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Nice Ltd. — Interim / Quarterly Report 2005
Aug 28, 2005
6950_rns_2005-08-28_f07ab562-b188-4331-be46-55aa7fa956e6.pdf
Interim / Quarterly Report
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NICE SYSTEMS LTD (NICE)
8 HAPNINA STREET P.O.B. 690 RA'ANANA, L3 43107 972−9−775−37 http://www.nice.com/
6−K
FORM 6−K Filed on 08/26/2005 − Period: 08/26/2005 File Number 000−27466
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® Information Provided by Global Securities Information, Inc. 800.669.1154 www.gsionline.com
LIVEDGAR
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6−K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A−16 OR 15D−16 OF THE SECURITIES EXCHANGE ACT OF 1934 For the month of August 2005 Commission File Number: 0−27466
NICE−SYSTEMS LTD.
(Translation of Registrant's Name into English)
8 Hapnina Street, P.O. Box 690, Ra'anana, Israel (Address of Principal Executive Offices)
Indicate by check mark whether the Registrant files or will file annual reports under cover Form 20−F or Form 40−F. Form 20−F Form 40−F
Indicate by check mark if the Registrant is submitting this Form 6−K in paper as permitted by Regulations S−T Rule 101(b)(1): Yes No
Indicate by check mark if the Registrant is submitting this Form 6−K in paper as permitted by Regulation S−T Rule 101(b)(7): Yes No
Indicate by check mark whether by furnishing the information contained in this Form 6−K, the Registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3−2(b) under the Securities Exchange Act of 1934. Yes No
If "Yes" is marked, indicate below the file number assigned to the Registrant in connection with Rule 12g3−2(b): 82− N/A
THE EXHIBITS OF THIS REPORT ON FORM 6−K ARE HEREBY INCORPORATED BY REFERENCE INTO NICE−SYSTEMS LTD.'S ("NICE") REGISTRATION STATEMENTS ON FORM F−3 (REGISTRATION STATEMENTS NOS. 333−11250, 333−12996, AND 333−109766) AND NICE'S REGISTRATION STATEMENTS ON FORM S−8 (REGISTRATION STATEMENT NOS. 333−11842, 333−9352, 333−11154, 333−13686, 333−111112 AND 333−111113), AND TO BE A PART THEREOF FROM THE DATE ON WHICH THIS REPORT IS SUBMITTED, TO THE EXTENT NOT SUPERSEDED BY DOCUMENTS OR REPORTS SUBSEQUENTLY FILED OR FURNISHED.
CONTENTS
This Report on Form 6−K of NICE consists of the following documents, which are attached hereto and incorporated by reference
herein:
| herein: | |
|---|---|
| 99.1. | Unaudited Financial Statements of NICE for the six−month period ended June 30, 2005 and the notes |
| thereto. | |
| 99.2. | Operating and Financial Review and Prospects relating to said interim financial statements. |
| 99.3. | Audited Financial Statements of Dictaphone Corporation's Communications Recording Systems |
| division for the years ended December 31, 2004 and 2003 and for the nine−month period ended | |
| December 31, 2002 and the notes thereto. | |
| 99.4. | Unaudited Pro Forma Condensed Combined Statement of Operations of NICE for the year ended |
| December 31, 2004 and for the six−month period ended June 30, 2005 and the notes thereto. | |
| 99.5. | Consent of PricewaterhouseCoopers LLP, in connection with their report dated August 15, 2005 |
| related to the audited financial statements of Dictaphone Corporation's Communications Recording | |
| Systems division included herein. |
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.
NICE−SYSTEMS LTD. By:/s/ Yechiam Cohen Name: Yechiam Cohen Title: General Counsel Dated: August 26, 2005
EXHIBIT INDEX
| EXHIBIT INDEX | |
|---|---|
| Exhibit Number | Description of Exhibit |
| 99.1 | Unaudited Financial Statements of NICE for the six−month period ended June 30, 2005 and the notes thereto. |
| 99.2 | Operating and Financial Review and Prospects relating to said interim financial statements. |
| 99.3 | Audited Financial Statements of Dictaphone Corporation's Communications Recording Systems division for the years ended December 31, 2004 and2003 and for the nine−month period ended December 31, 2002 and the notes thereto. |
| 99.4 | Unaudited Pro Forma Condensed Combined Statement of Operations of NICE for the year ended December 31, 2004 and for the six−month periodended June 30, 2005 and the notes thereto. |
| 99.5 | Consent of PricewaterhouseCoopers LLP, in connection with their report dated August 15, 2005 related to the audited financial statements ofDictaphone Corporation's Communications Recording Systems division included herein. |
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NICE SYSTEMS LTD (NICE)
8 HAPNINA STREET P.O.B. 690 RA'ANANA, L3 43107 972−9−775−37 http://www.nice.com/
EX−99.1
UNAUDITED FINANCIAL STATEMENTS 6−K Filed on 08/26/2005 − Period: 08/26/2005 File Number 000−27466
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® Information Provided by Global Securities Information, Inc. 800.669.1154 www.gsionline.com
LIVEDGAR
EXHIBIT 99.1
NICE SYSTEMS LTD. AND SUBSIDIARIES
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2005
IN U.S. DOLLARS
INDEX
<TABLE>
PAGE
−−−−−−−−−−−−−
INTERIM CONSOLIDATED BALANCE SHEETS F−2 − F−3
INTERIM CONSOLIDATED STATEMENTS OF INCOME F−4
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS F−5 − F−7
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS F−8 − F−16
</TABLE>
− − − − − − − − − −
NICE SYSTEMS LTD. AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
U.S. DOLLARS IN THOUSANDS
<TABLE>
JUNE 30, DECEMBER 31,
2005 2004
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
UNAUDITED *)
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 34,953 $ 26,579
Short−term bank deposits 126 175
Marketable securities 22,620 24,348
Trade receivables (net of allowance for doubtful accounts of $3,033 and
$2,661 at June 30, 2005 and December 31, 2004, respectively) 54,951 46,407
Other receivables and prepaid expenses 8,064 7,937
Inventories 20,296 12,615
Assets of discontinued operation 653 652
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Total current assets 141,663 118,713
−−−−−
================== ==================
LONG−TERM INVESTMENTS:
Long−term marketable securities 111,621 114,805
Investment in affiliate 1,200 1,200
Severance pay fund 7,231 7,356
Long−term receivables and prepaid expenses 776 854
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Total long−term investments 120,828 124,215
−−−−−
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
PROPERTY AND EQUIPMENT, NET 15,683 16,981
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
INTANGIBLE ASSETS, NET 26,087 12,665
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
GOODWILL 49,432 25,745
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Total assets $ 353,693 $ 298,319
−−−−−
================== ==================
</TABLE>
*) Derived from the audited balance sheet at December 31, 2004.
The accompanying notes are an integral part of the interim consolidated
financial statements.
− 2 −
NICE SYSTEMS LTD. AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)
<TABLE>
JUNE 30, DECEMBER 31,
2005 2004
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
UNAUDITED *)
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade payables $ 17,121 $ 11,975
Accrued expenses and other liabilities 83,560 55,302
Liabilities of discontinued operation 6 8
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Total current liabilities 100,687 67,285
−−−−−
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
ACCRUED SEVERANCE PAY 8,237 8,163
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
COMMITMENTS AND CONTINGENT LIABILITIES
SHAREHOLDERS' EQUITY:
Share capital−
Ordinary shares of NIS 1 par value:
Authorized: 50,000,000 shares as of June 30, 2005 and December 31, 2004;
Issued and outstanding: 18,960,334 and 18,180,260 shares as of June 30,
2005 and December 31, 2004, respectively 5,643 5,464
Additional paid−in capital 255,690 244,400
Accumulated other comprehensive income 3,358 5,506
Accumulated deficit (19,922) (32,499)
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Total shareholders' equity 244,769 222,871
−−−−−
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Total liabilities and shareholders' equity $ 353,693 $ 298,319
−−−−−
================== ==================
</TABLE>
*) Derived from the audited balance sheet at December 31, 2004.
The accompanying notes are an integral part of the interim consolidated
financial statements.
− 3 −
NICE SYSTEMS LTD. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
U.S. DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA)
<TABLE>
SIX MONTHS ENDED
JUNE 30,
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
2005 2004
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
UNAUDITED
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
Revenues:
Products $ 94,950 $ 85,554
Services 43,402 34,058
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Total revenues 138,352 119,612
−−−−−
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Cost of revenues:
Products 30,903 30,616
Services 30,234 24,364
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Total cost of revenues 61,137 54,980
−−−−−
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Gross profit 77,215 64,632
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Operating expenses:
Research and development, net 13,756 12,433
Selling and marketing 33,979 30,404
General and administrative 17,241 15,684
Amortization of acquired intangible assets and restructuring expenses 244 175
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Total operating expenses 65,220 58,696
−−−−−
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Operating income 11,995 5,936
Financial income, net 2,297 2,078
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Income before taxes on income 14,292 8,014
Taxes on income 1,715 895
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Net income from continuing operations 12,577 7,119
Net income from discontinued operation − 3,236
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Net income $ 12,577 $ 10,355
================== ==================
Net earnings per share:
Basic:
−−−−−−
Continuing operations $ 0.68 $ 0.41
Discontinued operation − 0.19
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
$ 0.68 $ 0.60
================== ==================
Diluted:
−−−−−−−−
Continuing operations $ 0.63 $ 0.38
Discontinued operation − 0.18
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Net earnings $ 0.63 $ 0.56
================== ==================
</TABLE>
The accompanying notes are an integral part of the interim consolidated
financial statements.
− 4 −
NICE SYSTEMS LTD. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
U.S. DOLLARS IN THOUSANDS
<TABLE>
SIX MONTHS ENDED
JUNE 30,
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
2005 2004
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
UNAUDITED
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
Cash flows from operating activities:
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
Net income $ 12,577 $ 10,355
Less: net income from discontinued operation − (3,236)
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Net income from continuing operations 12,577 7,119
Adjustments required to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 5,961 6,908
Accrued severance pay, net 199 88
Amortization of premium and accrued interest on held−to−maturity
marketable securities 445 748
Decrease (increase) in trade receivables (276) 139
Increase in other accounts receivable and prepaid expenses
(45) (142)
Decrease (increase) in inventories (1,295) 1,291
Decrease (increase) in long−term prepaid expenses 61 (17)
Increase (decrease) in trade payables 4,706 (1,078)
Increase in accrued expenses and other liabilities 9,656 788
Other 9 (8)
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Net cash provided by operating activities from continuing operations 31,998 15,836
Net cash provided by operating activities from discontinued operation − 850
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Net cash provided by operating activities 31,998 16,686
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
</TABLE>
The accompanying notes are an integral part of the interim consolidated
financial statements.
− 5 −
NICE SYSTEMS LTD. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
U.S. DOLLARS IN THOUSANDS
<TABLE>
SIX MONTHS ENDED
JUNE 30,
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
2005 2004
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
UNAUDITED
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
Cash flows from investing activities:
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
Purchase of property and equipment (2,722) (3,189)
Proceeds from sale of property and equipment 45 60
Investment in marketable securities (151,123) (69,863)
Proceeds from maturity of marketable securities 149,460 14,985
Proceeds from sale and call of a held−to−maturity marketable securities 6,130 19,802
Investment in short−term bank deposits, net (25) (39)
Proceeds from short−term bank deposits, net 67 71
Decrease in accrued acquisition costs − (75)
Payment for the acquisition of certain assets and liabilities of Dictaphone
CRS Division (a) (38,939) −
Payment in respect of terminated contract from TCS acquisition − (1,483)
Proceeds from related party in respect of TCS acquisition 2,531 4,013
Capitalization of software development costs (427) (674)
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Net cash used in investing activities from continuing operations (35,003) (36,392)
Net cash provided by investing activities from discontinued operation − 4,136
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Net cash used in investing activities (35,003) (32,256)
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Cash flows from financing activities
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
Proceeds from issuance of shares upon exercise of options and ESPP, net 11,469 9,918
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Net cash provided by financing activities 11,469 9,918
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Effect of exchange rate changes on cash (90) (77)
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Increase (decrease) in cash and cash equivalents 8,374 (5,729)
Cash and cash equivalents at the beginning of the period 26,579 29,859
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Cash and cash equivalents at the end of the period $ 34,953 $ 24,130
================== ==================
</TABLE>
The accompanying notes are an integral part of the interim consolidated
financial statements.
− 6 −
NICE SYSTEMS LTD. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
U.S. DOLLARS IN THOUSANDS
<TABLE>
SIX MONTHS
ENDED
JUNE 30,
2005
−−−−−−−−−−−−−−−−−
UNAUDITED
−−−−−−−−−−−−−−−−−
Payment for the acquisition of certain assets and liabilities of
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
Dictaphone CRS Division
−−−−−−−−−−−−−−−−−−−−−−−
Estimated fair value of assets acquired and liabilities assumed at the
acquisition date:
Working capital deficit (excluding cash and cash equivalents) $ (1,288)
Property and equipment 265
Intangible assets 15,400
Goodwill 25,623
Less − accrued acquisition costs (1,061)
−−−−−−−−−−−−−−−−−
$ 38,939
=================
</TABLE>
The accompanying notes are an integral part of the interim consolidated
financial statements.
− 7 −
NICE SYSTEMS LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)
NOTE 1:− GENERAL
a. NICE Systems Ltd. ("NICE") and subsidiaries (collectively −
"the Company") develop, market and support integrated,
scalable multimedia digital recording platforms, enhanced
software applications and related professional services.
These solutions capture and analyze unstructured
(non−transaction) data and convert it for business and
security performance management applications. The Company's
solutions capture multiple forms of interaction, including
voice, fax, email, web chat, radio, and video transmissions
over wire line, wireless, packet telephony, terrestrial
trunk radio and data networks.
The Company's products are based on two types of recording
platforms − audio and video. The Company's solutions are
offered to various vertical markets in two major sectors:
(1) the Enterprise Interaction Solutions Sector − contact
centers and trading floors and (2) the Public Safety and
Security Sector − safety organizations, transportation,
corporate security, gaming and correctional facilities and
government and intelligence agencies.
The Company's products are sold primarily through a global
network of distributors, system integrators and strategic
partners; a portion of product sales and most services are
sold directly to end−users.
The Company's markets are located primarily in North
America, EMEA and the Far East.
The Company depends on a limited number of contract
manufacturers for producing its products. If any of these
manufacturers become unable or unwilling to continue to
manufacture or fail to meet the quality or delivery
requirements needed to satisfy the Company's customers, it
could result in the loss of sales, which could adversely
affect the Company's results of operations and financial
position.
The Company relies upon a number of independent
distributors to market, sell and service its products in
certain markets. If the Company is unable to effectively
manage and maintain relationships with its distributors, or
to enter into similar relationships with others, its
ability to market and sell its products in these markets
will be affected. In addition, a loss of a major
distributor, or any event negatively affecting such
distributors' financial condition, could cause a material
adverse effect on the Company's results of operations and
financial position.
As for major customer data, see Note 5c.
b. Acquisition of Dictaphone's Communications Recording
Systems ("CRS"):
On June 1, 2005, the Company consummated an agreement to
acquire the assets and assume certain liabilities of
Dictaphone's Communications Recording Systems ("CRS")
business for $ 40,000 (including acquisition costs).
Dictaphone's CRS business is a leading provider of
liability and quality management systems for first
responders, critical facilities, contact centers and
financial trading floors.
The acquisition was accounted for by the purchase method
and accordingly, the purchase price has been allocated
according to the estimated fair value of the assets
acquired and liabilities assumed of CRS. The results of the
CRS's operations have been included in the consolidated
financial statements since June 1, 2005 ("the closing
date").
− 8 −
NICE SYSTEMS LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)
NOTE 1:− GENERAL (CONT.)
With the acquisition of CRS, the Company expects to expand
its customer base, presence in the U.S and Europe, and its
network of distributors and partners. Additionally, the
Company expects to broaden its product offerings and global
professional services team, and to reduce costs through
economies of scale.
The following table summarizes the fair values of the
assets acquired and liabilities assumed:
<TABLE>
Trade receivables $ 9,087
Other receivables and prepaid expenses 216
Inventories 7,687
Property and equipment 265
Trademarks 400
Core technology 4,900
Distribution network 10,100
Goodwill 25,623
−−−−−−−−−−−−−−−−
Total assets acquired 58,278
Trade payables (571)
Accrued expenses and other liabilities (17,707)
−−−−−−−−−−−−−−−−
Total liabilities assumed (18,278)
−−−−−−−−−−−−−−−−
Net assets acquired $ 40,000
================
</TABLE>
Trademarks, core technology and distribution network in the
amount of $ 15,400 are amortized using the straight−line
method at an annual weighted average rate of 19.5%.
The following represents the unaudited pro−forma condensed
results of operations for the six month periods ended June
30, 2005 and 2004 and for the year ended December 31, 2004,
assuming that the acquisition occurred on January 1, 2005
and 2004, respectively. The pro−forma information is not
necessarily indicative of the results of operations, which
actually would have occurred if the acquisition had been
consummated on that dates, nor does it purport to represent
the results of operations for future periods.
<TABLE>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2005 2004
−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−
UNAUDITED UNAUDITED
−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−
Revenues $ 160,880 $ 316,830
================ =================
Net income (loss) $ 7,775 $ (2,186)
================ =================
Basic net earnings (loss) per share $ 0.42 $ (0.13)
================ =================
Diluted net earnings (loss) per share $ 0.39 $ (0.13)
================ =================
</TABLE>
− 9 −
NICE SYSTEMS LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)
NOTE 1:− GENERAL (CONT.)
c. Disposal by sale of the COMINT/DF operation:
In the fourth quarter of 2003, the Company reached a
definitive agreement to sell the assets and liabilities of
its COMINT/DF military−related business to ELTA Systems
Ltd. for $ 4,000 in cash. On March 31, 2004, the Company
completed the sale of the COMINT/DF operation. The
COMINT/DF business was treated as a discontinued operation
in the financial statements.
The Company's balance sheets at June 30, 2005 and December
31, 2004 reflect the assets and liabilities of the
COMINT/DF operation, as assets and liabilities of the
discontinued operation within current assets and current
liabilities.
The carrying amounts of the major classes of assets and
liabilities included as part of the discontinued operation
are:
<TABLE>
JUNE 30,
2005
−−−−−−−−−−−−−−−−−−−
UNAUDITED
−−−−−−−−−−−−−−−−−−−
Trade receivables $ 653
−−−−−−−−−−−−−−−−−−−
Assets of discontinued operation $ 653
===================
Accrued expenses and other liabilities $ 6
−−−−−−−−−−−−−−−−−−−
Liabilities of discontinued operation $ 6
===================
</TABLE>
Summarized selected financial information of the
discontinued operation is as follows:
<TABLE>
SIX MONTHS ENDED
JUNE 30,
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
2005 2004
−−−−−−−−−−−−−− −−−−−−−−−−−−−−
UNAUDITED
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
Revenues $ − $ 816
============== ==============
Net income $ − $ *) 3,236
============== ==============
</TABLE>
*) Includes gain from the sale in the amount of $ 3,286.
− 10 −
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)
NOTE 1:− GENERAL (CONT.)
d. Basis of preparation:
The accompanying unaudited interim consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial
information. Accordingly, they do not include all the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six
months ended June 30, 2005, are not necessarily indicative of
the results of operations that may be expected for the year
ended December 31, 2005.
NOTE 2:− SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies applied in the annual
financial statements of the Company as of December 31, 2004 are
applied consistently in these financial statements.
a. Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that effect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
b. For further information, refer to the consolidated
financial statements as of December 31, 2004.
c. Stock−based compensation:
The Company follows Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees" and FIN No.
44, "Accounting for Certain Transactions Involving Stock
Compensation" in accounting for its employee stock option plan.
Under APB No. 25, when the exercise price of the Company's
options is less than the market value of the underlying shares
on the date of grant, compensation expense is recognized and
amortized ratably over the vesting period of the options.
The Company adopted the disclosure provisions of Statement of
Financial Accounting Standard ("SFAS") No. 148, "Accounting for
Stock−Based Compensation − Transition and Disclosure", which
amended certain provisions of SFAS No. 123. The Company
continues to apply the provisions of APB No. 25, in accounting
for stock−based compensation.
Pro forma information regarding net income and net earnings per
share is required by SFAS No. 123, "Accounting for Stock−Based
Compensation", and has been determined as if the Company had
accounted for its employee options under the fair value method
prescribed by that statement. The fair value for these options
was estimated at the date of grant using the Black−Scholes
option pricing model with the following assumptions:
NICE SYSTEMS LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)
NOTE 2:− SIGNIFICANT ACCOUNTING POLICIES (CONT.)
<TABLE>
SIX MONTHS ENDED JUNE 30,
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
2005 2004
−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−
UNAUDITED
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
Risk free interest rate 3.8% 2%
Dividend yield 0% 0%
Volatility factor 0.429 0.457
Expected life of the options 3 3
</TABLE>
Pro forma information under SFAS No. 123:
<TABLE>
SIX MONTHS ENDED JUNE 30,
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
2005 2004
−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−
UNAUDITED
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
Net income as reported $ 12,577 $ 10,355
Add: Stock−based compensation expense included in the
determination of net income as reported − −
Deduct: Stock−based compensation expense determined under fair
value method for all awards (3,803) (3,471)
−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−
Pro forma net income $ 8,774 $ 6,884
=============== ================
Basic net earnings per share as
reported $ 0.68 $ 0.60
=============== ================
Diluted net earnings per share as reported $ 0.63 $ 0.56
=============== ================
Pro forma basic net earnings per share $ 0.47 $ 0.40
=============== ================
Pro forma diluted net earnings per share $ 0.44 $ 0.37
=============== ================
</TABLE>
− 12 −
NICE SYSTEMS LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)
NOTE 2:− SIGNIFICANT ACCOUNTING POLICIES (CONT.)
d. Recently issued accounting pronouncements:
On December 16, 2004, the Financial Accounting Standards Board
(FASB) issued Statement No. 123 (revised 2004), "Share−Based
Payment" ("Statement 123R"), which is a revision of FASB
Statement No. 123, "Accounting for Stock−Based Compensation"
("Statement 123"). Generally, the approach in Statement 123R is
similar to the approach described in Statement 123. However,
Statements 123 permitted, but not required, share−based
payments to employees to be recognized based on their fair
values while Statement 123R requires all share−based payments
to employees to be recognized based on their fair values.
Statement 123R also revises, clarifies and expands guidance in
several areas, including measuring fair value, classifying an
award as equity or as a liability and attributing compensation
cost to reporting periods. The new Standard will be effective
for the Company in the first fiscal year beginning after June
15, 2005. The adoption of Statement 123R will have a
significant effect on the Company's results of operations.
In November 2004, the FASB issued SFAS No. 151, "Inventory
Costs, an Amendment of ARB No. 43, Chapter 4". SFAS No. 151
amends Accounting Research Bulletin ("ARB") No. 43, Chapter 4,
to clarify that abnormal amounts of idle facility expense,
freight handling costs and wasted materials (spoilage) should
be recognized as current−period charges. In addition, SFAS No.
151 requires that the allocation of fixed production overheads
to the costs of conversion be based on the normal capacity of
the production facilities. SFAS No. 151 is effective for
inventory costs incurred during fiscal years beginning after
June 15, 2005. The Company does not expect that the adoption of
SFAS No. 151 will have a material effect on its financial
position or results of operations.
NOTE 3:− INVENTORIES
<TABLE>
JUNE 30,
2005
−−−−−−−−−−−−−−−−−−
UNAUDITED
−−−−−−−−−−−−−−−−−−
Raw materials $ 986
Work−in−progress 27
Finished goods 19,283
−−−−−−−−−−−−−−−−−−
$ 20,296
==================
</TABLE>
− 13 −
NICE SYSTEMS LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)
NOTE 4:− CONTINGENT LIABILITIES
a. Legal proceedings
1. On October 19, 2004, CipherActive filed an action against
the Company in the District Court of Tel Aviv, State of
Israel. In this lawsuit, CipherActive claimed that under a
development agreement with the Company, it is entitled to
receive license fees in respect of certain software that it
allegedly developed for the Company and which has been
embedded in one of the Company's products. CipherActive
claimed that it is entitled to license fees in the amount
of $ 600, in addition to the amount of $ 100 already paid
to CipherActive by the Company in respect of such license
fees. In the Company's statement of defense it claimed that
the software developed by CipherActive under the agreement
has not been successful in the market, is no longer
embedded in the Company's product and, therefore,
CipherActive is not entitled to any additional license
fees.
2. In July 2004, the Company's wholly owned subsidiary, STS
Software Systems Ltd. ("STS"), filed a lawsuit in the U.S.
District Court for the Southern District of New York
charging Witness Systems, Inc. ("Witness") with
infringement of one of the Company's VoIP patents in the
U.S, by marketing and selling products that incorporate
methods of detecting, monitoring and recording information
− all fully protected by that patent. STS is seeking an
injunction against Witness, preventing the sale of any
solution that infringes the Company's patent. On the same
day that STS commenced this lawsuit, Witness filed a
declaratory judgment action against STS in the U.S.
District Court for the Northern District of Georgia,
alleging that the same patent is invalid and not infringed.
The lawsuit begun by STS in New York was subsequently
transferred to the Federal Court in Georgia and has been
consolidated with the case brought by Witness. In July,
2005, STS was granted leave to supplement its complaint to
assert that Witness also infringes three other VoIP patents
which were recently issued to STS. Witness has responded by
filing counterclaims asserting that those patents are
invalid and not infringed.
In August 2004, Witness filed a patent infringement action
in the Federal Court for the Northern District of Georgia
against the Company's wholly owned subsidiary NICE Systems,
Inc. Witness subsequently filed an identical action in
February 2005 against NICE in the same court. The two
actions were consolidated in March 2005. Witness accuses
the Company of infringing two U.S patents relating to
certain technology used with some of the Company's
products. Witness is requesting a permanent injunction
against alleged future infringement and damages for past
alleged infringement. The Company has responded to Witness'
claims and has asserted that the patents are invalid and
not infringed. At this stage, the Company cannot predict
the outcome of the case, nor can it make any estimate of
the amount of damages, if any, for which it will be held
responsible in the event of a negative conclusion to the
claim.
3. The U.S Consumer Product Safety Commission has brought to
the Company's attention and provided it an opportunity to
comment on an alleged incident of a fire allegedly
involving a NICE product used in a school building in the
Evesham New Jersey School District. The Company has
retained specialized counsel and engineering consultants
and has investigated this matter. The Company believes,
based on this investigation and on the facts known at
present, that it is not expected that this matter will
result in any regulatory action.
− 14 −
NICE SYSTEMS LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)
NOTE 5: − GEOGRAPHIC INFORMATION
a. Summary information about geographic areas:
The Company manages its business on a basis of one reportable
segment. See Note 1a for a brief description of the Company's
business. Total revenues are attributed to geographic areas
based on the location of end customers.
The following presents total revenues and long−lived assets for
the six months ended June 30, 2004, 2005 and for the year ended
December 31, 2004:
<TABLE>
JUNE 30, 2005 JUNE 30, 2004
−−−−−−−−−−−−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−−−−−−−−−−−−
UNAUDITED UNAUDITED
−−−−−−−−−−−−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−−−−−−−−−−−−
TOTAL LONG−LIVED TOTAL LONG−LIVED
REVENUES ASSETS REVENUES ASSETS
−−−−−−−−−−−−− −−−−−−−−−−−−−− −−−−−−−−−−−−− −−−−−−−−−−−−−−
Americas $ 67,683 $ 42,994 $ 58,346 $ 9,715
EMEA (* 46,840 25,190 43,645 18,960
Far East 22,511 196 16,561 125
Israel 1,318 22,822 1,060 28,218
−−−−−−−−−−−−− −−−−−−−−−−−−−− −−−−−−−−−−−−− −−−−−−−−−−−−−−
$ 138,352 $ 91,202 $ 119,612 $ 57,018
============= ============== ============= ==============
</TABLE>
*) Includes Europe, the Middle East (excluding Israel) and
Africa.
b. Product lines:
Total revenues from external customers on the basis of the
Company's product lines are as follows:
<TABLE>
SIX MONTHS ENDED
JUNE 30,
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
2005 2004
−−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−−
UNAUDITED
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
Enterprise Interaction Solutions $ 106,473 $ 90,752
Public Safety and Security sector 31,879 28,860
−−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−−
$ 138,352 $ 119,612
=================== ===================
c. Major customers data as a percentage of total revenues:
Customer A 24.7% 18.5%
=================== ===================
</TABLE>
− 15 −
NICE SYSTEMS LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)
NOTE 6:− EARNINGS PER SHARE
The following table sets forth the computation of basic and
diluted net earnings per share:
1. Numerator:
<TABLE>
SIX MONTHS ENDED
JUNE 30,
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
2005 2004
−−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−−
UNAUDITED
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
Numerator for basic and diluted net earnings per
share −
Net income from continuing operations $ 12,577 $ 7,119
Net income from discontinued operation − 3,236
−−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−−
Net income available to Ordinary shareholders $ 12,577 $ 10,355
=================== ===================
2. Denominator (in thousands):
Denominator for basic net earnings per share −
Weighted average number of shares 18,590 17,251
−−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−−
Effect of dilutive securities:
Add − Employee stock options 1,487 1,305
Add − Employee Stock Purchase Plan 6 5
−−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−−
Denominator for diluted net earnings per share −
adjusted weighted average shares assuming
exercise of options 20,083 18,561
=================== ===================
NOTE 7:− TOTAL COMPREHENSIVE INCOME
Net income $ 12,577 $ 10,355
Unrealized gains on derivative instruments, net (297) 41
Foreign currency translation adjustments (1,851) 99
−−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−−
Total comprehensive income $ 10,429 $ 10,495
=================== ===================
</TABLE>
− − − − − − − − − −
− 16 −
==> picture [78 x 32] intentionally omitted <==
NICE SYSTEMS LTD (NICE)
8 HAPNINA STREET P.O.B. 690 RA'ANANA, L3 43107 972−9−775−37 http://www.nice.com/
EX−99.2
OPERATING & FINANCIAL REVIEW 6−K Filed on 08/26/2005 − Period: 08/26/2005 File Number 000−27466
==> picture [50 x 17] intentionally omitted <==
® Information Provided by Global Securities Information, Inc. 800.669.1154 www.gsionline.com
LIVEDGAR
EXHIBIT 99.2
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
We may from time to time make written or oral forward−looking
statements, including in filings with the United States Securities and Exchange
Commission ("SEC"), in reports to shareholders and in press releases and
investor webcasts. You can identify these forward−looking statements by use of
words such as "strategy", "expects", "continues", "plans", "anticipates",
"believes", "may", "estimates", "intends", "projects", "goals", "targets", and
other words of similar meaning. You can also identify them by the fact that they
do not relate strictly to historical or current facts.
We cannot assure you that any forward−looking statement will be
realized, although we believe we have been prudent in our plans and assumptions.
Achievement of future results is subject to risks, uncertainties and inaccurate
assumptions. Should known or unknown risks or uncertainties materialize, or
should underlying assumptions prove inaccurate, actual results could vary
materially from those anticipated, estimated or projected. Investors should bear
this in mind as they consider forward−looking statements and whether to invest
or remain invested in NICE Systems Ltd.'s securities. The forward−looking
statements relate to, among other things: operating results; anticipated cash
flows; gross margins; adequacy of resources to fund operations; our ability to
maintain our average selling prices despite the aggressive marketing and pricing
strategies of our competitors; our ability to maintain and develop profitable
relationships with our key distribution partners, one of which constitutes 24.7%
of our revenues for the six−month period ended June 30, 2005; the financial
strength of our key distribution partners; and the market's acceptance of our
technologies, products and solutions.
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, we are identifying important factors
that, individually or in the aggregate, could cause actual results and outcomes
to differ materially from those contained in any forward−looking statements made
by us; any such statement is qualified by reference to the following cautionary
statements. Please read the section entitled "Factors That May Affect Future
Results" in our annual report on Form 20−F to review conditions that we believe
could cause actual results to differ materially from those contemplated by the
forward−looking statements. You should understand that it is not possible to
predict or identify all risk factors. Consequently, you should not consider the
following to be a complete discussion of all potential risks or uncertainties.
Readers are cautioned not to place undue reliance on these forward−looking
statements, which reflect our view only as of June 30, 2005 unaudited interim
financial reports. Except as required by law, we undertake no obligation to
update these forward−looking statements to reflect future events or
circumstances or the occurrence of unanticipated events.
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the interim financial
statements for the period ended June 30, 2005 and in conjunction with our
consolidated financial statements and the related notes and other financial
information included in our 20−F for the year ended December 31, 2004.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The critical accounting policies described in Item 5 in the Company's
Annual Report on Form 20−F are those that are both most important to the
portrayal of the Company's financial position and results of operations, and
require management's most difficult, subjective or complex judgments. As of June
30, 2005, there have been no material changes to any of the critical accounting
policies contained therein.
RESULTS OF OPERATIONS
The following table sets forth selected consolidated income statement
data for NICE for each of the six month periods ended June 30, 2005 and 2004
expressed as a percentage of total revenues. Figures may not add up due to
rounding.
<TABLE>
SIX MONTHS ENDED JUNE 30,
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
2004 2005
−−−−−−−−−− −−−−−−−−−−−−−−
Revenues
Products 71.5 % 68.6 %
Services 28.5 31.4
−−−−−−−−−− −−−−−−−−−−−−−−
100.0 100.0
Cost of revenues
Products* 35.8 32.5
Services* 71.5 69.7
−−−−−−−−−− −−−−−−−−−−−−−−
46.0 44.2
Gross Profit 54.0 55.8
Operating expenses
Research and development, net 10.4 9.9
Selling and marketing 25.4 24.6
General and administrative 13.1 12.5
Amortization of acquired intangibles 0.1 0.2
−−−−−−−−−− −−−−−−−−−−−−−−
Total operating expenses 49.1 47.1
Operating income 5.0 8.7
Financial income, net 1.7 1.7
−−−−−−−−−− −−−−−−−−−−−−−−
Income before taxes 6.7 10.3
Taxes on income 0.7 1.2
−−−−−−−−−− −−−−−−−−−−−−−−
Net income from continuing operations 6.0 9.1
−−−−−−−−−− −−−−−−−−−−−−−−
Net income from discontinued operations 2.7
−−−−−−−−−− −−−−−−−−−−−−−−
Net income 8.7 9.1
========== ==============
</TABLE>
−−−−−−−−−−−−−−−
* percent of related revenue
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
REVENUES
Our total revenues rose approximately 16% to $138.4 million in the
first six months of 2005 from $119.7 million in the same period of 2004.
Enterprise Interaction Solutions revenues were $106.5 million in the first half
of 2005, an increase of 17% from the same period of the prior year, and revenues
from sales to the public safety and security market were $31.9 million, an
increase of 10% from the prior year. We believe that our growth in revenues was
due primarily to market share gains in these markets and market growth and to a
lesser extent to the inclusion of Dictaphone Corporation's
Communications Recordings Systems division ("Dictaphone CRS business") beginning
on June 1, 2005.
SIX MONTHS ENDED JUNE 30,
−−−−−−−−−−−−−−−−−−−−−−−−−
2004 2005 $ CHANGE % CHANGE
−−−− −−−− −−−−−−−− −−−−−−−−
Product Revenues $85.6 $95.0 9.4 11.0 %
Service Revenues 34.1 43.4 9.3 27.3
−−−− −−−− −−− −−−−
TOTAL REVENUES $119.7 $138.4 18.7 15.6 %
The increase in product revenues was due primarily to higher sales of
our multimedia platforms and applications to enterprise market and public safety
institutions. There can be no assurance that we will continue to experience
market share gains, or that our new products will be broadly accepted, or that
given weak fiscal spending, we will continue to report growth in our platform
and related software applications.
The increase in services revenues was generated by an increasing
portion of our installed base engaging us for maintenance services and higher
installation and training revenues related mainly to the increase in product
sales to the enterprise market. Service revenues represented 31% of total
revenues compared with approximately 29% in 2004. Although we typically generate
lower profit margins on services than on products, our strategy is to continue
to grow our global services business, which we believe increases the
competitiveness of our product offerings, and thus expect services to represent
a growing portion of total revenues in the future. Our long−term target is for
services to be higher than 30% of total revenues.
Revenues in the first half of 2005 in the Americas, which includes the
United States, Canada and Latin and South America, rose 16% to $67.7 million
from $58.3 million in the first half of 2004. The increase was largely
attributable to higher post−contract support and the inclusion of Dictaphone CRS
business beginning on June 1, 2005. Sales to Europe, Middle East and Africa
("EMEA") rose 8% to $48.2 million in the first half of 2005 from $44.7 million
in the first half of 2004. The increase was due mainly to higher sales to the
security market and post−contract support. Sales to Asia−Pacific ("APAC")
increased 36% to $22.5 million in the first half of 2005 from $16.6 million in
the first half of 2004 due mainly to higher sales to the enterprise market in
the region.
COST OF REVENUES:
SIX MONTHS ENDED JUNE 30,
−−−−−−−−−−−−−−−−−−−−−−−−−
2004 2005 $ CHANGE % CHANGE
−−−− −−−− −−−−−− −−−−−−
Cost of Product Revenues $30.6 $30.9 0.3 1.0 %
Cost of Service Revenues 24.4 30.2 5.8 23.8
−−−− −−−− −−− −−−−
TOTAL COST OF REVENUES $55.0 $61.1 6.1 11.1 %
Cost of product revenues increased slightly on a dollar basis while
decreasing as a percentage of product revenues. The slight increase was due
mainly to the higher sales volume. Cost of services revenue increased on a
dollar basis while decreasing as a percentage of service revenues. The increase
was due principally to higher labor, subcontractor and material costs associated
with the growth in product installations and maintenance contracts.
GROSS PROFIT
SIX MONTHS ENDED JUNE 30,
−−−−−−−−−−−−−−−−−−−−−−−−−−
2004 2005 $ CHANGE % CHANGE
−−−− −−−− −−−−−− −−−−−−
Gross Profit on Product Revenues $54.9 $64.0 9.1 16.6%
as a percentage of product
revenues 64.1% 67.4%
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
Gross Profit on Service Revenues 9.7 13.2 3.5 36.1
as a percentage of service
revenues 28.4% 30.4%
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
TOTAL GROSS PROFIT $64.6 $77.2 12.6 19.5%
as a percentage of total revenues 54.0% 55.8%
The improvement in gross profit on product revenues was due primarily
to the higher sales volume, product cost reductions and a higher proportion of
software in the product mix. The improvement in gross profit margin on services
revenue reflects improved staff utilization and efficiencies. On a
forward−looking basis, we expect our gross margins to increase gradually to the
extent that we are successful in realizing the benefit of a growing proportion
of software applications in our product revenue mix, higher volume and improved
efficiencies in our global service operations.
EXPENSES
SIX MONTHS ENDED JUNE 30,
−−−−−−−−−−−−−−−−−−−−−−−−−
2004 2005 $ CHANGE % CHANGE
−−−− −−−− −−−−−− −−−−−−
Research and development, net $12.4 $13.8 1.4 11.3
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
Selling and marketing 30.4 34.0 3.6 11.8
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
General and administrative 15.7 17.2 1.5 9.6
Amortization of acquired
intangible assets 0.2 0.2 0 0
RESEARCH AND DEVELOPMENT, NET. Research and development expense, before
capitalization of software development costs and grants, increased to $14.9
million in the first six months of 2005 from $13.3 million in the same period of
2004 and represented 10.8% and 11.2% of revenues in the first half of 2005 and
2004, respectively. The increase in gross outlays was due mainly to the increase
of RDlabor costs.
Software development costs capitalized were $0.4 million in the first
six months of 2005 compared with $0.7 million in the same period of 2004.
Amortization of
capitalized software development costs, included in cost of product revenues,
was $1.3 million and $1.9 million in first half of 2005 and 2004, respectively.
SELLING AND MARKETING EXPENSES. The increase in selling and marketing
expenses was due primarily to an increase in our corporate and regional sales
and marketing efforts, higher sales commissions resulting mainly from the
increase in sales and to the inclusion of Dictaphone CRS business beginning on
June 1, 2005. Selling and marketing expenses represented 24.6% of total revenues
in the first six months of 2005 compared with 25.4% in the same period of 2004.
We expect that we will continue to leverage our global sales and distribution
infrastructure by increasing our corporate and regional marketing efforts in the
future.
GENERAL AND ADMINISTRATIVE EXPENSES. The increase in general and
administrative expenses in the first half of 2005 was due principally to an
increase in labor costs and legal expenses. General and administrative expenses
represented 12.5% of total revenues in the first half of 2005 compared with
13.1% in the first half of 2004. On a forward−looking basis, general and
administrative expenses, while increasing on an absolute dollar basis, are
expected to decline as a percentage of total revenues.
FINANCIAL AND OTHER INCOME
SIX MONTHS ENDED JUNE 30,
−−−−−−−−−−−−−−−−−−−−−−−−−
2004 2005 $ CHANGE % CHANGE
−−−− −−−− −−−−−−−− −−−−−−−−
Financial income $2.1 $2.3 0.2 9.5
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
FINANCIAL INCOME, NET. The increase in financial income, net reflects a
higher average cash balance and higher prevailing average interest rates in 2005
compared with 2004.
TAXES ON INCOME In the first six months of 2005, we recorded a
provision for income taxes of $1.7 million compared with $0.9 million in the
same period of 2004. The increase was primarily related to the increase in
operating profits and a slight increase in the company effective tax rate as a
result of profit recorded at certain distribution subsidiaries and utilization
of NOL in 2004. We expect that the company effective tax rate will continue to
increase moderately in the future.
NET INCOME FROM CONTINUING OPERATIONS. Net income from continuing
operations was $12.6 million in the first half of 2005 compared with $7.1
million in the same period of 2004. The increase in 2005 resulted primarily from
the increase in revenues and gross margin.
NET INCOME FROM DISCONTINUED OPERATIONS. Net income from the
discontinued operation of our COMINT/DF military−related business was $0 in the
first six months of 2005 and approximately $3.2 million (including gain on
disposition) in the first six months of 2004.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed our operations through cash generated
from operations and sales of equity securities. Generally, we invest our excess
cash in instruments that are highly liquid, investment grade securities. At June
30, 2005, we had approximately $169.3 million of cash and cash equivalents and
short and long−term investments compared with $135.8 million at June 30, 2004.
The increase in 2005 was due to higher net income and the proceeds from the
issuance of shares upon the exercise of stock options and under our employee
share purchase plan partly offset by the acquisition of Dictaphone CRS business.
Cash provided by operating activities of continuing operations was
$32.0 million and $15.8 million in the first six months of 2005 and 2004,
respectively. The improvement in 2005 compared with 2004 was primarily
attributable to higher net operating income and increase in accrued expenses and
other liabilities.
Net cash used in investing activities from continuing operations was
$35.0 million and $36.4 million in the first half of 2005 and 2004,
respectively. In June 2005, we paid $38.9 million for the Dictaphone CRS
business (including acquisition related costs). Capital expenditures were $2.7
million in the first six months of 2005 and $3.2 million in the same period of
2004. Capital expenditures in 2005 and 2004 included investment in back−office
IT systems, equipment for research and development and testing purposes, and
general computer equipment. As of June 30, 2005, we had no material commitment
for capital expenditures.
Net cash provided by financing activities was $11.5 million and $9.9
million in the first six months of 2005 and 2004, respectively, almost entirely
as a result of net proceeds from the issuance of shares upon the exercise of
stock options and under our employee share purchase plan. As of June 30, 2005,
we had authorized credit lines from banks in the amount of $132 million. When
utilized, the credit lines will be denominated in dollars and will bear interest
at the rate of up to LIBOR + 1.5 % per year. An amount of $110 million out of
the total credit lines is secured by our marketable securities. There are no
financial covenants associated with these credit lines. As of June 30, 2005,
$6.3 million of the $132 million referred to above was used for bank guarantees.
We believe that based on our current operating forecast, the
combination of existing working capital, expected cash flows from operations and
available credit lines will be sufficient to finance our ongoing operations for
the next twelve months. This belief takes into consideration the steps we have
taken to limit certain customer−related risks through insuring a significant
portion of our accounts receivable and achieving ISO 9000−2001 certification to
help ensure the quality of our products and services, which in turn lowers our
exposure to certain commercial risks. Depending upon our future growth, the
success of our business initiatives and acquisition opportunities, and our
transition towards an enterprise software business model, we will consider from
time to
time various financing alternatives and may seek to raise additional capital to
finance our strategic efforts through debt or equity financing, the sale of
non−strategic assets or entry into strategic arrangements.
==> picture [78 x 32] intentionally omitted <==
NICE SYSTEMS LTD (NICE)
8 HAPNINA STREET P.O.B. 690 RA'ANANA, L3 43107 972−9−775−37 http://www.nice.com/
EX−99.3
AUDITED FINANCIAL STATEMENTS 6−K Filed on 08/26/2005 − Period: 08/26/2005 File Number 000−27466
==> picture [50 x 17] intentionally omitted <==
® LIVEDGAR Information Provided by Global Securities Information, Inc. 800.669.1154 www.gsionline.com
EXHIBIT 99.3
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT AUDITORS
CRS DIVISION
(A business unit of Dictaphone Corporation)
As of and for the years ended December 31, 2004 and 2003 and as of and
for the nine−months ended December 31, 2002
CRS DIVISION
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT AUDITORS
As of December 31, 2004, 2003 and 2002 and for the periods then ended
C O N T E N T S
Page(s)
Report of Independent Auditors 2
Financial Statements
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6 − 16
1
[PRICEWATERHOUSECOOPERS LOGO]
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
To the Board of Directors and Stockholders of Dictaphone Corporation:
In our opinion, the accompanying balance sheets and the related statements of
operations and of cash flows present fairly, in all material respects, the
financial position of the CRS Division of Dictaphone Corporation ("CRS") as of
December 31, 2004, December 31, 2003 and December 31, 2002, and the results of
their operations and their cash flows for the years ended December 31, 2004 and
December 31, 2003 and the nine months ended December 31, 2002 in conformity with
accounting principles generally accepted in the United States of America. 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 audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States of America. 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
As discussed in Notes 2 and 3, the financial statements of CRS have been derived
from the financial statements and accounting records of the Dictaphone
Corporation using the historical results of operations and the historical
carrying values of assets and liabilities of CRS and may not reflect CRS's
results of operations, financial position and cash flows as a stand−alone
entity.
/s/ PricewaterhouseCoopers LLP
August 15, 2005
2
CRS DIVISION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2004 2003 2002
−−−−−−−−−−−− −−−−−−−−−−−− −−−−−−−−−−−−
ASSETS
Current assets:
Accounts receivable, net $17,329 $15,447 $15,481
Inventories 7,270 6,656 6,248
Other current assets 1,504 1,463 542
−−−−−−− −−−−−−− −−−−−−−
Total current assets 26,103 23,566 22,271
Property, plant and equipment, net 1,409 2,056 1,664
Excess reorganization value and goodwill 12,846 28,096 28,096
Intangible assets, net 18,683 19,911 19,005
−−−−−−− −−−−−−− −−−−−−−
TOTAL ASSETS $59,041 $73,629 $71,036
======= ======= =======
LIABILITIES AND NET INVESTMENT
Current liabilities:
Accounts payable $ 1,628 $ 1,568 $ 2,278
Accrued liabilities 4,011 4,472 3,969
Current portion of deferred revenue 11,132 9,775 10,670
Other current liabilities 2,337 870 1,345
−−−−−−− −−−−−−− −−−−−−−
Total current liabilities 19,108 16,685 18,262
Deferred revenue 5,407 5,394 5,401
−−−−−−− −−−−−−− −−−−−−−
Total liabilities 24,515 22,079 23,663
−−−−−−− −−−−−−− −−−−−−−
Commitments and contingencies
Net investment:
Dictaphone net investment in CRS 34,526 51,550 47,373
−−−−−−− −−−−−−− −−−−−−−
TOTAL LIABILITIES AND NET INVESTMENT $59,041 $73,629 $71,036
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
3
CRS DIVISION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2004 2003 2002
−−−−−−−−−−−− −−−−−−−−−−−− −−−−−−−−−−−−
REVENUES:
Product sales $29,859 $31,491 $29,540
Support and maintenance services 34,328 35,093 31,911
Other 1,000 9,000 −−
−−−−−−−− −−−−−−− −−−−−−−
Total revenues 65,187 75,584 61,451
−−−−−−−− −−−−−−− −−−−−−−
COSTS AND EXPENSES:
Cost of sales 18,092 18,056 15,858
Cost of service 18,791 19,843 13,662
Selling, general and administrative 26,606 29,612 22,793
Research and development 3,512 4,007 2,156
Depreciation 1,000 802 502
Amortization of intangibles 3,837 3,096 1,932
Impairment of intangibles 15,250 −− −−
−−−−−−−− −−−−−−− −−−−−−−
Total costs and expenses 87,088 75,416 56,903
−−−−−−−− −−−−−−− −−−−−−−
(LOSS) INCOME BEFORE INCOME TAXES (21,901) 168 4,548
Provision for income taxes (196) (75) (73)
−−−−−−−− −−−−−−− −−−−−−−
NET (LOSS) INCOME $(22,097) $ 93 $ 4,475
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
4
CRS DIVISION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2004 2003 2002
−−−−−−−−−−−− −−−−−−−−−−−− −−−−−−−−−−−−
OPERATING ACTIVITIES:
Net (loss) income $(22,097) $ 93 $ 4,475
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization 4,837 3,898 2,434
Provision for doubtful accounts receivable 262 402 493
Impairment of intangibles 15,250 −− −−
Changes in assets and liabilities:
Accounts receivable (2,053) (368) 3,683
Inventories (404) (408) (1,940)
Accounts payable and accrued liabilities 61 (207) (2,869)
Deferred revenue 1,370 (903) 122
Other current liabilities 1,467 (465) (1,483)
Other (26) (1,011) 264
−−−−−−−− −−−−−−−− −−−−−−−−
Net cash (used in) provided by operating activities (1,333) 1,031 5,179
−−−−−−−− −−−−−−−− −−−−−−−−
INVESTING ACTIVITIES:
Software development (2,494) (4,002) (3,180)
Net investment in fixed assets (353) (1,193) (119)
Acquisition of Switzerland distributor −− (52) (512)
−−−−−−−− −−−−−−−− −−−−−−−−
Net cash used in investing activities (2,847) (5,247) (3,811)
−−−−−−−− −−−−−−−− −−−−−−−−
FINANCING ACTIVITIES:
Net financing provided by (repaid to) Dictaphone 4,180 4,216 (1,368)
−−−−−−−− −−−−−−−− −−−−−−−−
Net cash provided by (used in) financing activities 4,180 4,216 (1,368)
−−−−−−−− −−−−−−−− −−−−−−−−
Changes in cash −− −− −−
−−−−−−−− −−−−−−−− −−−−−−−−
Cash and cash equivalents, beginning of period −− −− −−
−−−−−−−− −−−−−−−− −−−−−−−−
Cash and cash equivalents, end of period $ −− $ −− $ −−
======== ======== ========
Supplemental disclosure of cash flow information:
Income taxes paid $ 70 $ 165 $ 58
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
NOTE 1 − NATURE OF OPERATIONS
The CRS Division ("CRS"), a business unit of Dictaphone Corporation
("Dictaphone"), is a leader in the development, sale and service of
communications recording systems. CRS's products are used primarily by
public safety agencies (such as 911 centers, fire departments, police
departments and prison facilities), financial institutions (such as banks,
mutual funds and brokerage houses) and customer call centers. Customers use
CRS's products for critical applications involving the recording and
archiving of telephone conversations or other voice broadcasts to protect
against financial or other liability relating to misinterpreted telephone
conversations as well as to monitor applications and evaluate the quality
of customer call center employees' performances.
The CRS Division is headquartered in Stratford, Connecticut, and has
marketing, sales, service and support organizations in the United States,
United Kingdom, Canada and Europe. The CRS Division markets its products
worldwide with approximately 78%, 77% and 75% of its revenue generated from
the United States market in 2004, 2003 and 2002, respectively.
As discussed in further detail in Note 14, Dictaphone completed the sale of
the CRS Division to Nice Systems, Inc. on May 31, 2005.
NOTE 2 − SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements of CRS have been derived from the
financial statements and accounting records of Dictaphone using the
historical results of operations and the historical carrying value of
assets and liabilities of the CRS business, adjusted for certain
allocations as further described below. Management believes the assumptions
underlying the financial statements are reasonable. However, the financial
statements contained herein may not necessarily reflect CRS's results of
operations, financial position and cash flows in the future or what the
results of operations, financial position and cash flows would have been
had the CRS business operated as a stand−alone entity. The CRS financial
statements represent the combination of the CRS operations from Dictaphone
and certain of Dictaphone's majority−owned subsidiaries as follows:
Dictaphone Canada Ltd, DSP Inc., Dictaphone International Ltd. (99.99%
owned), Dictaphone Deutschland GmbH, Dictaphone NV, Dictaphone
International A.G., and Dictaphone Europe A.G. (formerly VoiceCom, A.G.,
"VoiceCom"). All intercompany accounts and transactions have been
As further discussed in Note 7, Dictaphone completed a reorganization under
Chapter 11 of the United States Bankruptcy Code when the Plan was confirmed
on March 13, 2002 by the Bankruptcy Court and became effective on March 28,
2002. For financial reporting purposes, Dictaphone used an effective
emergence date of March 31, 2002. The financial statements of Dictaphone
have been prepared and presented in accordance with the American Institute
of Certified Public Accountants Statement of Position 90−7, "Financial
Reporting by Entities in Reorganization under the Bankruptcy Code" ("SOP
90−7"), and in conformity with accounting principles generally accepted in
the United States of America.
The financial statements include allocations of certain Dictaphone shared
expenses. Shared expenses include corporate expenses which are included in
selling, general and administrative and customer support expenses included
in cost of sales and service. Shared expenses have been allocated based on
CRS's sales in relationship to Dictaphone's consolidated sales and on CRS's
service hours and service call activity in relationship to Dictaphone's
consolidated service hours and service call activity. CRS's allocated
selling, general and administrative expenses primarily include accounting
services, real estate costs, legal costs, pension costs and human resources
costs. Shared expenses allocated to CRS for cost of sales and service
include professional services, technical support and in−house repairs.
Management believes the amount of allocated Dictaphone shared expenses is a
reasonable representation of the services performed on behalf of or
benefited by the CRS business. The financial statements do not include any
allocation of interest costs due to Dictaphone's centralized approach to
cash management. If interest expense had been recorded, by allocating
Dictaphone's total interest bearing debt to CRS based upon CRS' net assets
as a percentage of Dictaphone's net assets, and an interest rate of 10%,
interest expense for the years ended December 31, 2004 and 2003 and the
nine−month period ending December 31, 2002 would have been approximately
$1.4 million, $1.4 million and $1.0 million, respectively.
6
CRS BUSINESS UNIT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
A summary of direct costs that can be specifically attributable to CRS, and
allocated costs for the years ended December 31, 2004 and 2003 and the
nine−month period ended December 31, 2002 is as follows (in thousands):
<TABLE>
December 31, 2004 December 31, 2003 December 31, 2002
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
Cost of sales Selling, general Cost of sales Selling, general Cost of sales Selling, general
and service &administrative and service &administrative and service &administrative
−−−−−−−−−−−−− −−−−−−−−−−−−−−−− −−−−−−−−−−−−− −−−−−−−−−−−−−−−− −−−−−−−−−−−−− −−−−−−−−−−−−−−−−
Direct costs $21,697 $16,207 $20,378 $17,541 $18,597 $11,723
Allocated costs 15,186 10,399 17,521 12,071 10,923 11,070
−−−−−−− −−−−−−− −−−−−−− −−−−−−− −−−−−−− −−−−−−−
Total $36,883 $26,606 $37,899 $29,612 $29,520 $22,793
======= ======= ======= ======= ======= =======
</TABLE>
In addition, CRS purchased $13.6 million, $13.0 million and $10.7 million,
respectively, of inventory at fair market value from Dictaphone for the
years ended December 31, 2004 and 2003 and the nine−month period ended
December 31, 2002. These purchases have been included in CRS's cost of
sales or inventory, as appropriate.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent liabilities
at the date of the financial statements and the reported amounts of
expenses during the reporting period. The estimates and assumptions used in
the accompanying consolidated financial statements are based upon
management's evaluation of the relevant facts and circumstances as of the
date of the financial statements. Actual results could differ from those
estimates. The most significant estimates relate to the allowance for
doubtful accounts, inventory valuation provisions, the fair value of assets
and liabilities upon emergence from the Chapter 11 bankruptcy, property,
plant &equipment and intangible asset impairment, tax liabilities and
allocation of shared expenses.
Cash and cash equivalents
Dictaphone uses a centralized approach to cash management and the finance
of its operations. As a result, none of Dictaphone's cash, cash equivalents
or debt at the corporate level is reported at the CRS business level.
Fair value of financial instruments
The recorded values of accounts receivable, accounts payable and accrued
liabilities reflected in the financial statements approximate their fair
values due to the short−term nature of the instruments.
Inventory valuation
Inventories are valued at the lower of cost (determined on a first−in−first
out basis) or market. Provisions are made for estimated obsolescence or
unmarketable inventory in an amount equal to the difference between the
cost of the inventory and the estimated market value based upon assumptions
about future demand and market conditions.
Research and development expenses
All costs incurred to establish the technological feasibility of software
products or product enhancements are expensed as incurred. Research and
development expenses were $3.5 million and $4.0 million for the years ended
December 31, 2004 and 2003, respectively, and $2.2 million for the
nine−month period ended December 31, 2002.
Computer software development costs
The Company records at cost purchased software and capitalizes certain
software costs in accordance with the provisions of Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software
to be Sold, Leased or Otherwise Marketed" ("SFAS 86"), which is included in
intangible assets on the balance sheets (see Note 8). In accordance with
SFAS 86, software development costs are capitalized once a product reaches
technological feasibility until such time the product is released for sale.
Such amounts totaled $2.6 million and $4.0 million for the years ended
December 31, 2004 and 2003, respectively, and $3.2 million for the
nine−month period ended December 31, 2002. Capitalized software development
costs are amortized ratably over their expected life of approximately 36
months. Amortization expense was $1.3 million and $0.6 million for the
years ended December 31, 2004 and 2003, respectively. There was no
amortization expense for the nine−month period ended December 31, 2002
since capitalization of such costs commenced upon emergence from bankruptcy
in March 2002, and no projects were made available for release prior to
2003. Amortization expense of capitalized software development costs is
included in amortization of intangibles in the statements of operations.
7
Property, plant and equipment and depreciation
Property, plant and equipment are stated at cost and depreciated using the
straight−line method over the useful lives of the various assets ranging
from three to twelve years for machinery and equipment. Major improvements
which add to productive capacity or extend the life of an asset are
capitalized while repairs and maintenance are charged to expense as
incurred. As part of the 2002 reorganization and implementation of
fresh−start accounting in accordance with SOP 90−7, Dictaphone adjusted the
historical cost of property, plant, and equipment to its fair value on
In December each year, or whenever events or changes in circumstances
indicated that the carrying amount of such assets or intangibles might not
be recoverable, the CRS Division evaluates its long−lived assets for
impairment in accordance with SFAS 144. No impairment charge was required
as a result of these reviews for any of the periods.
Intangible assets, excess reorganization value and goodwill
In connection with fresh−start accounting, Dictaphone has fair valued
intangibles for patents and technology, which are being amortized over
three to four years, and intangibles for customer service relationships
that are being amortized over seven years. Values ascribed to trade names,
trademarks and excess reorganization value having indefinite lives are not
being amortized but are reviewed annually as of December 31 for impairment
in accordance with SFAS no. 142 (see Notes 7 and 8). Recoverability of
long−lived assets is assessed by a comparison of the carrying amount of the
asset to the estimated discounted future net cash flows expected to be
generated by the asset or the market−value approach. As a result of such
review, management determined that the future cash flows from the business,
which has been adversely effected by continued competitive market
conditions throughout 2004, no longer supported the carrying value of the
goodwill and excess reorganization value attributed to CRS. Accordingly, in
2004, an impairment in the value of this business of $15.3 million was
recorded (see Note 7). There were no impairments for the year ended
December 31, 2003 and for the nine−months ended December 31, 2002.
Intangible assets acquired that are obtained through contractual or legal
right, or are capable of being separately sold, transferred, licensed,
rented or exchanged are recognized as an asset apart from goodwill.
Goodwill and intangibles with indefinite lives are no longer subject to
amortization, but are subject to at least an annual assessment for
impairment by applying a fair−value based test.
Revenue is recognized when earned. The CRS Division records revenue
attributable to the hardware and software elements upon installation and
acceptance from the customer and defers revenue attributable to undelivered
elements, including training, maintenance and product warranties to the
periods in which the related obligations are performed. Vendor−specific
objective evidence exists for each of these undelivered elements and is
derived from the sale prices of each element of the sales arrangement when
sold separately. Revenue from maintenance and support services is
recognized ratably over the relevant contractual period. The CRS Division
may grant sales discounts to customers, which are reflected as a reduction
in the revenue from product sales or services. All amounts billed to a
customer in a sales transaction related to shipping and handling are
included as revenue.
Maintenance contracts
Maintenance contracts (support services) are generally billed in advance;
the related revenue is deferred and amortized ratably into income as earned
over the term of the contract.
Allowance for doubtful accounts
Accounts receivable are stated at amounts due from customers net of
allowance for doubtful accounts, discounts, rebates and allowances.
Accounts outstanding longer than the contractual payment terms are
considered past due. The CRS Division estimate for the allowance for
doubtful accounts is calculated in two steps. First, CRS evaluates specific
accounts where it has information that the customer may not have the
ability to meet its obligations (bankruptcy, etc.) or the obligation is in
dispute (litigation, etc.). In these cases CRS uses its judgment based upon
available facts and circumstances and records a specific reserve. Second, a
reserve is established for all customers based on several factors,
including historical write−offs as a percentage of sales and anticipated
returns. When a receivable balance is known to be uncollectible, such
receivable is written−off.
8
Reserve for cancellations and returns
The CRS Division provides a reserve for maintenance contracts expected to
be cancelled and returns for product sales. All cancellations and returns
are recorded as a reduction of revenue to the extent earned or as a
reduction of deferred revenue. The CRS Division estimates the amount of
maintenance contracts to be cancelled and expected product returns based on
historical experience and known cancellations or returns. As of December
31, 2004, 2003 and 2002, the CRS Division had $1.0 million, $0.8 million
and $0.9 million, respectively, recorded for such cancellations and returns
which is reflected in accrued liabilities on the balance sheets.
Advertising expenses
The CRS Division expenses all advertising costs as incurred and classifies
these costs under selling, general and administrative expenses. Advertising
costs were $0.7 million and $0.6 million, respectively, for the years ended
December 31, 2004 and 2003 and $0.3 million for the nine−month period ended
Historically, the CRS Division's operations have been included in
Dictaphone's consolidated income tax returns. Income tax expense, as
presented herein, has been calculated on a separate return method in
accordance with SFAS No. 109, "Accounting for Income Taxes." The asset and
liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are recognized for operating loss and
tax credit carryforwards and for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the results of
operations in the period of the enactment date. A valuation allowance is
recorded to reduce the carrying amounts of deferred tax assets unless it is
more likely than not that such assets will be realized.
Translation of foreign currencies
Assets and liabilities of foreign operations are translated at the rate of
exchange in effect on the balance sheet date, while income and expenses are
translated at the average rates of exchange prevailing during the period.
As detailed in Note 12, the resulting translation adjustment is reflected
within net investment on the consolidated balance sheet, and the change in
the cumulative translation adjustment is reflected as a separate component
of comprehensive income (loss). Foreign currency gains and losses resulting
from transactions are included in the results of operations.
Recent accounting pronouncements
Exchanges of Nonmonetary Assets: In December 2004, the FASB issued SFAS No.
153, "Exchanges of Nonmonetary Assets." SFAS 153 amends the guidance in
Accounting Principles Board ("APB") Opinion No. 29, "Accounting for
Nonmonetary Transactions," to eliminate the exception for nonmonetary
exchanges of similar productive assets and replaces it with a general
exception for exchanges of nonmonetary assets that do not have commercial
substance. A nonmonetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly as a result
of the exchange. The standard is effective for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. The CRS Division
has historically not had such nonmonetary exchanges and does not anticipate
any such material exchanges in the foreseeable future. Accordingly, the
adoption of SFAS 153 is not expected to be material to the business's
operating results or financial position.
Discontinued Operations: In November 2004, the FASB issued EITF Issue No.
03−13, "Applying the Conditions in Paragraph 42 of FASB Statement No. 144
in Determining Whether to Report Discontinued Operations." EITF Issue No.
03−13 discusses issues pertaining to how an ongoing entity should evaluate
whether the operations and cash flows of a disposed component have been or
will be eliminated from the ongoing operations of the entity as well as the
types of continuing involvement that constitute significant continuing
involvement in the operations of the disposed component. EITF Issue No.
03−13 should be applied to a component of an enterprise that is either
disposed of or classified as held for sale in fiscal periods beginning
after December 15, 2004. EITF 03−13 is not expected to be material to the
business's operating results or financial position.
Equity Accounting: In July 2004, the FASB issued EITF Issue No. 02−14,
"Whether an Investor Should Apply the Equity Method of Accounting to
Investments Other Than Common Stock." EITF Issue No. 02−14 discusses issues
pertaining to investors who have the ability to exercise significant
influence over the operating and financial policies of an investee and
indicated that this type of investor should apply the equity method of
accounting only when it has an investment in common stock and/or an
investment that is in−substance common stock. EITF Issue No. 02−14 defines
in−substance common stock
CRS BUSINESS UNIT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
and provides related guidance. EITF Issue No. 02−14 became effective for
reporting periods after September 15, 2004. The CRS Division does not have
investments in common stock or investments that could be considered
in−substance common stock and, therefore, the adoption of EITF Issue No.
02−14 had no material impact on the business's operating results or
financial position.
Postretirement Benefits: In May 2004, the FASB issued Staff Position No.
FAS 106−2, "Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003," which
provides guidance on accounting for the new Medicare prescription drug
legislation. The CRS Division is not affected by this pronouncement since
it provides a fixed subsidy to retirees.
NOTE 3 − DICTAPHONE NET INVESTMENT IN CRS, RELATED PARTY TRANSACTIONS AND
LIQUIDITY
The CRS Division participates in the centralized cash management system
used by Dictaphone to finance its operations. Cash deposits from CRS are
transferred to Dictaphone on a daily basis and Dictaphone funds CRS as
required. Therefore, no cash or cash equivalents are reflected in the CRS
financial statements.
Dictaphone's investment in the CRS Division includes its investment in CRS
and the net intercompany amount with Dictaphone, reflecting a variety of
transactions discussed below. The following analyzes Dictaphone's
investment in the CRS Division for the periods presented:
<TABLE>
December 31, December 31, December 31,
2004 2003 2002
−−−−−−−−−−−− −−−−−−−−−−−− −−−−−−−−−−−−
Balance at beginning of period $ 51,550 $ 47,373 $ 44,171
Net (loss) income (22,097) 93 4,475
Net intercompany activity 4,180 4,216 (1,368)
Other 893 (132) 95
−−−−−−−− −−−−−−−− −−−−−−−−
Balance at end of period $ 34,526 $ 51,550 $ 47,373
======== ======== ========
</TABLE>
Included as a component of the Dictaphone net investment in CRS are net
cash advances from Dictaphone to CRS and general and administrative
expenses allocated from Dictaphone to CRS. No interest expense on net
advances from Dictaphone to CRS has been reflected in the accompanying
financial statements. In 2004 and 2003, CRS incurred a net loss and
generated negative operating cash flow. As a result, Dictaphone was
required to provide cash advances to CRS. Dictaphone continued to fund
operating cash requirements of CRS through the date of disposal (see Note
14).
10
CRS BUSINESS UNIT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
NOTE 4 − ACCOUNTS RECEIVABLE
Accounts receivable consist of the following (in thousands):
<TABLE>
December 31, December 31, December 31,
2004 2003 2002
−−−−−−−−−−−− −−−−−−−−−−−− −−−−−−−−−−−−
Trade receivables $18,566 $13,404 $18,200
Other receivables 1,067 4,400 −−
−−−−−−− −−−−−−− −−−−−−−
Total receivables 19,633 17,804 18,200
Less allowance for doubtful accounts (2,304) (2,357) (2,719)
−−−−−−− −−−−−−− −−−−−−−
Accounts receivable, net $17,329 $15,447 $15,481
======= ======= =======
</TABLE>
Changes in the allowance for doubtful accounts for the years ended December
31, 2004 and 2003 and the nine−month period ended December 31, 2002 are as
follows (in thousands):
<TABLE>
Year ended Year ended Nine−months ended
December 31, December 31, December 31,
2004 2003 2002
−−−−−−−−−− −−−−−−−−−− −−−−−−−−−−−−−−−−−
Balance at beginning of period $2,357 $2,719 $2,576
Provision for bad debts 262 402 493
Accounts written off (315) (764) (350)
−−−−−− −−−−−− −−−−−−
Balance at end of period $2,304 $2,357 $2,719
====== ====== ======
</TABLE>
The majority of CRS's receivables were pledged as collateral under
Dictaphone's revolving−credit agreement with GMAC Commercial Finance LLC.
Dictaphone did not have any borrowings outstanding under this agreement as
of December 31, 2004. These assets were released from any pledges at the
time of the sale of the CRS Division (See Note 14).
NOTE 5 − INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
December 31, December 31, December 31,
2004 2003 2002
−−−−−−−−−−−− −−−−−−−−−−−− −−−−−−−−−−−−
Raw materials and work in process $1,485 $ 721 $ 959
Supplies and service parts 4,293 4,535 4,090
Finished products 1,492 1,400 1,199
−−−−−− −−−−−− −−−−−−
Total inventories $7,270 $6,656 $6,248
====== ====== ======
</TABLE>
The majority of CRS's inventories are pledged as collateral under
Dictaphone's revolving−credit agreement with GMAC Commercial Finance LLC.
Dictaphone did not have any borrowings outstanding under this agreement as
of December 31, 2004. These assets were released from any pledges at the
time of the sale of the CRS Division (See Note 14).
11
CRS BUSINESS UNIT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
NOTE 6 − PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net consist of the following (in thousands):
<TABLE>
December 31, December 31, December 31,
2004 2003 2002
−−−−−−−−−−−− −−−−−−−−−−−− −−−−−−−−−−−−
Machinery, equipment and other $5,772 $5,528 $3,993
Accumulated depreciation (4,363) (3,472) (2,329)
−−−−−− −−−−−− −−−−−−
Property, plant and equipment, net $1,409 $2,056 $1,664
====== ====== ======
</TABLE>
Depreciation expense was $1.0 million and $0.8 million, respectively, for
the years ended December 31, 2004 and 2003 and $0.5 million for the
nine−month period ended December 31, 2002.
The majority of CRS's property, plant and equipment is pledged as
collateral under Dictaphone's revolving−credit agreement with GMAC
Commercial Finance LLC. Dictaphone did not have any borrowings outstanding
under this agreement as of December 31, 2004. These assets will be released
from any pledges at the time of the sale of the CRS Division (See Note 14).
NOTE 7 − EXCESS REORGANIZATION VALUE AND GOODWILL
Dictaphone was acquired by Lernout &Hauspie Speech Products N.V. ("LH
NV"), a Belgian−based speech and language company, in May 2000. In November
2000, LHNV and certain of its United States subsidiaries, including
Dictaphone, filed voluntary petitions for relief under Chapter 11 of title
11 of the United States Bankruptcy Code in the United States Bankruptcy
Court for the District of Delaware. In connection with the emergence from
bankruptcy, Dictaphone experienced a change in control, whereby the
previous creditors of LHNV acquired the majority interest in the Company.
Dictaphone's emergence from Chapter 11 bankruptcy proceedings on March 28,
2002 resulted in a new reporting entity and adoption of fresh−start
accounting, which required the Company to record its assets and liabilities
at fair value. In conjunction with fresh−start accounting, Dictaphone
recorded excess reorganization value of $27.8 million, which represents the
fair value of the business in excess of the fair values ascribed to the
assets of CRS net of the liabilities assumed.
The following summarizes excess reorganization value and goodwill, assigned
to CRS. for the periods ended December 31, 2004, 2003 and 2002 (in
thousands):
<TABLE>
December 31, December 31, December 31,
2004 2003 2002
−−−−−−−−−−−− −−−−−−−−−−−− −−−−−−−−−−−−
Excess reorganization value $ 27,778 $27,778 $27,778
Acquired goodwill 318 318 318
Impairment (15,250) −− −−
−−−−−−−− −−−−−−− −−−−−−−
Total $ 12,846 $28,096 $28,096
======== ======= =======
</TABLE>
As discussed in Note 2, the Company recorded a $15.3 million impairment
charge in December 2004.
In August 2002, Dictaphone acquired VoiceCom, a distributor of dictation
and communication recording equipment based in Switzerland, for total
consideration and expenses of $1.4 million in cash. Included in the CRS
Division are certain of VoiceCom's assets and $0.3 million of goodwill
recorded in connection with the acquisition.
12
CRS BUSINESS UNIT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
NOTE 8 − INTANGIBLE ASSETS, NET
The following summarizes intangible assets as of December 31, 2004, 2003
and 2002 (in thousands):
<TABLE>
Useful
life December 31, December 31, December 31,
(in years) 2004 2003 2002
−−−−−−−−−− −−−−−−−−−−−− −−−−−−−−−−−− −−−−−−−−−−−−
Unamortizable intangible assets:
Trade name and trademarks indefinite $ 2,443 $ 2,443 $ 2,443
−−−−−−−− −−−−−−−− −−−−−−−−
Amortizable intangible assets:
Patents and technology 4 3,140 3,140 3,140
Capitalized software 3 9,772 7,162 3,180
Customer service relationships 7 12,174 12,174 12,174
−−−−−−−− −−−−−−−− −−−−−−−−
Subtotal 25,086 22,476 18,494
−−−−−−−− −−−−−−−− −−−−−−−−
Total gross intangible assets 27,529 24,919 20,937
−−−−−−−− −−−−−−−− −−−−−−−−
Accumulated amortization:
Patents and technology (2,159) (1,374) (589)
Capitalized software (1,904) (590) (39)
Customer service relationships (4,783) (3,044) (1,304)
−−−−−−−− −−−−−−−− −−−−−−−−
Total accumulated amortization (8,846) (5,008) (1,932)
−−−−−−−− −−−−−−−− −−−−−−−−
Intangible assets, net $ 18,683 $ 19,911 $ 19,005
======== ======== ========
</TABLE>
Amortization expense was $3.8 million and $3.1 million, respectively, for
the years ended December 31, 2004 and 2003 and $1.9 million for the
nine−month period ended December 31, 2002. Estimated annual amortization
expense of the intangibles is approximately $5.2 million, $4.6 million,
$3.8 million, $2.2 million and $0.4 million for the years ended December
31, 2005, 2006, 2007, 2008 and 2009, respectively. No amortization expense
has been estimated for future software development projects where the cost
has not been incurred as of December 31, 2004.
NOTE 9 − ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
December 31, December 31, December 31,
2004 2003 2002
−−−−−−−−−−−− −−−−−−−−−−−− −−−−−−−−−−−−
Sales returns $ 963 $ 820 $ 850
Sales incentives and bonus 942 369 435
Professional fees 333 386 404
Payroll and payroll taxes 293 588 374
Other 1,480 2,309 1,906
−−−−−−− −−−−−−− −−−−−−−
Total accrued liabilities $ 4,011 $ 4,472 $ 3,969
======= ======= =======
</TABLE>
13
CRS BUSINESS UNIT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
NOTE 10 − INCOME TAXES
The provision for income taxes for the years ended December 31, 2004 and
2003 and the nine−month period ended December 31, 2002 consists of the
following (in thousands):
<TABLE>
Year ended Year ended Nine−months ended
December 31, December 31, December 31,
2004 2003 2002
−−−−−−−−−−−− −−−−−−−−−−−− −−−−−−−−−−−−−−−−−
Current provision:
Federal $ −− $ −− $ −−
State −− −− −−
Foreign 196 75 73
−−−−−−− −−−−−−− −−−−−−−
Subtotal 196 75 73
−−−−−−− −−−−−−− −−−−−−−
Deferred benefit:
Federal (1,473) (1,147) (1,626)
State (350) (273) (387)
Foreign −− −− −−
−−−−−−− −−−−−−− −−−−−−−
Subtotal (1,823) (1,420) (2,013)
−−−−−−− −−−−−−− −−−−−−−
Valuation allowance 1,823 1,420 2,013
−−−−−−− −−−−−−− −−−−−−−
Provision for income taxes $ 196 $ 75 $ 73
======= ======= =======
</TABLE>
A reconciliation of income tax expense computed at the United States
Federal statutory rate of 35% and the CRS Division's effective tax rate for
the years ended December 31, 2004 and 2003 and the nine−month period ended
December 31, 2002 is as follows:
<TABLE>
Year ended Year ended Nine−months ended
December 31, December 31, December 31,
2004 2003 2002
−−−−−−−−−−−− −−−−−−−−−−−− −−−−−−−−−−−−−−−−−
Statutory income tax (benefit)/expense $(7,665) $ 59 $ 1,591
State income tax −− −− −−
Foreign operations income tax 196 75 73
Other 125 128 78
Impairment of intangibles 5,355 −− −−
Deferred income taxes 2,185 (187) (1,669)
−−−−−−− −−−−−−− −−−−−−−
Total income tax expense $ 196 $ 75 $ 73
======= ======= =======
</TABLE>
14
CRS BUSINESS UNIT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
The components of the deferred tax assets and liabilities as of December
31, 2004, 2003 and 2002 were as follows (in thousands):
<TABLE>
December 31, December 31, December 31,
2004 2003 2002
−−−−−−−−−−−− −−−−−−−−−−−− −−−−−−−−−−−−
Deferred tax assets:
Net operating loss carryforwards $ 21,904 $ 17,748 $ 11,743
Amortization of intangibles 9,161 10,443 12,287
Advanced billings 798 489 336
Tax credit carryover 1,346 1,033 924
Other 4,764 5,280 6,352
−−−−−−−− −−−−−−−− −−−−−−−−
Total deferred tax assets 37,973 34,993 31,642
−−−−−−−− −−−−−−−− −−−−−−−−
Deferred tax liabilities:
Capitalized software costs (3,809) (2,669) (763)
Other (93) (76) (51)
−−−−−−−− −−−−−−−− −−−−−−−−
Total deferred tax liabilities (3,902) (2,745) (814)
−−−−−−−− −−−−−−−− −−−−−−−−
Valuation allowance (34,098) (32,275) (30,855)
−−−−−−−− −−−−−−−− −−−−−−−−
Net deferred tax liabilities $ (27) $ (27) $ (27)
======== ======== ========
</TABLE>
Deferred income taxes are recognized for temporary differences between
financial statement and income tax bases of assets and liabilities and net
operating loss carryforwards for which income tax expenses or benefits are
expected to be realized in future years. The valuation allowance was
established since, in the opinion of management, it is more likely than not
that all, or some portion, of net deferred tax assets will not be realized.
Upon emergence from bankruptcy, Dictaphone realized cancellation of
indebtedness income ("CODI"), for financial reporting purposes, which is
the amount the indebtedness discharged exceeded the consideration given in
exchange thereof, of which Dictaphone ascribed a portion of the CODI to the
CRS Division. The Internal Revenue Code provides that a debtor emerging
from bankruptcy must reduce certain of its tax attributes such as net
operating loss carryforwards, by certain types of CODI actually realized.
The CRS Division's estimated United States net operating loss carryforwards
at December 31, 2004, as determined on a separate return basis, after
reduction of applicable allocated CODI, are approximately $55.4 million and
foreign net operating loss carryforwards are $2.9 million.
In addition, as a result of the emergence from bankruptcy, Dictaphone
experienced an ownership change pursuant to and as defined by Internal
Revenue Code Section 382 ("IRC 382"). As a result, the CRS Division's
United States net operating loss carryforwards would be subject to the
limitations imposed by IRC 382, as determined on a separate return basis.
Furthermore, as discussed in Note 14, Dictaphone completed the sale of CRS
in May 2005.
NOTE 11 − PATENT SETTLEMENT
On September 19, 2000, Dictaphone filed a complaint (the "Dictaphone
Complaint") in the United States District Court for the District of
Connecticut, on behalf of the CRS Division, against a competitor alleging
that the competitor's products infringe on various CRS digital logger
patents.
On December 11, 2003, a settlement was reached regarding the patent
infringement suit. As part of the settlement, Dictaphone and the competitor
agreed to dismiss all claims and counterclaims against each other and grant
each other a worldwide, royalty−free, perpetual license to certain of their
respective patents including the disputed patents. Additionally, the CRS
Division was to receive payments totaling $10.0 million in several
installments, of which $8.0 million was received within 30 days of the
settlement date ($5.0 million was received in December 2003 and $3.0
million was received in January 2004). The remaining $2.0 million has been
or is to be received in six quarterly installments of $333 thousand
commencing
15
in March 2004, with the final payment due in June 2005 ($1.3 million was
received in 2004). Of the $2.0 million to be paid over such time, $1.0
million was subject to CRS's performance of certain obligations.
Accordingly, for the year ended December 31, 2003, the CRS Division
recognized $9.0 million of this settlement as other revenue, representing
$8.0 million due within 30 days of signing this agreement plus $1.0 million
future payments not subject to future performance obligations. In 2004, the
CRS Division satisfied the remaining performance obligations of the
settlement agreement and the CRS Division recorded an additional $1.0
million as other revenue in 2004. The remaining $0.7 million to be received
is included in accounts receivable as of December 31, 2004.
NOTE 12 − COMPREHENSIVE (LOSS) INCOME
Comprehensive (loss) income includes net (loss) income and all other
changes in equity exclusive of owners' investments and distributions. As
discussed in Note 2, the differences between net (loss) income and
comprehensive net (loss) income are due to translation adjustments related
to foreign operations. Details relating to these translation adjustments
are as follows (in thousands):
<TABLE>
Year ended Year ended Nine−months ended
December 31, 2004 December 31, 2003 December 31, 2002
−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−
Net (loss) income $(22,097) $ 93 $4,475
Translation adjustments (138) (132) 95
−−−−−−−− −−−−−−−− −−−−−−
Total comprehensive (loss) income $(22,235) $ (39) $4,570
======== ======== ======
</TABLE>
NOTE 13 − COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF RISK
Concentrations of Risk
Substantial portions of the CRS Division's revenues are derived from the
sale of products manufactured at Dictaphone's manufacturing facility that
is located in Melbourne, Florida. This manufacturing facility is subject to
the normal hazards of any such facility that could result in damage to the
facility. Any such damage to this facility or prolonged delay in the
operations of this facility for repairs or other reason would have a
materially adverse effect on the business's financial position and results
of operations.
Contingencies
From time to time, the CRS Division may be involved in litigation relating
to claims arising out of its ordinary course of business. Management
believes that there are no claims or actions pending or threatened against
the business, the ultimate disposition of which would have a material
impact on the business's financial position or results of operations, nor
does Management believe that the ultimate resolution of the litigation,
administrative proceedings and environmental matters mentioned above in the
aggregate will have a material adverse effect on the business's financial
position or results of operations.
NOTE 14 − SUBSEQUENT EVENT
As a result of the Company's decision to focus more on its Healthcare
business, the Company committed to a plan to sell its CRS business unit.
Dictaphone completed the sale of the CRS Division on May 31, 2005 to Nice
Systems Ltd., for approximately $38.5 million.
16
==> picture [78 x 32] intentionally omitted <==
NICE SYSTEMS LTD (NICE)
8 HAPNINA STREET P.O.B. 690 RA'ANANA, L3 43107 972−9−775−37 http://www.nice.com/
EX−99.4
UNAUDITED PRO FORMA 6−K Filed on 08/26/2005 − Period: 08/26/2005 File Number 000−27466
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® Information Provided by Global Securities Information, Inc. 800.669.1154 www.gsionline.com
LIVEDGAR
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF
The following unaudited pro forma condensed combined statement of
operations has been prepared to give effect to the acquisition by NICE of
certain assets and liabilities of Dictaphone's Communications Recording Systems
("CRS") business under the purchase method of accounting after giving effect to
the pro forma adjustments described in the accompanying notes.
A pro forma condensed balance sheet as of June 30, 2005, is not
presented since the transaction is already reflected in the consolidated balance
sheet of NICE as of June 30, 2005.
The following unaudited pro forma condensed combined statement of
operations combines the historical statements of operations of NICE and CRS. The
unaudited pro forma condensed combined statement of operations for the year
ended December 31, 2004, gives effect to the acquisition as if it had occurred
on January 1, 2004 and combines the historical audited statement of operations
of NICE for such year and the audited statement of operations of CRS for the
year ended December 31, 2004. The unaudited pro forma condensed combined
statement of operations for the six−month period ended June 30, 2005, gives
effect to the acquisition as if it had occurred on January 1, 2005 and combines
the historical unaudited statement of operations of NICE for such period and the
unaudited statement of operations of CRS for the five−month period ended May 31,
2005 (The results of CRS's operations have been included in the consolidated
financial statements of NICE since the acquisition date − June 1, 2005).
Integration costs are not included in the accompanying unaudited pro forma
condensed combined statement of operations.
This pro forma information should be read in conjunction with the
respective consolidated historical financial statements (including notes
thereto) of NICE, for the year ended December 31, 2004, as presented in our
Annual Report on Form 20−F, which is incorporated by reference herein and the
historical financial statements of CRS included elsewhere herein.
Unaudited pro forma condensed combined financial information is
presented for illustrative purposes only and is not necessarily indicative of
the results of operations that would have actually been reported had the
acquisition occurred at the beginning of the periods presented, nor is it
indicative of future results of operations. This unaudited pro forma condensed
combined statement of operations is based upon the respective historical
financial statements of NICE and CRS and does not incorporate, nor does it
assume, any benefits from cost savings or synergies of the combined company. The
pro forma adjustments are based on available financial information and certain
estimates and assumptions that NICE believes are reasonable and that are set
forth in the notes to the unaudited pro forma condensed combined statements of
operations.
<TABLE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
U.S. DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA)
SIX MONTHS FIVE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED MAY 31, ENDED JUNE 30,
2005 2005 2005
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
PRO FORMA PRO FORMA
NICE CRS ADJUSTMENTS NOTE COMBINED
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−− −−−−−−−−− −−−−−−−−−−−−−−−−−−
Revenues $ 138,352 $ 22,528 $ − (a) $ 160,880
Cost of revenues 61,137 13,093 698 (b) 74,928
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Gross profit (loss) 77,215 9,435 (698) 85,952
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Operating expenses:
Research and development, net 13,756 2,173 − 15,929
Selling, general and administrative 51,220 8,646 − 59,866
Amortization of acquired intangible
assets 244 1,818 551 (c) 2,613
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Total operating expenses 65,220 12,637 551 78,408
−−−−−
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Operating income (loss) 11,995 (3,202) (1,249) 7,544
Financial income (expenses), net 2,297 − (519) (d) 1,778
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Income (loss) before taxes on income 14,292 (3,202) (1,768) 9,322
Taxes on income 1,715 55 (223) (e) 1,547
−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−
Net income (loss) $ 12,577 $ (3,257) $ (1,545) $ 7,775
================== =================== ================= ==================
Net earnings per share:
Basic $ 0.68 $ 0.42
================== ==================
Diluted $ 0.63 $ 0.39
================== ==================
</TABLE>
<TABLE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
U.S. DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA)
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, YEAR ENDED
2004 2004 DECEMBER 31, 2004
−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−−
PRO FORMA PRO FORMA
NICE CRS ADJUSTMENTS NOTE COMBINED
−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−− −−−−−−−−−−−−−−− −−−−−−−−− −−−−−−−−−−−−−−−−−−−
Revenues $ 252,643 $ 65,187 $ (1,000) (a) $ 316,830
Cost of revenues 114,308 36,883 1,675 (b) 152,866
−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−− −−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−−
Gross profit (loss) 138,335 28,304 (2,675) 163,964
−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−− −−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−−
Operating expenses:
Research and development, net 24,866 3,512 − 28,378
Selling, general and administrative 93,123 27,606 − 120,729
Amortization of acquired intangible
assets 318 3,837 1,322 (c) 5,477
Impairment of intangible assets − 15,250 − 15,250
−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−− −−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−−
Total operating expenses 118,307 50,205 1,322 169,834
−−−−−
−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−− −−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−−
Operating income (loss) 20,028 (21,901) (3,997) (5,870)
Financial income (expenses), net 3,556 − (1,168) (d) 2,388
Other income, net 54 − − 54
−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−− −−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−−
Income (loss) before taxes on income 23,638 (21,901) (5,165) (3,428)
Taxes on income 2,319 196 (521) (e) 1,994
−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−− −−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−−
Net income (loss) from continuing
operations 21,319 (22,097) (4,644) (5,422)
Net income from discontinued operation 3,236 − − 3,236
−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−− −−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−−
Net income (loss) $ 24,555 $ (22,097) $ (4,644) $ (2,186)
================= =============== =============== ===================
Net earnings (loss) per share:
Basic:
Continuing operations $ 1.22 $ (0.31)
Discontinued operation 0.18 0.18
−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−−
Net earnings $ 1.40 $ (0.13)
================= ===================
Diluted:
Continuing operations $ 1.14 $ (0.31)
Discontinued operation 0.17 0.18
−−−−−−−−−−−−−−−−− −−−−−−−−−−−−−−−−−−−
Net earnings $ 1.31 $ (0.13)
================= ===================
</TABLE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
U.S. DOLLARS IN THOUSANDS
NOTE 1− GENERAL − BASIS OF PROFORMA PRESENTATION:−
On June 1, 2005, the Company consummated an agreement to acquire the assets and
assume certain liabilities of Dictaphone's Communications Recording Systems
("CRS") business for $ 40,000 (including acquisition costs). Dictaphone's CRS
business is a provider of liability and quality management systems for first
responders, critical facilities, contact centers and financial trading floors.
The acquisition was accounted for by the purchase method and accordingly, the
purchase price has been allocated according to the estimated fair value of the
assets acquired and liabilities assumed of CRS. The results of the CRS's
operations have been included in the consolidated financial statements since
June 1, 2005 ("the closing date").
With the acquisition of CRS, the Company significantly expanded its customer
base, presence in the U.S and Europe, and its network of distributors and
partners. Additionally, the Company broadened its product offerings and global
professional services team.
The following table summarizes the fair values of the assets acquired and
liabilities assumed:
Trade receivables $ 9,087
Other receivables and prepaid expenses 216
Inventories 7,687
Property and equipment 265
Trademarks 400
Core technology 4,900
Distribution network 10,100
Goodwill 25,623
−−−−−−−−−−−−−−−−−
Total assets acquired 58,278
−−−−−−−−−−−−−−−−−
Trade payables (571)
Accrued expenses and other liabilities (17,707)
−−−−−−−−−−−−−−−−−
Total liabilities assumed (18,278)
−−−−−−−−−−−−−−−−−
Net assets acquired $ 40,000
=================
Trademarks, core technology and distribution network in the amount of $ 15,400
are amortized using the straight−line method at an annual weighted average rate
of 19.5%.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
U.S. DOLLARS IN THOUSANDS
NOTE 2 − PRO FORMA ADJUSTMENTS:−
The pro forma condensed combined statement of operations for the year ended
December 31, 2004 and the six−month period ended June 30, 2005 includes the
adjustments necessary to give effect to the acquisition as if it had occurred on
January 1, 2004 and January 1, 2005, respectively. Adjustments included in the
pro forma condensed combined statement of operations are summarized as follows:
-
(a) To eliminate $ 1,000 of revenues from NICE in respect of litigation settlement. -
(b) To record amortization of core technology acquired in the acquisition for the six−month period ended June 30, 2005 and for the year ended December 31, 2004. -
(c) To record amortization of trademarks and distribution network acquired in the acquisition for the six−month period ended June 30, 2005 and for the year ended December 31, 2004. -
(d) To reduce interest income as if the cash paid for the acquisition and acquisition costs, totaling $ 40,000, was paid on January 1, 2005 and 2004, using an interest rate of 3.2% and 3.0%, respectively. -
(e) Tax effect of b, c and d.
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NICE SYSTEMS LTD (NICE)
8 HAPNINA STREET P.O.B. 690 RA'ANANA, L3 43107 972−9−775−37 http://www.nice.com/
EX−99.5 CONSENT OF PWC 6−K Filed on 08/26/2005 − Period: 08/26/2005 File Number 000−27466
==> picture [50 x 17] intentionally omitted <==
® LIVEDGAR Information Provided by Global Securities Information, Inc. 800.669.1154 www.gsionline.com
CONSENT OF INDEPENDENT ACCOUNTANTS
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We consent to the incorporation by reference in the Registration Statements on
Form S−8 (Registration Nos. 333−11842, 333−9352, 333−11154, 333−13686,
333−111112 and 333−111113) and on Form F−3 (Registration Nos. 333−12996,
333−11250 and 333−109766) of our report dated August 15, 2005, with respect to
the consolidated financial statements of CRS Division, a business unit of
Dictaphone Corporation for the years ended December 31, 2004 and 2003 and for
the nine−month period ended December 31, 2002, which is included in this Report
on Form 6−K of NICE−Systems Ltd. for the month of August 2005.
/s/ PricewaterhouseCoopers LLP
Stamford, CT
August 25, 2005
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