With Comverse Technology Inc. (Pink Sheets: CMVT) not publishing financial reports for more than three years, it is difficult to know the truth about the financial position of the company, which made mass layoffs of 8% of its global workforce yesterday. Yesterday, the company filed its Form 8-K (Results of Operations and Financial Condition) with the US Securities and Exchange Commission (SEC), which clear at least some of the fog.
The figures show that the company's cash reserves fell by $200 million in the past six months.
Comverse had $1.3 billion in cash and cash equivalents at the end of its 2008 fiscal year, which ended in January 2009. The company had $1.5 billion in cash and cash equivalents at the end of July 2008, according to its Form 8-K filed at the time.
Despite the reduction in cash reserves, Comverse's financial soundness is not in doubt. The company's consolidated $1 billion in liabilities at the end of January included $417 million in convertible debt, unchanged from July last year. The company also included the $625 million bond debt of subsidiary Verint Systems Inc. (Pink Sheets: VRNT), in which it owns a 57% stake.
The change in cash reserves is not the same thing as cash flow from current operations. Comverse continues to keep its cash flow figures a closely guarded secret, and has published no figures on it for three years. That said, the cash reserves data can serve as a kind of confidence index about cash flow, and even if the entire $200 million reduction in cash reserves was not due to current operations, it suggests a serious problem at the company.
Comverse noted that its cash reserve figure does not include its auction rate securities (ARS), which are currently valued at $100 million, half their original face value.
Comverse added that its board of directors' special committee spent $70 million in the 2008 fiscal year and $34 million in the fiscal half-year on the investigations into "certain accounting matters and activities relating to the restatement of the company's historical financial statements."
Comverse disclosed that its audit committee "is conducting an internal investigation of certain payments made from 2001 through 2007 by individuals in foreign jurisdictions in connection with the sale of certain products. The payments were made in contravention of the company's stated policies, and certain of the payments may have been made in violation of the laws of the US and other countries. The audit committee believes that the conduct at issue does not involve current executive officers of the company. In addition, a review is being undertaken of the company's existing and prior arrangements with consultants and agents with a view toward determining whether such arrangements are consistent with company policies and applicable laws."
Comverse added that its audit committee has voluntarily contacted the SEC and the US Department of Justice about the internal investigation, and that the company will "cooperate fully with any review or investigation of these matters by such agencies."
Converse's share closed at $5.90 yesterday.
Published by Globes [online], Israel business news - www.globes-online.com - on March 17, 2009
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