverse is a leader in
Europe and other important regions. Boston Technology is a leader among
wireline network operators and Comverse is a leader among digital
wireless network operators. Together, we have more than 200
telecommunications network operator customers, including thirteen of
the world's twenty largest telephone companies, with very little
customer overlap."
"The addition of Boston Technology's excellent management and employees
to our team," concluded Alexander, "brings to us a wide range of
strengths, including top-notch account management, first-class
training, service and support, and solid technical resources. They will
add significant value to our organization, and will allow us, our
<PAGE>
shareholders and our customers to enjoy the full opportunity presented
in this rapidly growing market."
Mr. Girard said, "We are excited about this opportunity to, in one
step, expand our customer base, and increase and leverage our
technological and managerial strengths and resources to take full
advantage of the continued growth we see in the enhanced services
arena. This combination will bring together two teams of highly
experienced, dedicated employees, with similar corporate cultures,
values and goals. This team will be able to provide our customers with
an unmatched level of engineering resources, along with a wider range
of products and services to serve their rapidly expanding needs for
world- class enhanced services."
"Comverse's excellent and experienced management team, considerable
financial resources, and strong engineering staff, which includes a
large team of Advanced Intelligent Network specialists, will enable our
combined company to compete and serve our customers on a higher level,"
continued Girard. "Together, we will be able to offer our customers the
best of both companies' products, resources, technology, research and
development, and service and support."
The combined company is committed to preserving the investment of all
of its customers, and will continue to market, support and enhance both
companies' platforms. Both platforms will evolve over time, to take
advantage of the expanded technology and resource strengths of the two
companies.
Comverse Technology Inc., headquartered in Woodbury, New York, designs,
develops, manufactures and markets computer and telecommunications
systems for a variety of communications processing applications,
including multimedia messaging, personal communications and information
processing systems marketed to telecommunications network operators
under the names Access NP(R) and TRILOGUE(R), multiple channel,
multimedia digital monitoring systems marketed under the name
AUDIODISK(TM), and multiple channel, multimedia digital recording
systems marketed under the name ULTRA(TM).
Internet users: For additional information, you may visit Comverse's
web site at: http://www.comverse.com.
Information contained in this release with respect to the expected
financial impact of the merger is forward-looking. These statements
represent the company's reasonable judgment with respect to future
events and are subject to risks and uncertainties that could cause
actual results to differ materially. Such factors include, but are not
limited to, material adverse changes in economic and competitive
conditions in the markets served by the company, material adverse
changes in the business and financial condition of the company and
their respective customers, and uncertainties concerning technological
changes and future product performance.
