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 April 30, 1999
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 June 7, 1999 was 69,891,445.
Page 1 of 19 Total Pages
(Exhibit Index Appears on Page 16)
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements.
Page
1. Condensed Consolidated Balance Sheets as
of January 31, 1999 and April 30, 1999 3
2. Condensed Consolidated Statements of Income
for the Three Month Periods Ended April 30, 1998
and April 30, 1999 4
3. Condensed Consolidated Statements of Cash
Flows for the Three Month Periods Ended
April 30, 1998 and April 30, 1999 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 19 Total Pages
<PAGE>
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
JANUARY 31, APRIL 30,
1999* 1999
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 583,959 $ 610,569
Bank time deposits and short-term investments 73,658 67,183
Accounts receivable, net 192,317 213,842
Inventories 46,689 42,224
Prepaid expenses and other current assets 36,014 34,835
------------- --------------
TOTAL CURRENT ASSETS 932,637 968,653
PROPERTY AND EQUIPMENT, net 61,445 70,401
INVESTMENTS 7,902 8,684
OTHER ASSETS 29,409 32,683
------------- --------------
TOTAL ASSETS $ 1,031,393 $ 1,080,421
============= ==============
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 184,870 $ 194,688
Other current liabilities 40,486 31,014
------------- --------------
TOTAL CURRENT LIABILITIES 225,356 225,702
CONVERTIBLE SUBORDINATED DEBENTURES 415,000 415,000
LIABILITY FOR SEVERANCE PAY 4,338 6,472
OTHER LIABILITIES 5,037 5,562
------------- --------------
TOTAL LIABILITIES 649,731 652,736
------------- --------------
STOCKHOLDERS' EQUITY:
Common stock, $0.10 par value -- authorized, 100,000,000 shares;
issued and outstanding, 68,736,936 and 69,758,855 shares 6,874 6,976
Additional paid-in capital 253,065 265,116
Retained earnings 118,086 153,370
Accumulated other comprehensive income 3,637 2,223
------------- --------------
TOTAL STOCKHOLDERS' EQUITY 381,662 427,685
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,031,393 $ 1,080,421
============= ==============
</TABLE>
*The Condensed Consolidated Balance Sheet as of January 31,
1999 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 19 Total Pages
<PAGE>
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30, APRIL 30,
1998 1999
<S> <C> <C>
Sales $ 160,481 $ 200,507
Cost of sales 65,865 77,427
----------- -----------
Gross margin 94,616 123,080
Operating expenses:
Research and development, net 30,654 38,417
Selling, general and administrative 35,324 42,845
Royalties and license fees 3,618 4,740
Merger expenses - 1,018
----------- -----------
Income from operations 25,020 36,060
Interest and other income (expense), net 1,619 3,009
----------- -----------
Income before income tax provision 26,639 39,069
Income tax provision 2,669 3,432
----------- -----------
Net income $ 23,970 $ 35,637
=========== ===========
Earnings per share:
Basic $ 0.37 $ 0.51
=========== ===========
Diluted $ 0.34 $ 0.47
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
Page 4 of 19 Total Pages
<PAGE>
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30, APRIL 30,
1998 1999
<S> <C> <C>
Cash flows from operating activities:
Net cash from operations after adjustment
for non-cash items $ 29,669 $ 39,427
Changes in assets and liabilities:
Accounts receivable (78,615) (18,259)
Inventories 7,321 4,750
Prepaid expenses and other current assets (2,556) 2,164
Accounts payable and accrued expenses 4,555 8,979
Liability for severance pay 274 2,134
Other 15,468 (15,833)
---------- ------------
Net cash (used in) provided by operating activities (23,884) 23,362
Cash flows from investing activities:
Maturities and sales (purchase) of bank time deposits
and investments, net 21,106 4,459
Purchases of property and equipment (7,639) (11,325)
Increase in software development costs (2,225) (3,198)
----------- ------------
Net cash provided by (used in) investing activities 11,242 (10,064)
Cash flows from financing activities:
Net borrowings of bank loans and other debt 452 (436)
Proceeds from issuance of common stock 3,162 12,068
---------- -----------
Net cash provided by financing activities 3,614 11,632
Net (decrease) increase in cash and cash equivalents (9,028) 24,930
Cash acquired in pooling of Amarex Technology, Inc. - 1,680
Cash and cash equivalents, beginning of period 180,855 583,959
---------- -----------
Cash and cash equivalents, end of period $ 171,827 $ 610,569
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 5 of 19 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 annual period ended January 31, 1999. The financial information
included herein is unaudited; however, such information reflects all adjustments
(consisting solely of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the interim periods.
The results of operations for the three month period ended April 30, 1999 are
not necessarily indicative of the results to be expected for the full year.
INVENTORIES. The composition of inventories at January 31 and
April 30, 1999 is as follows:
JANUARY 31, APRIL 30,
1999 1999
(In thousands)
Raw materials $ 23,944 $ 19,935
Work in process 11,171 18,026
Finished goods 11,574 4,263
----------- -----------
$ 46,689 $ 42,224
=========== ===========
RESEARCH AND DEVELOPMENT EXPENSES. The Company has
historically supported a 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 three month periods ended
April 30, 1998 and 1999, reimbursement from funding agencies amounted to
$4,780,000 and $2,241,000, respectively. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Certain Trends and
Uncertainties."
EARNINGS PER SHARE. For the three month periods ended April
30, 1998 and 1999, the computation of basic earnings per share is based on the
weighted average number of outstanding common shares. Diluted earnings per share
further assumes the issuance of common shares for all dilutive potential common
shares outstanding. The assumed conversion of the convertible subordinated
debentures was antidilutive for the three month periods ended April 30, 1998 and
1999, respectively. The shares used in the computations are as follows:
Page 6 of 19 Total Pages
<PAGE>
THREE MONTHS ENDED
APRIL 30, 1998 APRIL 30, 1999
(In thousands)
Basic 65,216 69,321
Diluted 70,997 75,851
COMPREHENSIVE INCOME. For the three month periods ended April
30, 1998 and 1999, total comprehensive income was $24,652,000 and $34,223,000,
respectively. The elements of comprehensive income include net income,
unrealized gains on available for sale securities and foreign currency
translation adjustments.
ACQUISITION OF AMAREX TECHNOLOGY, INC. In February 1999, the
Company acquired all of the outstanding stock of Amarex Technology, Inc.
("Amarex"), a company that develops software-based applications for the
telephone network operator and call center markets, for 346,007 shares of the
Company's common stock and the assumption of options and warrants to purchase
119,643 shares of the Company's common stock. The combination has been accounted
for as a pooling of interests. The Company did not restate prior period
financial statements for this acquisition, as such restatement would not be
material.
STOCK SPLIT. In April 1999, the Company effected a
three-for-two stock split by paying a 50% stock dividend to shareholders of
record on March 31, 1999. All share and per share information has been adjusted
to give effect to this split.
Page 7 of 19 Total Pages
<PAGE>
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
RESULTS OF OPERATIONS.
Sales. Sales for the three month period ended April 30, 1999
increased by approximately $40,026,000 (25%) from the 1998 period. The increase
is attributable primarily to a higher volume of sales of systems and parts of
enhanced service platform products.
Cost of Sales. Cost of sales for the three month period ended
April 30, 1999 increased by approximately $11,562,000 (18%) from the
corresponding period in 1998. The increase is attributable primarily to the
increase in sales. Gross margin (expressed as a percentage of sales) for the
three month period ended April 30, 1999 increased to approximately 61.4% from
approximately 59.0% in the corresponding 1998 period.
Research and Development Expenses. Net research and
development expenses for the three month period ended April 30, 1999 increased
by approximately $7,763,000 (25%) from the corresponding period in 1998 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.
Selling, General and Administrative Expenses. Selling, general
and administrative expenses for the three month period ended April 30, 1999
increased by approximately $7,521,000 (21%) from the corresponding period in
1998. 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.
Royalties and License Fees. Royalties and license fees for the
three month period ended April 30, 1999 increased by approximately $1,122,000
(31%) from the corresponding period in 1998.
Income Tax Provision. Provision for income taxes for the three
month period ended April 30, 1999 increased by approximately $763,000 (29%) from
the 1998 period due to increased pre-tax income. The Company's overall effective
tax rate was approximately 10% in the 1998 period and 9% in the three month
period ended April 30, 1999. The Company's overall rate of tax is reduced
significantly by the tax benefits associated with qualified activities of its
subsidiaries in Israel.
Net Income. Net income after taxes for the three month period
ended April 30, 1999 increased by approximately $11,667,000 (49%) from the 1998
period, primarily as a result of the factors described above. Net income after
taxes as a percentage of sales increased to approximately 17.8% in the three
month period ended April 30, 1999 from approximately 14.9% in the 1998 period.
Page 8 of 19 Total Pages
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES. At April 30, 1999, the Company had
cash and cash equivalents of approximately $610,569,000, bank time deposits and
short-term investments of approximately $67,183,000 and working capital of
approximately $742,951,000. The Company believes that its existing working
capital, together with funds generated from operations, will be sufficient to
provide for its planned operations for the foreseeable future.
The Company regularly examines opportunities for strategic acquisitions
of other companies or lines of business and anticipates that it may from time to
time issue additional debt and/or equity securities either as direct
consideration for such acquisitions or to raise additional funds to be used (in
whole or in part) in payment for acquired securities or assets. The issuance of
such securities could be expected to have a dilutive impact on the Company's
shareholders, and there can be no assurance as to whether or when any acquired
business would contribute positive operating results commensurate with the
associated investment.
The Company's liquidity and capital resources have not been, and are
not anticipated to be, materially affected by restrictions pertaining to the
ability of its foreign subsidiaries to pay dividends or by withholding taxes
associated with any such dividend payments.
CERTAIN TRENDS AND UNCERTAINTIES. The Company has benefited from the
growth in its business and capital base over the past several years to make
significant new investment in its operations and infrastructure intended to
enhance its opportunities for future growth and profitability. The Company
intends to continue to make significant investments in the growth of its
business, and to examine opportunities for additional growth through
acquisitions and strategic investments. The impact of these decisions on future
profitability cannot be predicted with assurance, and the Company's commitment
to growth may increase its vulnerability to unforeseen downturns in its markets,
technology changes and shifts in competitive conditions. However, the Company
believes that significant opportunities exist in the markets for each of its
main product lines, and that continued strong investment in its technical,
product development, marketing and sales capabilities will enhance its
opportunities for long term growth and profitability.
The telecommunications industry is subject to rapid technological
change. The Company's revenue stream will depend on its ability to enhance its
existing products and to introduce new products on a timely and cost-effective
basis, including any customer-requested custom software enhancements required in
the course of product delivery. The Company's products involve sophisticated
hardware and software technology that performs critical functions to highly
demanding standards. There can be no assurance that the Company's current or
future products will not develop operational problems, which could have a
material adverse effect on the Company. In addition, if the Company were to
delay the introduction of new products, or to delay the delivery of specific
custom software enhancements, the Company's operating results could be adversely
affected. The Company sells a majority of its products to companies in the
Page 9 of 19 Total Pages
<PAGE>
telecommunications industry. This industry is undergoing significant change as a
result of deregulation and privatization worldwide, reducing restrictions on
competition in the industry. Unforeseen changes in the regulatory environment
may have an impact on the Company's revenues and/or costs in any given part of
the world. The telecommunications industry is also affected by the advent new
technologies and alternatives for the delivery of services, such as digital
transmission standards and Internet telephony. The Company's success will depend
in part upon its ability to correctly anticipate technicological changes and to
provide the range of features and capabilities required by its customers to take
advantage of new technological opportunities. The worldwide market for enhanced
services platform ("ESP"s) systems is already highly competitive and the Company
expects competition to intensify. The Company believes that existing competitors
will continue to present substantial competition, and that other companies, many
with considerably greater financial, marketing and sales resources than the
Company, may enter the ESP system markets. Moreover, as the Company enters into
new markets for enhanced services as a result of its own research and
development efforts or acquisitions, it is likely to ecounter new competitors.
In January 1998, the Company merged with Boston Technology, Inc. ("Boston"), a
manufacturer of ESP systems. As a result of its significantly greater
concentration on a small number of large telephone company customers, Boston's
business has historically been considerably more volatile than that of the
Company before the merger, and the operations of the combined Company are likely
to be less predictable and subject to greater risks from actions of individual
customers than the operations of the Company in prior years.
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. The delay and uncertainties
surrounding the Communications Assistance for Law Enforcement Act ("CALEA") have
had a significant negative impact on acquisition plans of law enforcement
agencies in North America engaged in monitoring activities. 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 sales
and operating profit from contracts for large system installations with major
customers. Boston's operating results, in particular, have often been
characterized by volatility and lack of predictability, reflecting its
traditional customer concentration among major telecommunications services
Page 10 of 19 Total Pages
<PAGE>
providers such as the Regional Bell Operating Companies. The Company 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 system orders, and
the investment required to enable the Company to perform such orders, without
assurance of continuing order flow from the same customers and predictability of
gross margins on any future orders, increase the risk associated with its
business.
The Company has significantly increased its expenditures in all areas
of its operations during recent periods, including the areas of research and
development and marketing and sales, and the Company plans to further increase
these expenditures in the foreseeable future. The increase in research and
development expenditures reflects the Company's concentration on enhancing the
range of features and capabilities of its existing product lines and developing
new generations of its products. The Company believes that these efforts are
essential for the continuing competitiveness of its product offerings and for
positioning itself to participate in future growth opportunities in both the
commercial and government sectors. The increase in sales and marketing
expenditures primarily results from the Company's decision to expand its
activities and direct presence in a growing number of world markets. The
Company's costs of operations have also been affected by increases in the cost
of its operations in Israel, resulting both from general inflation and increases
in the cost of attracting and retaining qualified scientific, engineering and
technical personnel in Israel, where the demand for such personnel is growing
rapidly with the expansion of technology-based industries in that country. The
increase in these costs in recent years has not been offset in each instance by
proportional devaluation of the Israeli shekel against the United States dollar,
and accordingly has had a negative impact on the Company's overall results of
operations. Continuation of such trends may have a material adverse effect on
the Company's future 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
Page 11 of 19 Total Pages
<PAGE>
certain of its policies in these areas. Recently, the government acted to
increase, from between 2% and 3% of associated product sales to 3% of associated
product revenues (including service and other related revenues), the annual rate
of royalties to be applied to repayment of benefits under the conditional grant
program administered by the Office of the Chief Scientist of the Ministry of
Industry and Trade, a program in which the Company has regularly participated
and under which it continues to receive significant benefits through
reimbursement of up to 50% of qualified research and development expenditures.
The Company's repayment of amounts received under the program will be
accelerated through these higher royalty rates until repayment is completed.
Repayment of any amounts received under programs which have been, or will be,
approved by the Office of the Chief Scientist after January 1, 1999 will entail
repayment of the amount received (calculated in US Dollars), plus interest on
such amount at a rate equal to the 12-month LIBOR rate in effect at the time of
the approval of the program. In addition, permission from the government of
Israel is required for the Company to manufacture outside of Israel products
resulting from research and development activities funded under such programs,
or to transfer outside of Israel related technology rights, and in order to
obtain such permission the Company may be required to increase the royalties to
the applicable funding agencies and/or repay certain amounts received as
reimbursement of research and development costs. The Israeli authorities have
also indicated that these research and development funding programs will be
significantly further reduced in the future, particularly for larger entities
such as the Company. The Israeli government has also shortened the period of the
tax moratorium applicable to "Approved Enterprises" from four years to two
years. Although this change has not affected the tax status of the Company's
projects that were eligible for the moratorium prior to 1997, it applies to the
subsequent "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. To the extent the
Company increases its activities outside Israel, such increased activities will
not be eligible for programs sponsored by Israel. Most of the Company's research
and development and manufacturing operations attributable to Boston are expected
to continue to be located in the United States and thus will not be eligible for
the benefits of those programs. Accordingly, the effective cost to the Company
of its future research and development activities in particular, and its
operations in general, could significantly increase relative to that of
Comverse, historically.
The Company currently derives a significant portion of its total sales
from customers outside of the United States. International transactions involve
particular risks, including political decisions affecting tariffs and trade
conditions, rapid and unforeseen changes in economic conditions in individual
countries, turbulence in foreign currency and credit 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. The Company has, and anticipates that it will
continue to receive, significant contracts denominated in foreign (primarily
Western European and Japanese) currencies. As a result of the unpredictable
timing of purchase orders and payments under such contracts and other factors,
it is often not practicable for the Company to effectively hedge the risk of
Page 12 of 19 Total Pages
<PAGE>
significant changes in currency rates during the contract period. Since the
Company will hedge the exchange rate risks associated with long-term contracts
denominated in foreign currencies only to a limited extent, if at all, operating
results can be affected by the impact of currency fluctuations as well as the
cost of such hedging.
Prevailing economic conditions in the Far East and Southeast Asia have
significantly reduced the demand for the Company's systems in certain countries.
The Company cannot currently predict the effect on its business should regional
economic conditions fail to improve. Moreover, the Company's future operating
results and financial condition will be adversely affected should current
economic instability result in more widespread slowdown or recessionary
conditions in other major world markets, or in severe trade or currency
disruptions.
The Company has undertaken a comprehensive program to evaluate "Year
2000 compliance" of its products and systems. The Company considers a product to
be "Year 2000 compliant" if the product, when used properly and in conformity
with the product information provided by the Company, will accurately store,
display, process, provide and/or receive data from, into and between the
twentieth and twenty-first centuries, including leap year calculations, provided
that all other technology used in combination with the Company product properly
exchanges date data with the product.
Although the Company believes that its current products generally
either are, or upon the completion of current modification programs will be,
Year 2000 compliant, no assurance can be given that its Year 2000 compliance
efforts will prove to be fully successful or that unanticipated costs and
problems will not be encountered in such efforts. In addition, the Company has
determined that older generations of certain of its products are not and cannot,
without unreasonable effort and expense, be made Year 2000 compliant. The costs
incurred to date related to the Company's Year 2000 compliance program have been
less than $5,000,000. The program is expected to continue through fiscal 1999,
but is not anticipated to have a material adverse effect on the Company's
business or financial condition.
The Company anticipates that widespread litigation may be brought in
the future against vendors of systems and components of systems that are unable
to properly manage data related to the Year 2000. The Company's agreements with
customers typically contain provisions designed to limit generally the Company's
liability for customer claims. It is possible, however, that these measures will
not provide protection from Year 2000 liability claims, as a result of existing
or future laws or unfavorable judicial decisions. Any such claims could result
in a material adverse affect on the Company's business, financial condition and
results of operations, including increased warranty costs, customer satisfaction
issues and potential legal damages.
The Company has initiated a comprehensive program to address Year 2000
readiness in its internal systems and with its customers and suppliers. The
Company's program has been designed to address its most critical internal
systems first and to gather information regarding the Year 2000 compliance of
products supplied to it and into which the Company's products are integrated.
Assessment and remediation are proceeding in tandem, and the Company intends to
have its critical internal systems in Year 2000 compliance by the end of the
third quarter of 1999. These activities are intended to encompass all major
categories of systems in use by the Company, including manufacturing,
Page 13 of 19 Total Pages
<PAGE>
engineering, sales, finance and human resources. The costs incurred to date
related to these programs have been less than $5,000,000.
The Company currently expects that the total cost of its Year 2000
readiness programs over the current fiscal year will not exceed $5,000,000. The
total cost estimate does not include potential costs related to any customer or
other claims or the costs of internal software or hardware replaced in the
normal course of business. The total cost estimate is based on the current
assessment of the Company's Year 2000 readiness needs and is subject to change
as the projects proceed.
The Company is communicating with its significant suppliers and
financial institutions to determine the extent to which the Company is
vulnerable to those third parties' failure to remedy their own Year 2000
concerns, and has received assurances of Year 2000 compliance from a number of
those contacted. Most of the suppliers under existing contracts with the Company
are under no contractual obligation to provide such information to the Company.
While the Company currently expects that the Year 2000 issue will not pose
significant operational problems, failure to fully identify all Year 2000
dependencies in the Company's systems and in the systems of its suppliers,
customers and financial institutions could have material adverse consequences,
including delays in the delivery or sale of products. The Company has under
consideration various contingency plans which will be developed as needed to
assure continuing operations in the event such problems arise.
The trading price of the Company's shares may be affected by the
factors noted above as well as prevailing economic and financial trends and
conditions in the public securities markets. Share prices of companies in
technology and government contracting businesses, and particularly smaller and
medium-sized publicly traded companies such as the Company, tend to exhibit a
high degree of volatility. The Company's revenues and earnings may be more
volatile than those of Comverse historically as a result of the greater
concentration of Boston's business on a limited number of large customers.
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. These factors 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 telecommunications
equipment industry in general, and the Company's 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,
Page 14 of 19 Total Pages
<PAGE>
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.
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.
MARKET RISK DISCLOSURES. Refer to Item 7A in the Company's Annual
Report on Form 10-K for a discussion about the Company's exposure to market
risks.
Page 15 of 19 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. 18
27. Financial data schedule 19
(b) Reports on Form 8-K.
None
Page 16 of 19 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: June 8, 1999 S/ Kobi Alexander
-------------------------------------
Kobi Alexander
President, Chairman of the Board
and Chief Executive Officer
Dated: June 8, 1999 S / David Kreinberg
-------------------------------------
David Kreinberg
Vice President of Finance
and Chief Financial Officer
Page 17 of 19 Total Pages
EXHIBIT 11
COMVERSE TECHNOLOGY, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30, 1998 APRIL 30, 1999
<S> <C> <C>
Basic earnings per share:
Net income $ 23,970 $ 35,637
========= ==========
Weighted average number of outstanding common shares 65,216 69,321
========= ==========
Basic earnings per share $ 0.37 $ 0.51
========= ==========
Diluted earnings per share:
Net income $ 23,970 $ 35,637
========= ==========
Weighted average number of outstanding common shares 65,216 69,321
Additional shares assuming exercise of stock options 5,781 6,530
--------- ----------
Weighted average number of outstanding common shares
assuming full dilution 70,997 75,851
========= ==========
Diluted earnings per share $ 0.34 $ 0.47
========= ==========
</TABLE>
Page 18 of 19 Total Pages
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE ACCOMPANYING FORM 10-Q AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-END> APR-30-1999
<CASH> 610,569
<SECURITIES> 67,138
<RECEIVABLES> 213,842
<ALLOWANCES> 0
<INVENTORY> 42,224
<CURRENT-ASSETS> 968,653
<PP&E> 70,401
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,080,421
<CURRENT-LIABILITIES> 225,702
<BONDS> 415,000
6,976
0
<COMMON> 0
<OTHER-SE> 420,709
<TOTAL-LIABILITY-AND-EQUITY> 1,080,421
<SALES> 200,507
<TOTAL-REVENUES> 200,507
<CGS> 77,427
<TOTAL-COSTS> 77,427
<OTHER-EXPENSES> 87,020
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 39,069
<INCOME-TAX> 3,432
<INCOME-CONTINUING> 35,637
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,637
<EPS-BASIC> 0.51
<EPS-DILUTED> 0.47
</TABLE>
