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EX-99.1 - LETTER TO EMPLOYEES DATED FEB. 3, 2010 - COMVERSE TECHNOLOGY INC/NY/ | mm02-0310_8ke991.htm |
UNITED
STATES
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):
February
3, 2010
COMVERSE
TECHNOLOGY, INC.
|
(Exact
name of registrant as specified in its
charter)
|
NEW
YORK
|
0-15502
|
13-3238402
|
(State
or other jurisdiction
|
(Commission
|
(IRS
Employer
|
of
incorporation)
|
File
Number)
|
Identification
No.)
|
810
Seventh Avenue,
New York,
New York
10019
(Address
of Principal Executive Offices)
(Zip
Code)
Registrant’s
telephone number, including area code: (212) 739-1000
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
¨
|
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
|
¨
|
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|
¨
|
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
|
¨
|
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
|
Item
2.02 Results
of Operations and Financial Condition.
Overview
Comverse
Technology, Inc. (the “Company”) is disclosing in this Current Report on Form
8-K certain unaudited selected financial information relating to its
wholly-owned subsidiary, Comverse, Inc., and the subsidiaries of Comverse,
Inc. comprising the Company’s Comverse segment (“Comverse”), and certain
other unaudited consolidated financial information. The Company is in
the process of completing restatement adjustments to certain previously
disclosed financial information, completing its financial statements for
subsequent fiscal periods and becoming current in its periodic reporting
obligations under the federal securities laws. As a result of this
process, all information presented herein is preliminary, unaudited and subject
to adjustments, which may be material.
Comverse
Selected Unaudited Preliminary Financial Information
Revenue
Comverse’s
revenue for the fiscal years ended January 31, 2009, 2008, 2007 and 2006 was
approximately $960 million, $1,090 million, $980 million and $800 million,
respectively. Comverse’s revenue for the fiscal year ended January
31, 2010 is expected to be between $750 million and $800 million. For
the fiscal year ended January 31, 2005, Comverse’s restated revenue was
approximately $570 million compared to previously reported revenue of $643
million. The adjustments to revenue for the fiscal year ended January
31, 2005 resulted from corrections in the application of revenue recognition
guidance that were necessary to properly recognize revenue in accordance with
generally accepted accounting principles in the United States (“U.S.
GAAP”). As a result of these corrections, the recognition of certain
revenue has been deferred to subsequent periods. As previously
disclosed, in November 2007 the Company initiated an evaluation relating to the
application of U.S. GAAP in connection with the recognition of revenue in
accordance with ASC 985-605 “Software Revenue Recognition”
(formerly known as the American Institute of Certified Public Accountants’
Statement of Position No. 97-2, “Software Revenue
Recognition”), including the assessment of vendor specific objective
evidence (“VSOE”) of fair value.
Operating
Loss, Cash Decline and Segment Performance
For the
fiscal year ended January 31, 2010, Comverse had a decline in cash, an operating
loss and negative segment performance. The Company defines “segment
performance” as income (loss) from operations as adjusted to exclude (i)
stock-based compensation expense; (ii) amortization of acquisition-related
intangibles; (iii) restatement-related professional fees; (iv)
restatement-related compensation and other; (v) impairment charges; (vi)
litigation settlements and related costs; (vii) acquisition-related charges;
(viii) restructuring and integration charges; and (ix) other pre-determined
charges.
Backlog
and Product Bookings
At
January 31, 2009, 2008, 2007 and 2006, Comverse had backlog of approximately
$1,190 million, $1,150 million, $1,050 million and $880 million,
respectively. Comverse’s backlog at January 31, 2010 is expected to
be between $1,200 million and $1,250 million. The Company defines
“backlog” as projected revenue from signed orders not yet recognized, excluding
revenue from maintenance agreements.
Comverse’s
product bookings increased sequentially from the third quarter to the fourth
quarter of the fiscal year ended January 31, 2010, and Comverse forecasts a
modest increase in product bookings in the fiscal year ending January 31, 2011
compared with the fiscal year ended January 31, 2010. The Company
defines “product bookings” as projected revenue from orders signed during a
specified period, excluding revenue from maintenance agreements.
2
Consolidated
Selected Unaudited Preliminary Financial Information
Cash,
Cash Equivalents, Short-Term Investments and Bank Time Deposits
At
January 31, 2010, the Company had consolidated cash, cash equivalents,
short-term investments and bank time deposits of approximately $730 million,
compared to approximately $1,330 million at January 31, 2009. These
amounts do not include auction rate securities (“ARS”) totaling $207 million in
original face value, valued as of January 31, 2010 at approximately $114 million.
Cash and cash equivalents as of January 31, 2010 includes cash proceeds received
by the Company during the second half of the fiscal year ended January 31, 2010
from sales and redemptions of $30 million of ARS at approximately 88% of their
original face value.
Significant
Disbursements and Expenditures
During
the fiscal year ended January 31, 2010, the Company incurred the following
significant disbursements and expenditures:
·
|
a
$417 million cash disbursement during the Company’s second fiscal quarter
in connection with the repurchase of its convertible debt obligations as
required by the applicable
indenture;
|
·
|
approximately
$165 million of expense for accounting, tax and legal support related to
the Company’s efforts to become current in its periodic reporting
obligation under the federal securities
laws;
|
·
|
a
$64 million reduction in its consolidated cash during the Company’s first
fiscal quarter, representing the portion of a $200 million special
dividend paid by Ulticom, Inc. (“Ulticom”), the Company’s majority-owned
subsidiary, to its minority
shareholders;
|
·
|
an
$18 million cash disbursement at Comverse in connection with a one-time
settlement of intellectual property claims that was paid during the first
quarter of the fiscal year ended January 31, 2010 and accrued for during
the fiscal year ended January 31, 2009;
and
|
·
|
approximately
$17 million in consolidated restructuring expense, including a workforce
reduction initiative at Comverse.
|
Indebtedness
At
January 31, 2010, the Company had consolidated indebtedness of approximately
$623 million, consisting primarily of $2 million in aggregate principal amount
outstanding of the Company’s convertible debt obligations due May 15, 2023 and
long-term indebtedness of the Company’s majority-owned subsidiary, Verint
Systems Inc. (“Verint”), consisting of $606 million in aggregate principal
amount outstanding under a seven-year term loan facility that matures on May 25,
2014 and $15 million outstanding under a six-year revolving credit facility that
matures on May 25, 2013.
The
Company owns 57% of the outstanding common stock of Verint, holds all of
Verint’s convertible preferred stock acquired by the Company for an aggregate
purchase price of $293 million, and owns 68% of the outstanding common stock of
Ulticom.
In
accordance with General Instruction B.2., the foregoing information is furnished
pursuant to Item 2.02 and shall not be deemed “filed” for the purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise
subject to the liabilities of that Section. The information disclosed under Item
2.02 of this Current Report on Form 8-K shall not be incorporated by reference
into any registration statement or other document pursuant to the Securities Act
of 1933, as amended, except as shall be expressly set forth by a specific
reference in such filing.
Item
7.01 Regulation
FD Disclosure.
Filing
Timeline Update
3
On June
18, 2009, the Company disclosed that, in connection with its settlement with the
United States Securities and Exchange Commission (the “SEC”), the Company
consented to the entry of a final judgment and court order that orders it to be
in compliance with its periodic reporting obligations under the federal
securities laws by no later than February 8, 2010. The Company will
not be in compliance with such obligations under the final judgment and court
order by such date.
While the
Company has made significant progress in the completion of its financial
statements and continues to work diligently to complete an Annual Report on Form
10-K covering the fiscal years ended January 31, 2009, 2008, 2007 and 2006 (the
“Comprehensive Form 10-K”) and Quarterly Reports on Form 10-Q for the first
three quarters of fiscal year ended January 31, 2010 (the “2009 Form 10-Qs”), it
currently expects to file the Comprehensive Form 10-K in late April 2010, the
2009 Form 10-Qs and its Annual Report on Form 10-K for the fiscal year ended
January 31, 2010 by the end of June 2010 and its Quarterly Report on Form 10-Q
for the first quarter of the fiscal year ending January 31, 2011 as promptly as
practicable thereafter. The Company’s ability to meet this timeline
is dependent upon the achievement of certain milestones in the Company’s
reporting and disclosure processes, including certain important milestones in
the next several weeks, and, consequently, this timeline is subject to the risk
of further delays.
On
January 28, 2010, Verint disclosed that although it is substantially complete
with its Annual Report on Form 10-K covering the fiscal years ended January 31,
2008, 2007 and 2006 (the “Verint Comprehensive 10-K”), it requires information
from the Company in connection with any modifications in the allocation of net
operating loss carryforwards for the year ended January 31, 2003 and earlier
years. The Company is working diligently to provide Verint with the
necessary information to allow Verint to file as soon as possible the Verint
Comprehensive 10-K. Verint today disclosed certain unaudited financial
information for the fiscal years ended January 31, 2006 through January 31, 2010
in a Current Report on Form 8-K.
Letter
to Employees
On
February 3, 2010, the President and Chief Executive Officer of the Company
issued a letter to employees of the Company and its subsidiary, Comverse,
Inc. A copy of the letter is attached hereto as Exhibit 99.1 to this
Current Report and is incorporated herein by reference.
In
accordance with General Instruction B.2., the foregoing information is furnished
pursuant to Item 7.01 and shall not be deemed “filed” for the purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise
subject to the liabilities of that Section. The information disclosed under Item
7.01 of this Current Report on Form 8-K shall not be incorporated by reference
into any registration statement or other document pursuant to the Securities Act
of 1933, as amended, except as shall be expressly set forth by a specific
reference in such filing.
This
Current Report on Form 8-K contains certain statements that constitute
“forward-looking statements” under the Private Securities Litigation Reform Act
of 1995. In some cases, forward-looking statements can be identified
by the use of terminology such as “may,” “expects,” “plans,” “anticipates,”
“estimates,” “believes,” “potential,” “projects,” “forecasts,” “intends,” or the
negative thereof or other comparable terminology. There are numerous
risks and uncertainties that could cause actual results and the timing of events
to differ materially from those anticipated by the forward-looking statements in
this Current Report on Form 8-K. Such risks and uncertainties may
give rise to future claims and increase exposure to contingent
liabilities. There can be no assurances that any forward-looking
statements will be achieved. These risks and uncertainties arise from
(among other factors) the following:
·
|
the
information presented herein is preliminary, unaudited and subject to
adjustments, which may be material, and therefore is subject to material
change and may differ from actual
results;
|
·
|
the
Company may be subject to significant sanctions, including legal
proceedings that may be initiated by the SEC to revoke the registration of
its common stock under Section 12(j) of the Exchange Act, when, in
violation of a final judgment and court order, the Company does not become
current in its periodic reporting obligations by February 8, 2010 or if
the Company does not file in the future its periodic reports in a timely
manner;
|
4
·
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the
settlements of a shareholder class action and shareholder derivative
actions related to the results of the Special Committee investigations and
the restatement of the Company’s consolidated financial statements may not
be approved by the courts in which such actions are pending, in which
event the lawsuits would proceed and, if the Company is unable to achieve
a favorable outcome or a settlement, the Company could become liable for
substantial damage awards and indemnification
obligations;
|
·
|
the
Company’s directors and officers liability insurance is insufficient to
cover the expenses and the costs of the proposed settlements of the
Company’s pending shareholder class action and shareholder derivative
actions, and such expenses and settlement costs (or possible damage awards
if such settlements are not approved) could have a material adverse effect
on the Company’s business, financial condition, results of operations and
cash flows;
|
·
|
civil
and/or criminal actions that may be brought against the Company by the SEC
and the Department of Justice under the Foreign Corrupt Practices Act
relating to potentially unlawful payments made in foreign jurisdictions in
connection with the sale of certain products by Comverse employees and
external sales agents;
|
·
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the
ineffectiveness of the Company’s disclosure controls and procedures
resulting in its inability to file its periodic reports under the federal
securities laws in a timely manner due to material weaknesses and
significant deficiencies in internal control over financial reporting and
the potential that the Company may be unable to effectively implement
appropriate remedial measures in a timely
manner;
|
·
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the
continuation of material weaknesses or the discovery of additional
material weaknesses in the Company’s internal control over financial
reporting and any delay in the implementation of remedial
measures;
|
·
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the
continuing effects of the global economic crisis and adverse conditions in
the telecommunications industry, which resulted in declines in information
technology spending and demand for Comverse’s products and services, and
exposure to the credit and liquidity
crisis;
|
·
|
continued
diversion of management’s attention from business operations and the
incurrence of substantial expenses as a result of the Company’s efforts to
become current in its periodic reporting obligations and remediate
material weaknesses;
|
·
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constraints
on the Company’s ability to obtain new debt or equity financing due to,
among other things, (i) the Company’s not being current in its periodic
reporting obligations under the federal securities laws, (ii) potential
material contingent liabilities that could have a material adverse effect
on the Company’s financial position and results of operations and (iii)
the continuing negative effects of the global economic
crisis;
|
·
|
risks
that the delay by Verint in the filing of the Verint Comprehensive 10-K,
its Annual Report on Form 10-K for the fiscal year ended January 31, 2009
and its Quarterly Reports on Form 10-Q for the fiscal quarters ended April
30, July 31 and October 31, 2009 may cause Verint to be delayed in the
completion and timely filing of its Annual Report for the fiscal year
ended January 31, 2010, which may cause Verint not to be in compliance
with the financial statement delivery requirements of its credit facility
and result in an event of default
thereunder;
|
·
|
inability
to achieve expected benefits of functional and cross-functional
initiatives as well as inability to successfully implement product
rationalization;
|
·
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risks
relating to Comverse’s significant operations in Israel, including
volatile economic, political and/or military conditions and uncertainties
relating to research and development grants and tax benefits and the
ability of the Company’s Israeli subsidiaries to pay
dividends;
|
·
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risks
associated with significant foreign operations and international sales,
including the impact of geopolitical, economic and military conditions in
foreign countries, conducting operations in countries with a history of
corruption and entering into transactions with foreign governments and
ensuring compliance with laws that prohibit improper
payments;
|
·
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adverse
fluctuations of currency exchange
rates;
|
·
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changes
in the competitive environment in the telecommunications industry may
reduce demand for Comverse’s products and services and/or cause it to
reduce prices;
|
·
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increased
costs or reduced demand for Comverse’s products resulting from compliance
with evolving telecommunications regulations and the implementation of new
standards may adversely affect the Company’s business and financial
condition;
|
5
·
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the
failure or delay in achieving interoperability of Comverse’s products with
its customers’ systems could impair its ability to sell its
products;
|
·
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increased
and changing competition which could force Comverse to lower prices or
take other actions to differentiate its
products;
|
·
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the
competitive bidding process used to generate sales requires Comverse to
expend significant resources with no guarantee of
recoupment;
|
·
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Comverse’s
inability to maintain relationships with value added resellers, systems
integrators and other third parties that market and sell its products to
sell its products could adversely impact the Company’s financial condition
and results of operations;
|
·
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third
parties’ infringement of Comverse’s proprietary technology and the
infringement by Comverse of the intellectual property of third parties,
including through the use of free or open source
software;
|
·
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rapidly
changing technology in Comverse’s industry and its ability to enhance
existing products and develop and market new
products;
|
·
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Comverse’s
dependence on a significant portion of its sales and operating profit from
contracts for large systems and large installations, including, among
other things, the lengthy and complex bidding and selection process, the
difficulty predicting its ability to obtain particular contracts and the
timing and scope of these opportunities;
and
|
·
|
operating
results are difficult to predict as a result of lengthy and variable sales
cycles, focus on large customers and installations, short delivery windows
required by customers, and back-loaded nature of Comverse’s
business.
|
The
Company undertakes no commitment to update or revise forward-looking statements
except as required by law.
Item
9.01 Financial Statements and Exhibits.
(d)
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Exhibits:
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Exhibit No.
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Description
|
|
99.1
|
Letter
to Employees, dated February 3,
2010
|
6
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.
|
||
Date: February
3, 2010
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By:
|
/s/
Andre Dahan
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Name:
|
Andre
Dahan
|
|
Title:
|
President
and Chief Executive Officer
|
7
EXHIBIT
INDEX
Exhibit No.
|
Description
|
|
99.1
|
Letter
to Employees, dated February 3,
2010
|
8