item 14 exhibits financial statement schedules reports form 8k pages documents filed part report 2 financial statement schedules none 3 exhibits index exhibits commences following page exhibits numbered 1016 1018 1019 10k 10l 10ddd 10eee 10lll comprise material compensatory plans arrangements registrant exhibit number description 1 applicable 2 applicable 3 articles incorporation bylaws 3a certificate incorporation 3a1 certificate amendment certificate incorporation effective february 26 1993 3a2 certificate amendment certificate incorporation effective january 12 1995 3b bylaws amended 4 instruments defining rights security holders including indentures 4a excerpts certificate incorporation 4a1 excerpt certificate amendment certificate incorporation effective february 26 1993 4a2 excerpt certificate amendment certificate incorporation effective january 12 1995 4b excerpts bylaws amended 4c1 specimen stock certificate incorporated reference exhibits filed annual report form 10k securities exchange act 1934 year ended december 31 1987 exhibit number shown exhibit number document filed annual report incorporated reference exhibits filed annual report form 10k securities exchange act 1934 year ended december 31 1992 exhibit number shown exhibit number document filed annual report incorporated reference exhibits filed registration statement form s1 securities act 1933 registration 339147 exhibit number shown exhibit number document filed registration statement exhibit number description 4d indenture dated november 30 1993 comverse technology inc chase manhattan bank na trustee 4e specimen 514 convertible subordinated debenture due 2003 5 applicable 6 applicable 7 applicable 8 applicable 9 applicable 10 material contracts 107 proxy agreement dated september 5 1991 among comverse government systems corporation james r allen robert w bazley robert marsh comverse technology inc 108 visitation approval procedure agreement dated september 5 1991 among comverse government systems corporation james r allen robert w bazley robert marsh comverse technology inc 1016 form stock option agreement pertaining shares certain subsidiaries comverse technology inc 1017 form asset purchase agreement dated march 1 1994 among comverse technology inc magnasyncmoviola corporation interactive information systems corporation magnasync comverse corporation 1018 employment agreement effective july 1 1994 comverse technology inc kobi alexander incorporated reference exhibits filed annual report form 10k securities exchange act 1934 year ended december 31 1993 exhibit number shown exhibit number document filed annual report incorporated reference exhibits filed annual report form 10k securities exchange act 1934 year ended december 31 1991 exhibit number shown exhibit number document filed annual report exhibit number description 1019 1994 stock option plan 10aa agreement among efrat future technology ltd tadiran israel electronics industries ltd boaz misholi kobi alexander yechiam yemini 10k 1984 incentive stock option plan 10l form incentive stock option agreement 10ggg deed guarantee comverse technology inc bank hapoalim bm dated july 30 1986 10gggg continuing guarantee comverse technology inc bank leumi leisrael bm 10xx patent license agreement efrat future technology ltd vmx inc 10ccc form indemnity agreement comverse technology inc officers directors 10ddd 1987 stock option plan amended 10eee form stock option agreement options incentive stock options 10jjj agreement lease dated september 21 1989 industrial research associates co comverse technology inc 11 statement computation per share earnings included note 2 notes consolidated financial statements incorporated reference exhibits filed registration statement form s1 securities act 1933 registration 339147 exhibit number shown exhibit number document filed registration statement incorporated reference exhibits filed annual report form 10k securities exchange act 1934 year ended december 31 1987 exhibit number shown exhibit number document filed annual report incorporated reference exhibits filed annual report form 10k securities exchange act 1934 year ended december 31 1992 exhibit number shown exhibit number document filed annual report exhibit number description 12 applicable 13 applicable 14 applicable 15 applicable 16 applicable 17 applicable 18 applicable 19 applicable 20 applicable 21 subsidiaries registrant 22 applicable 23 applicable 24 applicable 25 applicable 26 applicable 27 financial data schedule 28 applicable 99 applicable b reports form 8k none compaqcomverse technology inc subsidiaries index consolidated financial statements independent auditors report board directors stockholders comverse technology inc woodbury new york audited accompanying consolidated balance sheets comverse technology inc subsidiaries company december 31 1993 1994 related consolidated statements income stockholders equity cash flows three years period ended december 31 1994 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position comverse technology inc subsidiaries december 31 1993 1994 results operations cash flows three years period ended december 31 1994 conformity generally accepted accounting principles deloitte touche llp new york new york march 4 1995 comverse technology inc subsidiaries consolidated balance sheets december 31 1993 1994 thousands except share data see notes consolidated financial statements comverse technology inc subsidiaries consolidated statements income years ended december 31 1992 1993 1994 thousands except per share data see notes consolidated financial statements comverse technology inc subsidiaries consolidated statements stockholders equity years ended december 31 1992 1993 1994 thousands except share data see notes consolidated financial statements comverse technology inc subsidiaries consolidated statements cash flows years ended december 31 1992 1993 1994 thousands comverse technology inc subsidiaries consolidated statements cash flows years ended december 31 1992 1993 1994 thousands see notes consolidated financial statements comverse technology inc subsidiaries notes consolidated financial statements years ended december 31 1992 1993 1994 1 organization business comverse technology inc comverse together subsidiaries company organized new york corporation october 1984 company engaged design development manufacture marketing support special purpose computer telecommunications systems multimedia communications information processing applications 2 summary significant accounting policies principles consolidation consolidated financial statements include accounts comverse whollyowned majorityowned subsidiaries material intercompany balances transactions eliminated cash equivalents bank time deposits company considers highly liquid investments purchased original maturities three months less cash equivalents bank deposits maturities excess three months classified bank time deposits shortterm investments company adopted statement financial accounting standards 115 accounting certain investments debt equity securities sfas 115 january 1 1994 company classifies marketable securities including us treasury bills availableforsale sfas 115 requires investments debt equity securities classified availableforsale accounted fair value resulting unrealized gains losses reported separate component stockholders equity netoftax basis effect adopting sfas 115 increase stockholders equity 353000 15000 january 1 1994 december 31 1994 respectively concentration credit risk financial instruments potentially expose company concentration credit risk defined statement financial accounting standards 105 consist primarily cash investments accounts receivable company places cash investments high credit quality financial institutions currently invests primarily us government obligations maturities one year less time deposits money market funds placed major international banks financial institutions accounts receivable generally diversified due number commercial government entities comprising companys customer base dispersion across many geographical regions company believes significant concentration credit risk exists respect cash investments accounts receivable inventories stated lower cost market cost determined firstin firstout method property equipment property equipment carried cost less accumulated depreciation amortization company depreciates property equipment straightline basis periods ranging three seven years cost maintenance repairs charged operations incurred significant renewals betterments capitalized income taxes company adopted statement financial accounting standards 109 accounting income taxes sfas 109 effective january 1 1993 company prior january 1 1993 accounting income taxes using accounting principles board opinion 11 adoption sfas 109 material effect companys net income 1993 1994 however pursuant sfas 109 utilization net operating loss carryforward 1993 credited income tax provision revenue expense recognition revenues product sales generally recognized upon shipment products shipped customer trials carried finished goods inventory customer acceptance obtained time revenue recognized revenues certain contracts recognized percentageof completion method basis physical completion date method used management considers physical completion best available measure progress contracts amounts received customers excess revenues earned percentageofcompletion method recorded advance payments customers related contract costs include direct material labor costs indirect costs related contract performance included cost sales consolidated statements income expenses incurred connection research development activities certain software development costs capitalized selling general administrative expenses charged operations incurred software development costs software development costs totaling 1424000 2414000 3216000 capitalized 1992 1993 1994 respectively accordance statement financial accounting standards 86 capitalized software development costs amortized estimated useful life software date four years less amortization begins period related product available general release customers amortization expenses amounted 388000 798000 1721000 1992 1993 1994 respectively deferred costs deferred costs include debt issue costs amortized tenyear term related debt straightline basis minority interest minority interest relates comverses majorityowned consolidated subsidiaries telemesser ltd telemesser israeli corporation operates telemessaging service bureau applied silicon inc canada asic ontario corporation provides computer consulting development services primarily government agencies canada comverse owns approximately 75 outstanding shares telemesser remaining shares issued 1991 yedioth ahronoth yedioth leading israeli newspaper comverse owns 51 outstanding shares asic holds option purchase additional shares increase interest asic 55 option expires april 1995 remaining shares asic held management personnel equity affiliates investments affiliates accounted equity method consists primarily companys 50 interest magnasynccomverse corporation joint venture april 1994 company acquired business assets joint venture return agreement assume certain joint ventures liabilities see note 6 functional currency foreign currency transaction gains losses dollar functional currency companys foreign operations companys sales materials purchased manufacturing companys products denominated linked united states dollar certain operating costs principally salaries foreign operations denominated local currencies instances foreign subsidiary functional currency united states dollar company records necessary foreign currency translation adjustment reflected stockholders equity end reporting period net gains losses foreign currency transactions included consolidated statements income approximated 62000 198000 3000 1992 1993 1994 respectively company occasionally enters foreign exchange forward contracts options foreign currencies order hedge future commitments purpose companys foreign currency hedging activities protect company risk eventual dollar cash flows resulting sale products international customers adversely affected changes exchange rates transactions accounted accordance statement financial accounting standards 52 foreign currency translation accordance statement gain loss foreign exchange contract hedges firm commitment deferred underlying transaction realized time included consolidated statement income december 31 1994 outstanding forward contracts purchase approximately 3232000 western european currencies deferred gains losses hedging commitments significant december 31 1994 exchange rate insurance prior september 1 1993 efrat future technology ltd efrat whollyowned israeli subsidiary participated israeli government program exchange rate insurance protected participating israeli exporters loss would otherwise result unanticipated widening gap inflation rate israel rate devaluation israeli currency relative weighted basket currencies israels major trading partners end reporting period company recorded accrual basis impact exchange rate insurance program increased revenues 440000 251000 1992 1993 respectively program discontinued september 1993 intangible assets licenses patent rights acquired knowhow recorded cost amortized using straightline method estimated useful lives related technology exceeding five years goodwill intangible assets associated acquired subsidiaries amortized five twelve years earnings per common equivalent share earnings per common equivalent share determined using weighted average number shares common stock common stock equivalents outstanding period calculation income per share assuming full dilution antidilutive reclassifications certain prior year amounts reclassified conform manner presentation current year 3 research development significant portion companys research development operations located israel company derives substantial benefits participation programs sponsored government israel support research development activities conducted country years 1992 1993 1994 companys research development activities included projects funded office chief scientist ministry industry trade state israel ocs israelunited states binational industrial research development foundation birdf funding organizations reimbursed portion companys research development expenditures approved project budgets 1993 1994 companys research development activities also included projects funded canadian government agency reimbursed portion companys research development expenditures approved project budgets company currently involved several ongoing research development projects supported ocs company required pay royalties respective funding organizations based sale products incorporating technology developed projects note 16 addition terms applicable funding agreements products resulting projects funded ocs may manufactured outside israel without government approval governments united states israel certain nonexclusive irrevocable royalty free licenses use governmental purposes inventions developed projects funded birdf 4 shortterm investments company classifies marketable securities including us treasury bills availableforsale securities following summary availableforsale securities december 31 1994 1 amount includes 58649000 cost plus 1063000 accretion discount included interest income 1994 gross realized gains sales securities totaled approximately 264000 gross realized losses totaled approximately 200000 amortized cost estimated fair value debt securities december 31 1994 contractual maturity follows 5 inventories consist 6 business acquisitions april 1994 company acquired business assets joint venture return agreement assume certain joint ventures liabilities acquisition accounted purchase method accounting accordingly purchase price allocated assets acquired liabilities assumed based estimated fair values date acquisition liabilities assumed exceeded assets acquired approximately 605000 assigned intangible assets amortized five years operating results acquired business included companys consolidated results operations april 1 1994 company acquired startel corporation california corporation manufactures markets real time transactional processing systems startel august 1992 issuing 272359 shares common stock fair market value approximately 2451000 exchange 4713907 shares startel shareholders deficiency approximately 403000 acquisition accounted purchase method accounting accordingly purchase price allocated assets acquired liabilities assumed based estimated fair values date acquisition purchase price expenses associated acquisition exceeded net assets startel approximately 3322000 1550000 assigned goodwill 1423000 assigned identifiable intangible assets 349000 assigned fixed assets amortized periods ten twelve five years respectively operating results startel included companys consolidated results operations august 1 1992 company acquired 51 shares asic april 1992 exchange 94717 shares common stock fair market value approximately 886000 issued previously controlling shareholders asic cash equity investment asic 350000 acquisition accounted purchase method accounting purchase price expenses associated acquisition exceeded net assets asic approximately 893000 assigned goodwill amortized period ten years operating results asic included companys consolidated results operations april 1 1992 7 accounts payable accrued expenses accounts payable accrued expenses consist 8 5 14 convertible subordinated debentures november 30 1993 company issued 60 million convertible subordinated debentures bearing interest 5 14 per annum payable semiannually debentures mature december 1 2003 debentures convertible shares companys common stock june 1 1994 conversion price 19375 per share subject adjustment certain events debentures subordinated right payment existing future senior indebtedness company debentures redeemable option company whole part prices decreasing 102 face amount december 1 1996 par december 1 1998 however companys ability redeem debentures prior december 1 1998 subject certain restrictions related market price companys common stock debenture holders may require company repurchase debentures par event common stock ceases publicly traded certain instances upon change control company 9 liability severance pay liability severance pay consists companys unfunded liability severance pay employees certain foreign subsidiaries accrued severance companys chief executive officer companys statutory obligation severance pay employees israeli subsidiaries determined basis individuals current salary length employment funding currently provided primarily premiums paid company insurance providers company obligated agreement amended 1994 chief executive officer provide severance payment upon termination employment company severance payment 60000 per year employment amount increased 5 per annum compounded year employment commencing 1995 approximately 660000 720000 accrued december 31 1993 1994 respectively relating liability 10 related parties company paid accrued legal fees one directors amounts 325000 329000 309000 1992 1993 1994 respectively accounts receivable includes 886000 due joint venture december 31 1993 sales include 401000 joint venture 1993 11 capital stock december 1994 authorized shares common stock comverse increased 25000000 100000000 april 1993 comverse issued 3105000 shares common stock public offering net proceeds issuance 44862000 see note 6 note 12 respectively concerning shares issued connection acquisition transactions upon exercise stock options stock purchase warrants december 31 1994 3096774 shares common stock reserved conversion 5 14 convertible subordinated debentures 2455755 shares common stock reserved exercise outstanding stock options comverse granted certain holders equity securities right cause company register securities applicable federal state securities laws permit public sale securities upon request holders 12 stock options warrants employee stock options december 31 1994 2455755 shares common stock reserved issuance upon exercise options outstanding 610225 shares common stock available future grant comverses stock option plans options may granted key employees directors employees persons rendering services company options designated incentive stock options option plans may granted exercise price less fair market value underlying shares date grant subject certain quantity limitations specified section 422 internal revenue code options intended qualify incentive stock options may granted price less par value underlying shares without restriction amount options underlying shares subject adjustment accordance terms plans event stock dividends recapitalizations similar transactions right exercise options generally vests annual increments periods four years date grant date commencement grantees employment company changes number shares subject outstanding options follows december 31 1994 options purchase aggregate 1246172 shares vested currently exercisable option plans options purchase additional 1209583 shares vest various dates extending 1998 options subsidiary shares comverse granted certain key executives company options acquire shares certain subsidiaries efrat means providing incentives directly tied performance subsidiaries different executives direct responsibility options upon exercise would represent 91 195 outstanding shares subsidiary terms ten years become exercisable vest equal ratable annual increments periods ranging three five years first anniversary date initial grant exercise price option equal higher book value underlying shares date grant fair market value shares date determined basis armslength transaction third party transactions occurred reasonable basis board directors aggregate exercise price options december 31 1994 approximately 3177000 upon exercise whole part option comverse receive irrevocable proxy vote underlying shares right first refusal purchase shares upon proposed sale transfer disposition time shares shall sold bona fide open market transaction options warrants 1992 1993 1994 comverse issued aggregate 2243054 118540 197 shares common stock respectively upon exercise stock purchase warrants stock options employee stock options prices ranging 102 700 per share aggregate amount 7352000 1992 102 300 per share aggregate amount approximately 300000 1993 218 per share aggregate amount approximately 400 1994 december 31 1994 warrants options employee stock options outstanding 13 foreign operations condensed net assets exclusive intercompany balances applicable foreign operations principally located israel included consolidated balance sheet summarized follows condensed operating information exclusive intercompany transactions applicable foreign operations principally located israel consolidated statements income summarized follows operating results shown reflect inclusion costs expenses fixed charges incurred comverses foreign subsidiaries necessary support level activity greater shown table due exclusion intercompany revenue foreign operations 1992 1993 profitable intercompany transactions included 14 income taxes provision income taxes consists following 1992 utilization net operating loss carryforwards 788000 included extraordinary item consolidated statements income reconciliation us federal statutory tax rate companys effective tax rate follows deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes b operating loss carryforwards tax effects significant items comprising companys deferred tax asset liability december 31 1993 1994 follows december 31 1994 company net operating loss carryforwards us income tax reporting purposes resulting employees exercise stock options approximately 3900000 expiring various periods 2009 utilization net operating loss carryforwards increase additional paidin capital december 31 1994 startel net operating loss carryforwards approximately 2200000 us income tax reporting purposes expiring various periods 2005 may used reduce future us taxable income startel company limited utilizing approximately 150000 per year startels net operating loss carryforwards section 382 internal revenue code utilization set operating loss carryforwards reduce goodwill income tax provided unrepatriated earnings foreign subsidiaries currently intention company reinvest foreign earnings operations 15 business segment information company engaged one business segment design development manufacture marketing support special purpose computer telecommunications systems multimedia communications information processing applications sales major customers sales geographic regions percentage total sales years ended december 31 1992 1993 1994 follows 1994 customer constituted 10 sales geographic regions 16 commitments contingencies leases company leases office manufacturing warehouse space noncancelable operating leases rent expense leased premises approximated 848000 1395000 1951000 1992 1993 1994 respectively december 31 1994 annual minimum rent obligations company approximately follows employment agreements company obligated employment contracts chief executive officer providing salary minimum bonuses fringe benefits june 30 1999 minimum salary payments contracts currently amount 336000 per year aggregate 1428000 june 30 1999 executive entitled annual bonuses equal least 3 companys consolidated tax net income year upon termination expiration term employment executive entitled receive severance payment equal 60000 year previous current employment company increased rate 5 per annum compounded year employment commencing 1995 see note 9 plus continued employmentrelated benefits period 36 months thereafter termination employment results unilateral termination fundamental breach agreement company resignation executive within six months following change control company approved executive capacity director comverse executive entitled additional payment equal 299 average annual cash compensation including salary bonus payments received executive company three immediately preceding fiscal years plus amount equal income tax resulting payment company obligated agreements chief executive officer asic providing employment period five years ending april 14 1997 base annual compensation approximately 87000 subject annual adjustment reflect increases canadian consumer price index officers employment terminated company notice least 180 days upon termination unless due specified contractual defaults officer company obligated continue compensation payments period 24 months following effective date termination event termination death permanent disability officer term employment failure company offer renewal employment reasonable terms expiration current agreement company also obligated repurchase shares asic time owned officer certain affiliates repurchase price varies circumstances termination financial results condition asic would amount approximately 905000 december 31 1994 employment agreements company terminable without cause prior notice 60 days less licenses royalties company licenses certain technology knowhow software related rights use manufacture marketing products pays royalties third parties licenses agreements entered connection research product development activities company currently pays royalties sale substantially trilogue audiodisk product lines varying amounts based upon revenues attributed various components products royalties typically range approximately 15 5 net sales related products case royalties due government funding sources respect research development projects required paid funding organization received total royalties ranging 100 150 amounts received company approved project budgets dividend restrictions ability comverses israeli subsidiaries pay dividends governed israeli law provides cash dividends may paid israeli corporation retained earnings determined statutory purposes israeli currency event devaluation israeli currency dollar amount dollars available payment cash dividends prior years earnings decrease accordingly cash dividends paid israeli corporation foreign residents subject withholding israeli income tax source rate 15 depending particular facilities generated earnings source dividends addition efrat subject contractual restrictions prohibiting paying dividends exceeding 75 profits guaranties company obtained bank guaranties primarily performance certain obligations contracts customers guaranties aggregated approximately 5649000 december 31 1994 released companys performance specified contract milestones scheduled completed primarily 1995 litigation company subject certain legal actions arising normal course business taking consideration legal counsels evaluation actions management opinion final resolution significant adverse effect upon companys business consolidated financial statements 17 fair value financial instruments following disclosure estimated fair value financial instruments made accordance requirements statement financial accounting standards 107 disclosures fair value financial instruments estimated fair value amounts determined company using available market information appropriate valuation methodologies however considerable judgment necessarily required interpreting market data develop estimates fair value accordingly estimates presented herein necessarily indicative amounts company could realize current market exchange use different market assumptions andor estimation methodologies may material effect estimated fair value amounts december 31 1994 carrying estimated amount fair value thousands liabilities 5 14 convertible subordinated debentures 60000 48000 offbalance sheet financial instruments foreign exchange forward contracts used hedging purposes 1 cash equivalents bank time deposits shortterm investments accounts receivable longterm receivables accounts payable carrying amounts items reasonable estimate fair value convertible subordinated debentures foreign exchange forward contracts fair value securities estimated based quoted market prices recent sales similar securities fair value estimates presented herein based pertinent information available management december 31 1994 although management aware factors would significantly affect estimated fair value amounts comprehensively revalued purposes financial statements since date current estimates fair value may differ significantly amounts presented herein 18 subsequent events february 1995 company acquired 218 dcl technologies ltd dcl approximately 2450000 dcl developer advanced softwarebased products solutions specialized expertise communications processing company account investment equity method 19 quarterly information unaudited following table shows selected results operations quarters 1993 1994 difference income per share 1993 sum income per share quarters comprising year due differences calculation weighted average number shares outstanding respective periods rounding adjustments signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized comverse technology inc registrant kobi alexander kobi alexander president date march 27 1995 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated kobi alexander march 27 1995 kobi alexander president chairman board chief executive officer director igal nissim march 27 1995 igal nissim vice president finance chief financial officer zvi alexander march 27 1995 zvi alexander director sam oolie march 27 1995 sam oolie director john h friedman march 27 1995 john h friedman director william f sorin march 27 1995 william f sorin director yechiam yemini march 27 1995 yechiam yemini director exhibit number description 3a2 certificate amendment certificate incorporation effective january 12 1995 4a2 excerpt certificate amendment certificate incorporation effective january 12 1995 1018 employment agreement effective july 1 1994 comverse technology inc kobi alexander 1019 1994 stock option plan 21 subsidiaries registrant 27 financial data scheduleitem 14 exhibits financial statement schedules reports form 8k pages documents filed part report 1 financial statements index consolidated financial statements independent auditors report consolidated balance sheets december 31 1994 1995 consolidated statements income years ended december 31 1993 1994 1995 consolidated statements stockholders equity years ended december 31 1993 1994 1995 consolidated statements cash flows years ended december 31 1993 1994 1995 notes consolidated financial statements 2 financial statement schedules none 3 exhibits index exhibits commences following page exhibits numbered 1016 1018 1019 10k 10l 10ddd 10eee 10lll comprise material compensatory plans arrangements registrant exhibit number description 1 applicable 2 applicable 3 articles incorporation bylaws 3a certificate incorporation 3a1 certificate amendment certificate incorporation effective february 26 1993 3a2 certificate amendment certificate incorporation effective january 12 1995 3b bylaws amended 4 instruments defining rights security holders including indentures 4a excerpts certificate incorporation 4a1 excerpt certificate amendment certificate incorporation effective february 26 1993 4a2 excerpt certificate amendment certificate incorporation effective january 12 1995 4b excerpts bylaws amended 4c1 specimen stock certificate incorporated reference exhibits filed annual report form 10k securities exchange act 1934 year ended december 31 1987 exhibit number shown exhibit number document filed annual report incorporated reference exhibits filed annual report form 10k securities exchange act 1934 year ended december 31 1992 exhibit number shown exhibit number document filed annual report incorporated reference exhibits filed registration statement form s1 securities act 1933 registration 339147 exhibit number shown exhibit number document filed registration statement incorporated reference exhibits filed annual report form 10k securities exchange act 1934 year ended december 31 1994 exhibit number shown exhibit number document filed annual report exhibit number description 4d indenture dated november 30 1993 comverse technology inc chase manhattan bank na trustee 4e specimen 514 convertible subordinated debenture due 2003 5 applicable 6 applicable 7 applicable 8 applicable 9 applicable 10 material contracts 107 proxy agreement dated september 5 1991 among comverse government systems corporation james r allen robert w bazley robert marsh comverse technology inc 108 visitation approval procedure agreement dated september 5 1991 among comverse government systems corporation james r allen robert w bazley robert marsh comverse technology inc 1016 form stock option agreement pertaining shares certain subsidiaries comverse technology inc 1017 form asset purchase agreement dated march 1 1994 among comverse technology inc magnasyncmoviola corporation interactive information systems corporation magnasync comverse corporation 1018 employment agreement effective july 1 1994 comverse technology inc kobi alexander incorporated reference exhibits filed annual report form 10k securities exchange act 1934 year ended december 31 1993 exhibit number shown exhibit number document filed annual report incorporated reference exhibits filed annual report form 10k securities exchange act 1934 year ended december 31 1991 exhibit number shown exhibit number document filed annual report incorporated reference exhibits filed annual report form 10k securities exchange act 1934 year ended december 31 1994 exhibit number shown exhibit number document filed annual report exhibit number description 1019 1994 stock option plan 1020 1994 stock option plan 10aa agreement among efrat future technology ltd tadiran israel electronics industries ltd boaz misholi kobi alexander yechiam yemini 10k 1984 incentive stock option plan 10l form incentive stock option agreement 10ggg deed guarantee comverse technology inc bank hapoalim bm dated july 30 1986 10gggg continuing guarantee comverse technology inc bank leumi leisrael bm 10xx patent license agreement efrat future technology ltd vmx inc 10ccc form indemnity agreement comverse technology inc officers directors 10ddd 1987 stock option plan amended 10eee form stock option agreement options incentive stock options 10jjj agreement lease dated september 21 1989 industrial research associates co comverse technology inc incorporated reference exhibits filed registration statement form s1 securities act 1933 registration 339147 exhibit number shown exhibit number document filed registration statement incorporated reference exhibits filed annual report form 10k securities exchange act 1934 year ended december 31 1987 exhibit number shown exhibit number document filed annual report incorporated reference exhibits filed annual report form 10k securities exchange act 1934 year ended december 31 1992 exhibit number shown exhibit number document filed annual report incorporated reference exhibits filed annual report form 10k securities exchange act 1934 year ended december 31 1994 exhibit number shown exhibit number document filed annual report exhibit number description 12 applicable 13 applicable 14 applicable 15 applicable 16 applicable 17 applicable 18 applicable 19 applicable 20 applicable 21 subsidiaries registrant 22 applicable 23 applicable 24 applicable 25 applicable 26 applicable 27 financial data schedule 28 applicable 99 applicable b reports form 8k none comverse technology inc subsidiaries index consolidated financial statements page independent auditors report consolidated balance sheets december 31 1994 1995 consolidated statements income years ended december 31 1993 1994 1995 consolidated statements stockholders equity years ended december 31 1993 1994 1995 consolidated statements cash flows years ended december 31 1993 1994 1995 notes consolidated financial statements independent auditors report board directors stockholders comverse technology inc woodbury new york audited accompanying consolidated balance sheets comverse technology inc subsidiaries company december 31 1994 1995 related consolidated statements income stockholders equity cash flows three years period ended december 31 1995 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position comverse technology inc subsidiaries december 31 1994 1995 results operations cash flows three years period ended december 31 1995 conformity generally accepted accounting principles deloitte touche llp new york new york march 1 1996 comverse technology inc subsidiaries consolidated balance sheets december 31 1994 1995 thousands except share data see notes consolidated financial statements see notes consolidated financial statements comverse technology inc subsidiaries consolidated statements income years ended december 31 1993 1994 1995 thousands except per share data see notes consolidated financial statements comverse technology inc subsidiaries consolidated statements stockholders equity years ended december 31 1993 1994 1995 thousands except share data see notes consolidated financial statements comverse technology inc subsidiaries consolidated statements cash flows years ended december 31 1993 1994 1995 thousands comverse technology inc subsidiaries consolidated statements cash flows years ended december 31 1993 1994 1995 thousands see notes consolidated financial statements comverse technology inc subsidiaries notes consolidated financial statements years ended december 31 1993 1994 1995 1 organization business comverse technology inc comverse together subsidiaries company organized new york corporation october 1984 company engaged design development manufacture marketing support special purpose computer telecommunications systems software multimedia communications information processing applications 2 summary significant accounting policies principles consolidation consolidated financial statements include accounts comverse whollyowned majorityowned subsidiaries material intercompany balances transactions eliminated cash equivalents bank time deposits company considers highly liquid investments purchased original maturities three months less cash equivalents bank deposits maturities excess three months classified bank time deposits shortterm investments company classifies shortterm investments including us treasury bills availableforsale accounted fair value resulting unrealized gains losses reported separate component stockholders equity netoftax basis concentration credit risk financial instruments potentially expose company concentration credit risk defined statement financial accounting standards 105 consist primarily cash investments accounts receivable company places cash investments high credit quality financial institutions currently invests primarily money market funds placed major institutional banks financial institutions time deposits us government obligations maturities one year less accounts receivable generally diversified due number commercial government entities comprising companys customer base dispersion across many geographical regions company believes significant concentration credit risk exists respect cash investments accounts receivable inventories stated lower cost market cost determined firstin firstout method property equipment property equipment carried cost less accumulated depreciation amortization company depreciates property equipment straightline basis periods ranging three seven years cost maintenance repairs charged operations incurred significant renewals betterments capitalized income taxes company accounts income taxes accordance statement financial accounting standards 109 requires asset liability method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect differences expected reverse revenue expense recognition revenues product sales generally recognized upon shipment products shipped customer trials carried finished goods inventory customer acceptance obtained time revenue recognized revenues certain contracts recognized percentageof completion method basis physical completion date method used management considers physical completion best available measure progress contracts revenues subsidiary engaged software development recognized percentage completion method using actual costs incurred total expected costs contract amounts received customers excess revenues earned percentageofcompletion method recorded advance payments customers related contract costs include direct material labor costs indirect costs related contract performance included cost sales consolidated statements income expenses incurred connection research development activities certain software development costs capitalized selling general administrative expenses charged operations incurred software development costs software development costs totaling 3064000 3592000 4697000 capitalized 1993 1994 1995 respectively accordance statement financial accounting standards 86 capitalized software development costs amortized estimated useful life software date four years less amortization begins period related product available general release customers amortization expenses amounted 1066000 2041000 2453000 1993 1994 1995 respectively deferred costs deferred costs include debt issue costs amortized tenyear term related debt straightline basis minority interest minority interest relates comverses majorityowned consolidated subsidiaries telemesser ltd telemesser israeli corporation operates telemessaging service bureau applied silicon inc canada asic ontario corporation provides computer consulting development services primarily government agencies canada comverse owns approximately 75 outstanding shares telemesser 1995 comverse increased ownership outstanding shares asic 51 55 equity affiliates investments affiliates accounted equity method functional currency foreign currency transaction gains losses united states dollar functional currency major portion companys foreign operations companys sales materials purchased manufacturing denominated linked dollar certain operating costs principally salaries foreign operations denominated local currencies instances foreign subsidiary functional currency dollar company records necessary foreign currency translation adjustment reflected stockholders equity end reporting period net losses foreign currency transactions included consolidated statements income approximated 198000 3000 249000 1993 1994 1995 respectively company occasionally enters foreign exchange forward contracts options foreign currencies purpose companys foreign currency hedging activities protect company risk eventual dollar cash flows resulting sale products international customers adversely affected changes exchange rates transactions accounted accordance statement financial accounting standards 52 accordance statement gain loss foreign exchange contract hedges firm commitment deferred underlying transaction realized time included consolidated statement income december 31 1995 outstanding forward contracts purchase approximately 3100000 western european currencies deferred gains losses hedging commitments significant december 31 1995 intangible assets licenses patent rights acquired knowhow recorded cost amortized using straightline method estimated useful lives related technology exceeding five years goodwill intangible assets associated acquired subsidiaries amortized five twelve years longlived assets march 1995 financial accounting standards board issued statement 121 accounting impairment longlived assets longlived assets disposed statement effective fiscal years beginning december 15 1995 company expect effect consolidated financial statements adoption statement material pervasiveness estimates preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates earnings per common equivalent share primary fully diluted earnings per common equivalent share determined using weighted average number shares common stock common stock equivalents outstanding using treasury stock method period restatement pooling interests transaction consolidated financial statements retroactively restated include financial statements dale gesek mcwilliams sheridan inc dgms periods prior consummation acquisition discussed note 6 reclassifications certain prior year amounts reclassified conform manner presentation current year 3 research development significant portion companys research development operations located israel company derives substantial benefits participation programs sponsored government israel support research development activities conducted country years 1993 1994 1995 companys research development activities included projects partially funded office chief scientist ministry industry trade state israel ocs 1993 1994 included projects partially funded israel united states binational industrial research development foundation birdf funding organizations reimbursed portion companys research development expenditures approved project budgets companys research development activities also included projects partially funded canadian government agency reimbursed portion companys research development expenditures approved project budgets company currently involved several ongoing research development projects supported ocs canadian government agency company required pay royalties respective funding organizations based sale products incorporating technology developed projects note 16 addition terms applicable funding agreements products resulting projects funded ocs may manufactured outside israel without government approval governments united states israel certain nonexclusive irrevocable royaltyfree licenses use governmental purposes inventions developed projects funded birdf 4 shortterm investments company classifies shortterm investments including us treasury bills availableforsale securities following summary availableforsale securities december 31 1995 1 amount includes 4691000 cost plus 299000 accretion discount included interest income following summary availableforsale securities december 31 1994 2 amount includes 58649000 cost plus 1063000 accretion discount included interest income 1995 gross realized gains sales securities totaled approximately 2788000 gross realized losses totaled approximately 467000 amortized cost estimated fair value debt securities december 31 1995 contractual maturity follows 5 inventories consist december 31 1994 1995 thousands raw materials 7196 10364 work process 2342 2638 finished goods 2889 2771 12427 15773 6 business acquisitions august 30 1995 company acquired dgms corporation develops markets telecommunications software products effect acquisition company issued 1078944 shares common stock outstanding common stock dgms acquisition accounted pooling interests therefore prior financial statements information restated include dgms companies combined periods presented prior acquisition dgms prepared financial statements fiscal year ending september 30 1995 combined companies reported basis comverses fiscal year ends december 31 accordingly restated statements income 1993 1994 include results dgms years ended september 30 1993 1994 respectively result dgmss operations three month period ended december 31 1994 reflected consolidated statements income cash flows dgmss operating results three month period ended december 31 1994 comprising total revenues net loss approximately 2122000 2445000 respectively reflected adjustment retained earnings table sets forth unaudited separate combined results comverse dgms 1993 1994 three month periods ended march 31 1995 june 30 1995 september 30 1995 april 1994 company acquired business assets magnasynccomverse corporation joint venture previously 50 owned corporation return companys agreement assume certain joint ventures liabilities acquisition accounted purchase method accounting accordingly purchase price allocated assets acquired liabilities assumed based estimated fair values date acquisition liabilities assumed exceeded assets acquired approximately 605000 assigned intangible assets amortized five years operating results acquired business included companys consolidated results operations april 1 1994 7 accounts payable accrued expenses accounts payable accrued expenses consist 8 5 14 convertible subordinated debentures november 30 1993 company issued 60 million convertible subordinated debentures bearing interest 5 14 per annum payable semi annually debentures mature december 1 2003 debentures convertible shares companys common stock conversion price 19375 per share subject adjustment certain events debentures subordinated right payment existing future senior indebtedness company debentures redeemable option company whole part prices decreasing 102 face amount december 1 1996 par december 1 1998 however companys ability redeem debentures prior december 1 1998 subject certain restrictions related market price companys common stock debenture holders may require company repurchase debentures par event common stock ceases publicly traded certain instances upon change control company 9 liability severance pay liability severance pay consists companys unfunded liability severance pay employees certain foreign subsidiaries accrued severance companys chief executive officer companys statutory obligation severance pay employees israeli subsidiaries determined basis individuals current salary length employment funding currently provided primarily premiums paid company insurance providers company obligated agreement amended 1995 chief executive officer provide severance payment upon termination employment company severance payment 77000 per year employment amount increased 10 per annum compounded year employment commencing december 1996 approximately 720000 1001000 accrued december 31 1994 1995 respectively relating liability 10 related parties company paid accrued legal fees one directors amounts 329000 309000 298000 1993 1994 1995 respectively 11 capital stock december 1994 authorized shares common stock comverse increased 25000000 100000000 december 31 1995 3096774 shares common stock reserved conversion 5 14 convertible subordinated debentures 2677333 shares common stock reserved exercise outstanding stock options comverse granted certain holders equity securities right cause company register securities applicable federal state securities laws permit public sale securities upon request holders 12 stock options warrants employee stock options december 31 1995 2677333 shares common stock reserved issuance upon exercise options outstanding 1020444 shares common stock available future grant comverses stock option plans options may granted key employees directors persons rendering services company options designated incentive stock options option plans may granted exercise price less fair market value underlying shares date grant subject certain quantity limitations specified section 422 internal revenue code options intended qualify incentive stock options may granted price less par value underlying shares without restriction amount options underlying shares subject adjustment accordance terms plans event stock dividends recapitalizations similar transactions right exercise options generally vests annual increments periods four years date grant date commencement grantees employment company changes number options follows december 31 1995 options purchase aggregate 1283258 shares vested currently exercisable option plans options purchase additional 1394075 shares vest various dates extending year 2000 october 1995 financial accounting standards board issued statement financial accounting standards 123 accounting stockbased compensation new standard defines fair value method accounting stock options equity instruments used compensation purposes requires companies electing report accordance standard recognize disclose compensation financial statements fiscal years beginning december 15 1995 fair value method compensation cost measured grant date based fair value award recognized service period usually vesting period company also permitted continue account transactions accounting principles board opinion 25 accounting stock issued employees required disclose note financial statements pro forma net income earnings per share company adopted new fair value method accounting company yet determined effect adoption new standard would net income earnings per share options subsidiary shares comverse granted certain key executives company options acquire shares certain subsidiaries efrat future technology ltd efrat means providing incentives directly tied performance subsidiaries different executives direct responsibility options upon exercise would represent 91 195 outstanding shares subsidiary terms ten years become exercisable vest equal ratable annual increments periods ranging three five years first vest equal ratable annual increments periods ranging three five years first anniversary date initial grant exercise price option equal higher book value underlying shares date grant fair market value shares date determined basis armslength transaction third party transactions occurred reasonable basis determined board directors aggregate exercise price options december 31 1995 approximately 5214000 upon exercise whole part option comverse receive irrevocable proxy vote underlying shares right first refusal purchase shares upon proposed sale transfer disposition time shares shall sold bona fide open market transaction 13 foreign operations condensed net assets exclusive intercompany balances applicable foreign operations principally located israel included consolidated balance sheets summarized follows condensed operating information exclusive intercompany transactions applicable foreign operations principally located israel included consolidated statements income summarized follows operating results shown reflect inclusion costs expenses fixed charges incurred comverses foreign subsidiaries necessary support level activity greater shown table due exclusion intercompany revenue foreign operations 1993 profitable intercompany transactions included 14 income taxes provision income taxes consists following reconciliation us federal statutory tax rate companys effective tax rate follows deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes b operating loss carryforwards tax effects significant items comprising companys deferred tax asset liability december 31 1994 1995 follows december 31 1995 company net operating loss carryforwards us income tax purposes resulting employees exercise stock options approximately 4300000 expiring various periods 2010 utilization net operating loss carryforwards increase additional paidin capital december 31 1995 startel corporation startel whollyowned subsidiary comverse net operating loss carryforwards approximately 1680000 us income tax reporting purposes expiring various periods 2005 may used reduce future us taxable income startel company limited utilizing approximately 188000 per year startels net operating loss carryforwards section 382 internal revenue code company utilized approximately 564000 accumulated net operating loss carryforwards 1995 reduced goodwill approximately 197000 income tax provided unrepatriated earnings foreign subsidiaries currently intention company reinvest foreign earnings operations 15 business segment information company engaged one business segment design development manufacture marketing support special purpose computer telecommunications systems software multimedia communications information processing applications 1993 sales government agency constituted 17 sales western european customer constituted 12 sales 1994 1995 customer constituted 10 sales geographic regions percentage total sales years ended december 31 1993 1994 1995 follows 16 commitments contingencies leases company leases office manufacturing warehouse space noncancelable operating leases rent expense leased premises approximated 1899000 2562000 3014000 1993 1994 1995 respectively december 31 1995 annual minimum rent obligations company approximately follows employment agreements company obligated employment contracts chief executive officer provide salary bonuses fringe benefits june 30 2000 minimum salary payments contracts currently amount 350000 per year aggregate 1450000 june 30 2000 executive entitled annual bonuses equal least 3 companys consolidated aftertax net income year upon termination expiration term employment executive entitled receive severance payment equal 77000 year previous current employment company increased rate 10 per annum compounded year employment commencing december 1996 see note 9 plus continued employmentrelated benefits period 36 months thereafter termination employment results unilateral termination fundamental breach agreement company resignation executive within six months following change control company approved executive capacity director comverse executive entitled additional payment equal 299 average annual cash compensation including salary bonus payments received executive company three immediately preceding fiscal years plus amount equal income tax resulting payment employment agreements company terminable without cause prior notice 60 days less licenses royalties company licenses certain technology know software related rights use manufacture marketing products pays royalties third parties licenses agreements entered connection research product development activities company currently pays royalties sale substantially trilogue audiodisk product lines varying amounts based upon revenues attributed various components products royalties typically range approximately 15 5 net sales related products case royalties due government funding sources respect research development projects required paid funding organization received total royalties ranging 100 150 amounts received company approved project budgets dividend restrictions ability comverses israeli subsidiaries pay dividends governed israeli law provides cash dividends may paid israeli corporation retained earnings determined statutory purposes israeli currency event devaluation israeli currency dollar amount dollars available payment cash dividends prior years earnings decrease accordingly cash dividends paid israeli corporation foreign residents subject withholding israeli income tax source rate 15 depending particular facilities generated earnings source dividends guaranties company obtained bank guaranties primarily performance certain obligations contracts customers guaranties aggregated approximately 9522000 december 31 1995 released companys performance specified contract milestones scheduled completed primarily 1996 litigation company subject certain legal actions arising normal course business taking consideration legal counsels evaluation actions management opinion final resolution significant adverse effect upon companys business consolidated financial statements 17 fair value financial instruments following disclosure estimated fair value financial instruments made accordance requirements statement financial accounting standards 107 estimated fair value amounts determined company using available market information appropriate valuation methodologies however considerable judgment necessarily required interpreting market data develop estimates fair value accordingly estimates presented herein necessarily indicative amounts company could realize current market exchange use different market assumptions andor estimation methodologies may material effect estimated fair value amounts december 31 1995 carrying estimated amount fair value thousands liabilities 5 14 convertible subordinated debentures 60000 69000 offbalance sheet financial instruments foreign exchange forward contracts used hedging purposes 66 cash equivalents bank time deposits shortterm investments accounts receivable longterm receivables investments accounts payable carrying amounts items reasonable estimate fair value convertible subordinated debentures foreign exchange forward contracts fair value securities estimated based quoted market prices recent sales similar securities fair value estimates presented herein based pertinent information available management december 31 1995 although management aware factors would significantly affect estimated fair value amounts comprehensively revalued purposes financial statements since date current estimates fair value may differ significantly amounts presented herein 18 quarterly information unaudited following table shows selected results operations quarters 1994 1995 difference income per share 1995 sum income per share quarters comprising year due differences calculation weighted average number shares outstanding respective periods rounding adjustments signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized comverse technology inc registrant kobi alexander kobi alexander president date march 15 1996 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated kobi alexander march 15 1996 kobi alexander president chairman board chief executive officer director igal nissim march 25 1996 igal nissim vice president finance chief financial officer zvi alexander march 17 1996 zvi alexander director sam oolie march 20 1996 sam oolie director john h friedman march 18 1996 john h friedman director william f sorin march 15 1996 william f sorin director yechiam yemini march 25 1996 yechiam yemini directoritem 14 exhibits financial statement schedules reports form 8k 30 exhibits description 21 agreement plan merger dated august 20 1997 registrant boston technology inc incorporated reference definitive proxy materials registrants annual meeting stockholders held january 13 1998 3 articles incorporation bylaws 31 certificate incorporation incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 32 certificate amendment certificate incorporation effective february 26 1993 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 33 certificate amendment certificate incorporation effective january 12 1995 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1994 34 bylaws amended incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 4 instruments defining rights security holders including indentures 41 excerpts certificate incorporation incorporated reference registrants registration statement form s1 securities exchange act 1933 registration 339147 42 excerpt certificate amendment certificate incorporation effective february 26 1993 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 43 excerpt certificate amendment certificate incorporation effective january 12 1995 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1994 44 excerpts bylaws amended incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 45 specimen stock certificate incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 31 46 indenture dated october 4 1996 comverse technology inc chase manhattan bank na trustee incorporated reference registrants current report form 8k securities exchange act 1934 filed october 10 1996 47 specimen 5 34 convertible subordinated debenture due 2006 incorporated reference registrants current report form 8k securities exchange act 1934 filed october 10 1996 10 material contracts 101 proxy agreement dated september 5 1991 among comverse government systems corporation james r allen robert w bazley robert marsh comverse technology inc incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1991 102 visitation approval procedure agreement dated september 5 1991 among comverse government systems corporation james r allen robert w bazley robert marsh comverse technology inc incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1991 103 form stock option agreement pertaining shares certain subsidiaries comverse technology inc incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1993 104 employment agreement effective july 1 1994 comverse technology inc kobi alexander incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1994 105 1994 stock option plan incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1994 106 1995 stock option plan incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1995 32 107 1996 stock option plan incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1996 108 form incentive stock option agreement incorporated reference registrants registration statement form s1 securities act 1933 registration 339147 109 deed guarantee comverse technology inc bank hapoalim bm dated july 30 1986 incorporated reference registrants registration statement form s1 securities act 1933 registration 339147 1010 continuing guarantee comverse technology inc bank leumi leisrael bm incorporated reference registrants registration statement form s1 securities act 1933 registration 339147 1011 patent license agreement efrat future technology ltd vmx inc incorporated reference registrants registration statement form s1 securities act 1933 registration 339147 1012 form indemnity agreement comverse technology inc officers directors incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 1013 1987 stock option plan amended incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 1014 form stock option agreement options incentive stock options incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 1015 1997 employee stock purchase plan incorporated reference definitive proxy materials registrants annual meeting stockholders held january 13 1998 1016 1997 stock incentive compensation plan incorporated reference definitive proxy materials registrants annual meeting stockholders held january 13 1998 1017 memorandum agreement dated november 22 1995 boston technology inc att incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1996 confidential treatment requested certain portions 33 1018 lease dated november 5 1990 boston technology inc wakefield park limited partnership incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1991 1019 first amendment dated march 31 1993 lease dated november 5 1990 boston technology inc wakefield park limited partnership incorporated reference quarterly report boston technology inc form 10q securities exchange act 1934 quarter ended october 31 1993 1020 second amendment dated august 31 1994 lease dated november 5 1990 boston technology inc wakefield park limited partnership incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1995 1021 license agreement dated november 15 1988 boston technology inc vmx inc incorporated reference registration statement boston technology inc form s1 securities act 1933 registration 3332134 1022 license agreement dated january 22 1990 boston technology inc dytel corporation incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1990 1023 settlement agreement dated december 28 1993 boston technology inc theis research inc peter f theis incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1994 1024 boston technology inc 1995 director stock option plan incorporated reference quarterly report boston technology inc form 10q securities exchange act 1934 quarter ended july 31 1995 1025 boston technology inc 1992 directors stock option plan amended incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1994 1026 boston technology inc 1994 stock incentive plan incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1994 34 1027 boston technology inc 1989 incentive stock option plan amended incorporated reference definitive proxy materials boston technology incs annual meeting stockholders held july 14 1992 1028 boston technology inc employee savings profit sharing plan incorporated reference registration statement boston technology inc form s1 securities act 1933 registration 3332134 1029 boston technology inc employee severance benefit plan incorporated reference current report boston technology inc form 8k securities exchange act 1934 dated may 9 1991 1030 boston technology inc 1996 stock incentive plan incorporated reference definitive proxy materials boston technology incs annual meeting stockholders held june 25 1996 1031 lease dated june 7 1996 boston technology inc wbam limited partnership incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1997 21 subsidiaries registrant 27 financial data schedule incorporated reference 35 comverse technology inc subsidiaries index consolidated financial statements page independent auditors report consolidated balance sheets december 31 1996 1997 consolidated statements income years ended december 31 1995 1996 1997 consolidated statements stockholders equity years ended december 31 1995 1996 1997 consolidated statements cash flows years ended december 31 1995 1996 1997 notes consolidated financial statements independent auditors report board directors stockholders comverse technology inc woodbury new york audited accompanying consolidated balance sheets comverse technology inc subsidiaries company december 31 1996 1997 related consolidated statements income stockholders equity cash flows three years period ended december 31 1997 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position comverse technology inc subsidiaries december 31 1996 1997 results operations cash flows three years period ended december 31 1997 conformity generally accepted accounting principles deloitte touche llp new york new york february 12 1998 comverse technology inc subsidiaries consolidated balance sheets december 31 1996 1997 thousands except share data see notes consolidated financial statements comverse technology inc subsidiaries consolidated statements income years ended december 31 1995 1996 1997 thousands except per share data see notes consolidated financial statements comverse technology inc subsidiaries consolidated statements stockholders equity years ended december 31 1995 1996 1997 thousands except share data comverse technology inc subsidiaries consolidated statements cash flows years ended december 31 1995 1996 1997 thousands comverse technology inc subsidiaries notes consolidated financial statements years ended december 31 1995 1996 1997 1 organization business comverse technology inc comverse together subsidiaries cti company organized new york corporation october 1984 company engaged design development manufacture marketing support special purpose computer telecommunications systems software multimedia communications information processing applications 2 summary significant accounting policies principles consolidation consolidated financial statements include accounts comverse whollyowned majorityowned subsidiaries material intercompany balances transactions eliminated cash equivalents bank time deposits company considers highly liquid investments purchased original maturities three months less cash equivalents bank deposits maturities excess three months classified bank time deposits shortterm investments company classifies shortterm investments including us treasury bills availableforsale accounted fair value resulting unrealized gains losses reported separate component stockholders equity netoftax basis concentration credit risk financial instruments potentially expose company concentration credit risk consist primarily cash investments accounts receivable company places cash investments highcredit quality financial institutions currently invests primarily bank time deposits money market funds placed major banks financial institutions corporate commercial paper corporate mediumterm notes us government obligations maturities one year less accounts receivable generally diversified due number commercial government entities comprising companys customer base dispersion across many geographical regions company believes significant concentration credit risk exists respect cash investments accounts receivable inventories stated lower cost market cost determined firstin firstout method property equipment property equipment carried cost less accumulated depreciation amortization company depreciates property equipment straightline basis periods ranging three seven years cost maintenance repairs charged operations incurred significant renewals betterments capitalized income taxes company accounts income using asset liability method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities measured using enacted tax rates laws expected effect differences expected reverse revenue expense recognition revenues product sales generally recognized upon shipment products shipped customer trials carried finished goods inventory customer acceptance obtained time revenue recognized revenues certain contracts recognized percentageofcompletion method basis physical completion date using actual costs incurred total expected costs contract amounts received customers excess revenues earned percentageofcompletion method recorded advance payments customers related contract costs include direct material labor costs indirect costs related contract performance included cost sales consolidated statements income expenses incurred connection research development activities certain software development costs capitalized selling general administrative expenses charged operations incurred software development costs software development costs capitalized upon establishment technological feasibility amortized estimated useful life software date four years less amortization begins period related product available general release customers amortization expenses amounted 2453000 3079000 3546000 1995 1996 1997 respectively functional currency foreign currency transaction gains losses united states dollar functional currency major portion companys foreign operations companys sales materials purchased manufacturing denominated linked dollar certain operating costs principally salaries foreign operations denominated local currencies instances foreign subsidiary functional currency dollar company records necessary foreign currency translation adjustment reflected stockholders equity end reporting period net losses foreign currency transactions included consolidated statements income approximated 249000 731000 1555000 1995 1996 1997 respectively company occasionally enters foreign exchange forward contracts options foreign currencies purpose companys foreign currency hedging activities protect company risk eventual dollar cash flows resulting sale products international customers adversely affected changes exchange rates gain loss foreign exchange contract hedges firm commitment deferred underlying transaction realized time included consolidated statement income december 31 1997 outstanding forward contracts purchase approximately 3500000 western european currencies company also purchases foreign exchange options permit require company exchange foreign currencies future date another party contracted exchange rate finance premiums paid options time company may also write offsetting options exercises prices limit eliminate effect purchased options hedge december 31 1997 company purchased foreign exchange options 8000000 written foreign exchange options 8000000 western european currencies assets licenses patent rights acquired knowhow recorded cost amortized using straightline method estimated useful lives related technology exceeding five years goodwill intangible assets associated acquired subsidiaries amortized periods ranging five twelve years debt issue costs amortized tenyear term related debt straightline basis longlived assets company reviews impairment longlived assets certain identifiable intangibles whenever events changes circumstances indicate carrying amount asset may recoverable impairment loss would recognized estimated future cash flows expected result use asset eventual disposition less carrying amount impairment losses identified company pervasiveness estimates preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates reclassifications certain prior year amounts reclassified conform manner presentation current year 3 research development significant portion companys research development operations located israel company derives substantial benefits participation programs sponsored government israel support research development activities conducted country years 1995 1996 1997 companys research development activities included projects partially funded office chief scientist ministry industry trade state israel ocs funding organization reimbursed portion companys research development expenditures approved project budgets company currently involved several ongoing research development projects supported ocs company required pay royalties ocs based sale products incorporating technology developed projects addition terms applicable funding agreements products resulting projects funded ocs may manufactured outside israel without government approval amounts reimbursed ocs years 1995 1996 1997 7735000 9172000 16276000 respectively 4 shortterm investments company classifies shortterm investments availableforsale securities following summary availableforsale securities december 31 1997 gross realized gains sales securities totaled approximately 4037000 gross realized losses totaled approximately 2503000 amortized cost estimated fair value debt securities december 31 1997 contractual maturity follows 5 inventories 6 property equipment property equipment consists 7 assets consist 8 acquisitions january 14 1998 boston technology inc delaware corporation bti merged comverse transaction accounted pooling interests bti designs develops manufactures markets supports standard customized enhanced services platforms software applications telephone network operator market pursuant merger issued outstanding shares bti effective date merger converted aggregate approximately 18141185 shares comverses common stock outstanding options warrants purchase bti stock converted options warrants purchase aggregate 3458265 comverse shares unaudited pro forma consolidated statement income data years ended december 31 1995 1996 1997 follows pro forma adjustments relate elimination intercompany transactions cti bti unaudited pro forma consolidated statement income data combine historical statement income data company years ended december 31 1995 1996 1997 historical statement income data bti fiscal years ended january 31 1996 1997 eleven months ended december 31 1997 respectively august 30 1995 company acquired dgms corporation develops markets telecommunications software products effect acquisition company issued 1078944 shares common stock outstanding common stock dgms acquisition accounted pooling interests therefore prior financial statements information restated include dgms companies combined periods presented 9 accounts payable accrued expenses accounts payable accrued expenses consist 10 bank loans december 31 1997 subsidiary comverse bank loan 16500000 loan interest rate 6 repayable july 1998 loan secured 16500000 deposit bank 11 convertible subordinated debentures october 1996 company issued 115000000 convertible subordinated debentures bearing interest 534 per annum payable semiannually debentures mature october 1 2006 debentures convertible shares companys common stock conversion price 4575 per share subject adjustment certain events debentures subordinated right payment existing future senior indebtedness company debentures redeemable option company whole part prices decreasing 102 face amount october 12 1999 par october 1 2001 debenture holders may require company repurchase debentures par event common stock ceases publicly traded certain instances upon change control company november 1993 company issued 60000000 convertible subordinated debentures bearing interest 514 per annum payable semiannually november 1996 company called debentures redemption debentures converted 3096768 shares common stock 12 liability severance pay liability severance pay consists companys unfunded liability severance pay employees certain foreign subsidiaries accrued severance companys chief executive officer companys statutory obligation severance pay employees israeli subsidiaries determined basis individuals current salary length employment funding currently provided primarily premiums paid company insurance providers company obligated agreement chief executive officer provide severance payment upon termination employment company approximately 1186000 1398000 accrued december 31 1996 1997 respectively relating liability 13 related parties company paid accrued legal fees one directors amounts 298000 254000 422000 1995 1996 1997 respectively 14 stock options employee stock options december 31 1997 3719516 shares common stock reserved issuance upon exercise options outstanding 239763 options available future grant comverses stock option plans options may granted key employees directors persons rendering services company options designated incentive stock options option plans may granted exercise price less fair market value underlying shares date grant subject certain quantity limitations specified section 422 internal revenue code options intended qualify incentive stock options may granted price less par value underlying shares without restriction amount options underlying shares subject adjustment accordance terms plans event stock dividends recapitalizations similar transactions right exercise options generally vests annual increments periods four years date grant date commencement grantees employment company changes number options follows december 31 1997 options purchase aggregate 1441428 shares vested currently exercisable option plans options purchase additional 2278088 shares vest various dates extending year 2001 weighted average option exercise price information years 1995 1996 1997 follows significant option groups outstanding december 31 1997 related weighted average price life information follows company applies accounting principles board opinion 25 accounting stock issued employees related interpretations accounting option plans accordingly options granted exercise prices equal fair market value date grant compensation expense recognized company connection stockbased compensation plans compensation cost companys stock option plans determined based upon fair value grant date awards plans consistent methodology prescribed statement financial accounting standards sfas 123 accounting stockbased compensation companys net income earnings per share would reduced approximately 1067000 2676000 7401000 04 09 28 per diluted share 1995 1996 1997 respectively weighted average fair value options granted 1995 1996 1997 estimated 840 1366 2314 date grant using blackscholes option pricing model following weighted average assumptions 1995 1996 1997 respectively volatility 67 55 54 riskfree interest rate 68 61 65 expected life five years 1995 1996 1997 options subsidiary shares comverse granted chief executive officer terms employment agreement options acquire 75 equity comverses subsidiaries efrat future technology ltd efrat addition comverse granted certain key executives company options acquire shares certain subsidiaries efrat means providing incentives directly tied performance subsidiaries different executives direct responsibility options upon exercise would represent aggregate 236 outstanding shares subsidiary terms ten years become exercisable vest equal ratable annual increments periods ranging three five years first anniversary date initial grant exercise price option equal higher book value underlying shares date grant fair market value shares date determined basis armslength transaction third party transactions occurred reasonable basis determined committee board directors upon exercise whole part option comverse receive irrevocable proxy vote underlying shares right first refusal purchase shares upon proposed sale transfer disposition time shares shall sold bona fide open market transaction 15 earnings per share eps 1997 company adopted sfas 128 earnings per share basic earnings per share determined using weighted average number shares common stock outstanding period diluted earnings per share assumes issuance common shares dilutive potential common shares outstanding calculation earnings per share three years ended december 31 1997 follows debentures convertible 3096768 shares 2513661 shares 2513661 shares outstanding december 31 1995 1996 1997 respectively included computation diluted eps effect including would antidilutive 16 foreign operations condensed net assets exclusive intercompany balances applicable foreign operations principally located israel included consolidated balance sheets summarized follows condensed operating information exclusive intercompany transactions applicable foreign operations principally located israel included consolidated statements income summarized follows operating results shown reflect inclusion costs expenses fixed charges incurred comverses foreign subsidiaries necessary support level activity greater shown table due exclusion intercompany revenue foreign operations 1996 1997 profitable intercompany transactions included 17 income taxes provision income taxes consists following reconciliation us federal statutory tax rate companys effective tax rate follows deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes b operating loss carryforwards tax effects significant items comprising companys deferred tax asset liability december 31 1996 1997 follows income tax provided unrepatriated earnings foreign subsidiaries currently intention company reinvest foreign earnings operations 18 business segment information company engaged one business segment design development manufacture marketing support special purpose computer telecommunications systems software multimedia communications information processing applications sales geographic regions percentage total sales years ended december 31 1995 1996 1997 follows 19 commitments contingencies leases company leases office manufacturing warehouse space noncancelable operating leases rent expense leased premises approximated 3014000 3511000 6287000 1995 1996 1997 respectively december 31 1997 minimum rent obligations company approximately follows amount thousands 1998 7585 1999 4047 2000 2892 2001 2639 2002 thereafter 6971 24134 employment agreements company obligated employment contracts chief executive officer provide salary bonuses fringe benefits june 30 2000 minimum salary payments contracts currently amount 350000 per year aggregate 875000 june 30 2000 executive entitled annual bonuses equal least 3 companys consolidated aftertax net income year upon termination expiration term employment executive entitled receive severance payment equal 93170 year previous current employment company increased rate 10 per annum compounded year employment plus continued employmentrelated benefits period 36 months thereafter termination employment results unilateral termination fundamental breach agreement company resignation executive within six months following change control company approved executive capacity director comverse executive entitled additional payment equal 299 average annual cash compensation including salary bonus payments received executive company three immediately preceding fiscal years plus amount equal income tax resulting payment agreements also provide executive receive options entitling purchase 712 equity comverses subsidiaries efrat prices equal higher book value underlying shares date option grant fair market value shares date determined basis armslength transaction third party transactions occurred reasonable basis determined board directors employment agreements company terminable without cause prior notice 60 days less licenses royalties company licenses certain technology knowhow software related rights use manufacture marketing products pays royalties third parties licenses agreements entered connection research product development activities company currently pays royalties sale substantially trilogue audiodisk product lines varying amounts based upon revenues attributed various components products royalties typically range approximately 15 6 net sales related products case royalties due government funding sources respect research development projects required paid funding organization received total royalties ranging 100 150 amounts received company approved project budgets dividend restrictions ability comverses israeli subsidiaries pay dividends governed israeli law provides cash dividends may paid israeli corporation retained earnings determined statutory purposes israeli currency event devaluation israeli currency dollar amount dollars available payment cash dividends prior years earnings decrease accordingly cash dividends paid israeli corporation united states residents subject withholding israeli income tax source rate 25 depending particular facilities generated earnings source dividends investments 1997 whollyowned subsidiaries comverse quantum industrial holdings ltd organized two new companies make investments primarily relating israel including investments high technology ventures participant committed total 25000000 capital new companies use suitable investment opportunities identified quantum industrial holdings ltd principal direct investment vehicle quantum group investment funds managed soros fund management llc guaranties company obtained bank guaranties primarily performance certain obligations contracts customers guaranties aggregated approximately 11800000 december 31 1997 released companys performance specified contract milestones scheduled completed primarily 1998 litigation company subject certain legal actions arising normal course business taking consideration legal counsels evaluation actions management opinion final resolution significant adverse effect upon companys business consolidated financial statements 20 fair value financial instruments estimated fair value amounts determined company using available market information appropriate valuation methodologies however considerable judgment necessarily required interpreting market data develop estimates fair value accordingly estimates presented herein necessarily indicative amounts company could realize current market exchange use different market assumptions andor estimation methodologies may material effect estimated fair value amounts cash equivalents bank time deposits shortterm investments accounts receivable longterm receivables investments accounts payable carrying amounts items reasonable estimate fair value convertible subordinated debentures foreign exchange forward contracts fair value securities estimated based quoted market prices recent sales similar securities fair value estimates presented herein based pertinent information available management december 31 1997 although management aware factors would significantly affect estimated fair value amounts comprehensively revalued purposes financial statements since date current estimates fair value may differ significantly amounts presented herein 21 recently issued accounting standards june 1997 financial accounting standards board issued sfas 130 reporting comprehensive income statement requires changes comprehensive income shown financial statement displayed prominence financial statements sfas 130 effective periods beginning december 15 1997 june 1997 financial accounting standards board issued sfas 131 disclosure segments enterprise related information sfas 131 specifies new guidelines determining companys operating segments related requirements disclosure company process evaluating impact new standard presentation financial statements disclosures therein sfas 131 effective periods beginning december 15 1997 october 1997 american institute certified public accountants issued statement position sop 972 software revenue recognition statement specifies certain changes determining recognition software revenue company process evaluating impact sop revenue recognition policies sop 972 effective periods beginning december 15 1997 22 quarterly information unaudited following table shows selected results operations quarters 1996 1997 difference income per share sum income per share quarters comprising year due differences calculation weighted average number shares outstanding respective periods rounding adjustments signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized comverse technology inc registrant kobi alexander kobi alexander president date march 25 1998 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated kobi alexander march 25 1998 kobi alexander president chairman board chief executive officer director igal nissim march 25 1998 igal nissim chief financial officer zvi alexander march 25 1998 zvi alexander director gregory c carr march 25 1998 gregory carr director john h friedman march 25 1998 john h friedman director francis e girard march 25 1998 francis girard director sam oolie march 25 1998 sam oolie director william f sorin march 25 1998 william f sorin director carmel vernia march 25 1998 carmel vernia director shaula yemini march 25 1998 shaula yemini directornanitem 14 exhibits financial statement schedules reports form 8k pages documents filed part report 1 financial statements index consolidated financial statements independent auditors reports consolidated balance sheets january 31 1998 1999 consolidated statements income years ended december 31 1996 1997 january 31 1999 consolidated statements stockholders equity years ended december 31 1996 1997 january 31 1999 consolidated statements cash flows years ended december 31 1996 1997 january 31 1999 notes consolidated financial statements 2 financial statement schedules none 3 exhibits index exhibits commences following page exhibits numbered 103 108 1013 1016 1024 1030 comprise material compensatory plans arrangements registrant exhibits description 21 agreement plan merger dated august 20 1997 registrant boston technology inc incorporated reference definitive proxy materials registrants annual meeting stockholders held january 13 1998 3 articles incorporation bylaws 31 certificate incorporation incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 32 certificate amendment certificate incorporation effective february 26 1993 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 33 certificate amendment certificate incorporation effective january 12 1995 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1994 34 bylaws amended incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 4 instruments defining rights security holders including indentures 41 excerpts certificate incorporation incorporated reference registrants registration statement form s1 securities exchange act 1933 registration 339147 42 excerpt certificate amendment certificate incorporation effective february 26 1993 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 43 excerpt certificate amendment certificate incorporation effective january 12 1995 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1994 44 excerpts bylaws amended incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 45 specimen stock certificate incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 46 indenture dated october 4 1996 comverse technology inc chase manhattan bank na trustee incorporated reference registrants current report form 8k securities exchange act 1934 filed october 10 1996 47 specimen 5 34 convertible subordinated debenture due 2006 incorporated reference registrants current report form 8k securities exchange act 1934 filed october 10 1996 48 indenture dated june 30 1998 comverse technology inc chase manhattan bank trustee incorporated reference registrants current report form 8k securities exchange act 1934 filed july 2 1998 49 specimen 4 12 convertible subordinated debenture due 2005 incorporated reference registrants current report form 8k securities exchange act 1934 filed july 2 1998 10 material contracts 101 proxy agreement dated september 5 1991 among comverse government systems corporation james r allen robert w bazley robert marsh comverse technology inc incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1991 102 visitation approval procedure agreement dated september 5 1991 among comverse government systems corporation james r allen robert w bazley robert marsh comverse technology inc incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1991 103 form stock option agreement pertaining shares certain subsidiaries comverse technology inc incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1993 104 employment agreement effective july 1 1994 comverse technology inc kobi alexander incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1994 105 1994 stock option plan incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1994 106 1995 stock option plan incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1995 107 1996 stock option plan incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1996 108 form incentive stock option agreement incorporated reference registrants registration statement form s1 securities act 1933 registration 339147 109 deed guarantee comverse technology inc bank hapoalim bm dated july 30 1986 incorporated reference registrants registration statement form s1 securities act 1933 registration 339147 1010 continuing guarantee comverse technology inc bank leumi leisrael bm incorporated reference registrants registration statement form s1 securities act 1933 registration 339147 1011 patent license agreement efrat future technology ltd vmx inc incorporated reference registrants registration statement form s1 securities act 1933 registration 339147 1012 form indemnity agreement comverse technology inc officers directors incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 1013 1987 stock option plan amended incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 1014 form stock option agreement options incentive stock options incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 1015 1997 employee stock purchase plan incorporated reference definitive proxy materials registrants annual meeting stockholders held january 13 1998 1016 1997 stock incentive compensation plan incorporated reference definitive proxy materials registrants annual meeting stockholders held january 13 1998 1017 memorandum agreement dated november 22 1995 boston technology inc att incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1996 confidential treatment requested certain portions 1018 lease dated november 5 1990 boston technology inc wakefield park limited partnership incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1991 1019 first amendment dated march 31 1993 lease dated november 5 1990 boston technology inc wakefield park limited partnership incorporated reference quarterly report boston technology inc form 10q securities exchange act 1934 quarter ended october 31 1993 1020 second amendment dated august 31 1994 lease dated november 5 1990 boston technology inc wakefield park limited partnership incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1995 1021 license agreement dated november 15 1988 boston technology inc vmx inc incorporated reference registration statement boston technology inc form s1 securities act 1933 registration 3332134 1022 license agreement dated january 22 1990 boston technology inc dytel corporation incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1990 1023 settlement agreement dated december 28 1993 boston technology inc theis research inc peter f theis incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1994 1024 boston technology inc 1995 director stock option plan incorporated reference quarterly report boston technology inc form 10q securities exchange act 1934 quarter ended july 31 1995 1025 boston technology inc 1992 directors stock option plan amended incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1994 1026 boston technology inc 1994 stock incentive plan incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1994 1027 boston technology inc 1989 incentive stock option plan amended incorporated reference definitive proxy materials boston technology incs annual meeting stockholders held july 14 1992 1028 boston technology inc employee savings profit sharing plan incorporated reference registration statement boston technology inc form s1 securities act 1933 registration 3332134 1029 boston technology inc employee severance benefit plan incorporated reference current report boston technology inc form 8k securities exchange act 1934 dated may 9 1991 1030 boston technology inc 1996 stock incentive plan incorporated reference definitive proxy materials boston technology incs annual meeting stockholders held june 25 1996 1031 lease dated june 7 1996 boston technology inc wbam limited partnership incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1997 21 subsidiaries registrant 27 financial data schedule incorporated reference comverse technology inc subsidiaries index consolidated financial statements page independent auditors reports consolidated balance sheets january 31 1998 1999 consolidated statements income years ended december 31 1996 1997 january 31 1999 consolidated statements stockholders equity years ended december 31 1996 1997 january 31 1999 consolidated statements cash flows years ended december 31 1996 1997 january 31 1999 notes consolidated financial statements independent auditors report board directors stockholders comverse technology inc woodbury new york audited accompanying consolidated balance sheets comverse technology inc subsidiaries company january 31 1998 1999 related consolidated statements income stockholders equity cash flows years ended december 31 1996 1997 january 31 1999 financial statements responsibility companys management responsibility express opinion financial statements based audits statements income stockholders equity cash flows year ended december 31 1996 give retroactive effect merger company boston technology inc accounted pooling interests described note 8 consolidated financial statements audit financial statements boston technology inc year ended january 31 1997 statements reflect total sales constituting 49 consolidated total sales year ended december 31 1996 financial statements audited auditors whose report furnished us opinion insofar relates amounts included boston technology inc based solely report auditors conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits report auditors provide reasonable basis opinion based report auditors consolidated financial statements present fairly material respects financial position comverse technology inc subsidiaries january 31 1998 1999 results operations cash flows years ended december 31 1996 1997 january 31 1999 conformity generally accepted accounting principles deloitte touche llp new york new york march 8 1999 april 15 1999 note 12 report independent accountants board directors stockholders boston technology inc audited consolidated balance sheet boston technology inc january 31 1997 related consolidated statements operations stockholders equity cash flows year ended january 31 1997 none included herein financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audit accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion financial statements referred present fairly material respects consolidated financial position boston technology inc january 31 1997 consolidated results operations cash flows fiscal year ended january 31 1997 conformity generally accepted accounting principles pricewaterhousecoopers llp boston massachusetts april 24 1997 comverse technology inc subsidiaries consolidated balance sheets january 31 1998 1999 thousands except share data see notes consolidated financial statements comverse technology inc subsidiaries consolidated statements income years ended december 31 1996 1997 january 31 1999 thousands except per share data see notes consolidated financial statements comverse technology inc subsidiaries consolidated statements stockholders equity years ended december 31 1996 1997 january 31 1999 thousands except share data see notes consolidated financial statements comverse technology inc subsidiaries consolidated statements cash flows years ended december 31 1996 1997 january 31 1999 thousands see notes consolidated financial statements comverse technology inc subsidiaries notes consolidated financial statements years ended december 31 1996 1997 january 31 1999 1 organization business comverse technology inc comverse together subsidiaries cti company organized new york corporation october 1984 company engaged design development manufacture marketing support special purpose computer telecommunications systems software multimedia communications information processing applications 2 summary significant accounting policies principles consolidation consolidated financial statements include accounts comverse whollyowned majorityowned subsidiaries material intercompany balances transactions eliminated cash equivalents bank time deposits company considers highly liquid investments purchased original maturities three months less cash equivalents bank deposits maturities excess three months classified bank time deposits shortterm investments company classifies shortterm investments including us treasury bills availableforsale accounted fair value resulting unrealized gains losses reported separate component stockholders equity netoftax basis concentration credit risk financial instruments potentially expose company concentration credit risk consist primarily cash investments accounts receivable company places cash investments highcredit quality financial institutions currently invests primarily bank time deposits money market funds placed major banks financial institutions corporate commercial paper corporate mediumterm notes us government obligations maturities one year less accounts receivable generally diversified due number commercial government entities comprising companys customer base dispersion across many geographical regions company believes significant concentration credit risk exists respect cash investments accounts receivable inventories stated lower cost market cost determined firstin firstout method property equipment property equipment carried cost less accumulated depreciation amortization company depreciates property equipment straightline basis periods ranging three seven years cost maintenance repairs charged operations incurred significant renewals betterments capitalized income taxes company accounts income using asset liability method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities measured using enacted tax rates laws expected effect differences expected reverse revenue expense recognition revenues product sales generally recognized upon shipment products shipped customer trials carried finished goods inventory customer acceptance obtained time revenue recognized revenues certain contracts recognized percentageofcompletion method basis physical completion date using actual costs incurred total expected costs contract amounts received customers excess revenues earned percentageofcompletion method recorded advance payments customers related contract costs include direct material labor costs indirect costs related contract performance included cost sales consolidated statements income expenses incurred connection research development activities certain software development costs capitalized selling general administrative expenses charged operations incurred software development costs software development costs capitalized upon establishment technological feasibility amortized estimated useful life software date four years less amortization begins period related product available general release customers amortization expenses amounted 3079000 3546000 3230000 years ended december 31 1996 1997 january 31 1999 respectively functional currency foreign currency transaction gains losses united states dollar functional currency major portion companys foreign operations companys sales materials purchased manufacturing denominated linked dollar certain operating costs principally salaries foreign operations denominated local currencies instances foreign subsidiary functional currency dollar company records necessary foreign currency translation adjustment reflected stockholders equity end reporting period net gains losses foreign currency transactions included consolidated statements income approximated 1012000 2192000 2847000 years ended december 31 1996 1997 january 31 1999 respectively company occasionally enters foreign exchange forward contracts options foreign currencies purpose companys foreign currency hedging activities protect company risk eventual dollar cash flows resulting sale products international customers adversely affected changes exchange rates gain loss foreign exchange contract hedges firm commitment deferred underlying transaction realized time included consolidated statement income company also purchases foreign exchange options permit require company exchange foreign currencies future date another party contracted exchange rate finance premiums paid options time company may also write offsetting options exercises prices limit eliminate effect purchased options hedge january 31 1999 company purchased foreign exchange options approximately 7000000 written foreign exchange options approximately 7000000 japanese yen assets licenses patent rights acquired knowhow recorded cost amortized using straightline method estimated useful lives related technology exceeding five years goodwill intangible assets associated acquired subsidiaries amortized periods ranging five twelve years debt issue costs amortized term related debt straightline basis longlived assets company reviews impairment longlived assets certain identifiable intangibles whenever events changes circumstances indicate carrying amount asset may recoverable impairment loss would recognized estimated future cash flows expected result use asset eventual disposition less carrying amount impairment losses identified company pervasiveness estimates preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates reclassifications certain prior year amounts reclassified conform manner presentation current year 3 research development significant portion companys research development operations located israel company derives substantial benefits participation programs sponsored government israel support research development activities conducted country companys research development activities include projects partially funded office chief scientist ministry industry trade state israel ocs funding organization reimburses portion companys research development expenditures approved project budgets company currently involved several ongoing research development projects supported ocs company required pay royalties ocs based sale products incorporating technology developed projects addition terms applicable funding agreements products resulting projects funded ocs may manufactured outside israel without government approval amounts reimbursed ocs years ended december 31 1996 1997 january 31 1999 9172000 16276000 16732000 respectively 4 shortterm investments company classifies shortterm investments availableforsale securities following summary availableforsale securities january 31 1999 year ended january 31 1999 gross realized gains sales securities totaled approximately 1358000 gross realized losses totaled approximately 5472000 amortized cost estimated fair value debt securities january 31 1999 contractual maturity follows 8 business combinations january 14 1998 boston technology inc delaware corporation bti merged comverse transaction accounted pooling interests bti designed developed manufactured marketed supported standard customized enhanced services platforms software applications telephone network operator market pursuant merger issued outstanding shares bti effective date merger converted aggregate approximately 27211778 shares comverses common stock outstanding options warrants purchase bti stock converted options warrants purchase aggregate 5187398 comverse shares table sets forth unaudited separate combined results cti bti fiscal years ended december 31 1996 1997 bti january fiscal year end accordingly consolidated statement income data combines historical statement income data company years ended december 31 1996 1997 historical statement income data bti fiscal years ended january 31 1997 eleven months ended december 31 1997 respectively 1998 company changed fiscal year calendar year fiscal year ending january 31 corresponding btis fiscal year result change fiscal year companys results operations one month ended january 31 1998 previously reported separately transition period included transition report form 10k company sales 14401000 costs expenses 129608000 net loss 115207000 one month ended january 31 1998 included results 85763000 merger related costs february 1997 company acquired outstanding stock enhanced communications corporation ecc company providing outsourcing voice messaging 243750 shares companys common stock combination accounted pooling interests company restate prior financial statements acquisition due immateriality recorded book value net assets ecc 661000 statement stockholders equity february 1999 company acquired outstanding stock amarex technology inc company develops softwarebased applications telephone network operator call center markets 346007 shares companys common stock assumption options warrants purchase 119643 shares companys common stock combination accounted pooling interests proforma effects acquisition would material effect companys financial statements 9 accounts payable accrued expenses accounts payable accrued expenses consist january 31 1998 1999 thousands accounts payable 37488 63606 accrued salaries 15492 22645 accrued vacation 6718 9004 accrued royalties 6271 18165 accrued expenses 59972 71450 125941 184870 10 convertible subordinated debentures october 1996 company issued 115000000 convertible subordinated debentures bearing interest 534 per annum payable semiannually debentures mature october 1 2006 debentures convertible shares companys common stock conversion price 3050 per share subject adjustment certain events debentures subordinated right payment existing future senior indebtedness company debentures redeemable option company whole part prices decreasing 102 face amount october 12 1999 par october 1 2001 debenture holders may require company repurchase debentures par event common stock ceases publicly traded certain instances upon change control company june 1998 company issued 300000000 convertible subordinated debentures bearing interest 412 per annum payable semiannually debentures mature july 1 2005 debentures convertible shares companys common stock conversion price 4300 per share subject adjustment certain events debentures subordinated right payment existing future senior indebtedness company debentures redeemable option company whole part prices decreasing 1018 face amount july 10 2001 par july 10 2003 debenture holders may require company repurchase debentures par event common stock ceases publicly traded certain instances upon change control company 11 liability severance pay liability severance pay consists companys unfunded liability severance pay employees certain foreign subsidiaries accrued severance companys chief executive officer companys statutory obligation severance pay employees israeli subsidiaries determined basis individuals current salary length employment funding currently provided primarily premiums paid company insurance providers company obligated agreement chief executive officer provide severance payment upon termination employment company approximately 1405000 1648000 accrued january 31 1998 1999 respectively relating liability 12 common stock split april 15 1999 company effected threefortwo stock split paying 50 stock dividend stockholders record march 31 1999 share per share information retroactively restated consolidated financial statements reflect split 13 stock options employee stock options january 31 1999 10388732 shares common stock reserved issuance upon exercise options outstanding 413730 shares available future grant comverses stock option plans options may granted key employees directors persons rendering services company options designated incentive stock options option plans may granted exercise price less fair market value underlying shares date grant subject certain quantity limitations specified section 422 internal revenue code options intended qualify incentive stock options may granted price less par value underlying shares without restriction amount options underlying shares subject adjustment accordance terms plans event stock dividends recapitalizations similar transactions right exercise options generally vests annual increments periods four years date grant date commencement grantees employment company changes number options follows january 31 1999 options purchase aggregate 3288803 shares vested currently exercisable option plans options purchase additional 7099929 shares vest various dates extending year 2003 weighted average option exercise price information follows significant option groups outstanding january 31 1999 related weighted average price life information follows company applies accounting principles board opinion 25 accounting stock issued employees related interpretations accounting option plans accordingly options granted exercise prices equal fair market value date grant compensation expense recognized company connection stockbased compensation plans compensation cost companys stock option plans determined based upon fair value grant date awards plans consistent methodology prescribed statement financial accounting standards sfas 123 accounting stockbased compensation companys net income earnings per share would reduced approximately 4962000 13505000 28769000 07 20 040 per diluted share years ended december 31 1996 1997 january 31 1999 respectively weighted average fair value options granted years ended december 31 1996 1997 january 31 1999 estimated 947 1547 1116 date grant using blackscholes option pricing model following weighted average assumptions years ended december 31 1996 1997 january 31 1999 respectively volatility 56 54 55 riskfree interest rate 63 65 47 expected life 46 47 50 years options subsidiary shares accordance requirements employment agreement chief executive officer comverse holds options acquire 75 shares certain subsidiaries comverse network systems inc addition comverse granted certain employees company options acquire shares certain subsidiaries comverse network systems inc means providing incentives directly tied performance subsidiaries portion shares subsidiaries upon options granted varies among subsidiaries affected exceeding instance 108 shares outstanding assuming exercise full options terms ten years become exercisable vest various periods ranging seven years date initial grant exercise price option equal higher book value underlying shares date grant fair market value shares date determined basis armslength transaction third party transactions occurred reasonable basis determined committee board directors 14 warrants november 1995 company entered agreement supply products customer pursuant agreement company issued warrants purchase shares common stock exercise price 1436 per share warrants vest five equal annual increments commencing first anniversary date grant remain exercisable 30 months first becoming exercisable january 31 1999 warrants purchase 1914432 shares outstanding none exercisable 15 employee stock purchase plan 1997 employee stock purchase plan espp employees completed three months employment entitled payroll deductions amounts 10 base salary purchase shares companys common stock 85 lesser market price offering commencement date offering termination date number shares available espp 375000 105333 issued january 31 1999 16 earnings per share eps basic earnings per share determined using weighted average number shares common stock outstanding period diluted earnings per share assumes issuance common shares dilutive potential common shares outstanding calculation earnings per share years ended december 31 1996 1997 january 31 1999 follows debentures convertible 3770492 shares 3770492 shares 10747236 shares outstanding december 31 1996 1997 january 31 1999 respectively included computation diluted eps effect including would antidilutive 17 interest income net interest income net consists following 18 income taxes provision income taxes consists following deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes b operating loss carryforwards tax effects significant items comprising companys deferred tax asset liability january 31 1998 1999 follows january 31 1999 company net operating loss carryforwards federal income tax purposes approximately 68 million begin expire 2018 income tax provided unrepatriated earnings foreign subsidiaries currently intention company reinvest foreign earnings operations 19 business segment information company engaged one business segment design development manufacture marketing support special purpose computer telecommunications systems software multimedia communications information processing applications sales country based enduser location percentage total sales years ended december 31 1996 1997 january 31 1999 follows year ended december 31 1996 sales customer constituted 11 total sales customer accounted 10 sales year ended december 31 1997 january 31 1999 condensed operating information years ended december 311996 1997 january 31 1999 follows longlived assets country domicile consist january 31 1998 1999 thousands united states 47681 47996 israel 28576 41826 1444 2210 77701 92032 20 commitments contingencies leases company leases office manufacturing warehouse space noncancelable operating leases rent expense leased premises approximated 7839000 11705000 15081000 years ended december 31 1996 1997 january 31 1999 respectively january 31 1999 minimum annual rent obligations company approximately follows twelve months ended january 31 amount thousands 2000 18086 2001 18595 2002 17207 2003 12714 2004 thereafter 40947 107549 employment agreements company obligated employment contracts chief executive officer provide salary bonuses fringe benefits june 30 2000 minimum salary payments contracts currently amount 350000 per year aggregate 496000 june 30 2000 executive entitled annual bonuses equal least 3 companys consolidated aftertax net income year upon termination expiration term employment executive entitled receive severance payment equal 102487 year previous current employment company increased rate 10 per annum compounded year employment plus continued employmentrelated benefits period 36 months thereafter termination employment results unilateral termination fundamental breach agreement company resignation executive within six months following change control company approved executive capacity director comverse executive entitled additional payment equal 299 average annual cash compensation including salary bonus payments received executive company three immediately preceding fiscal years plus amount equal income tax resulting payment agreements also provide executive receive options entitling purchase 712 equity comverses subsidiaries comverse network systems inc prices equal higher book value underlying shares date option grant fair market value shares date determined basis armslength transaction third party transactions occurred reasonable basis determined board directors employment agreements company terminable without cause prior notice 60 days less certain instances termination employment agreements without cause entitles employees certain benefits including acceleration vesting stock options severance payments much one years compensation licenses royalties company licenses certain technology knowhow software related rights use manufacture marketing products pays royalties third parties licenses agreements entered connection research product development activities company currently pays royalties sale product lines varying amounts based upon revenues attributed various components products royalties typically range 6 net sales related products case royalties due government funding sources respect research development projects required paid funding organization received total royalties ranging 100 150 amounts received company approved project budgets dividend restrictions ability comverses israeli subsidiaries pay dividends governed israeli law provides cash dividends may paid israeli corporation retained earnings determined statutory purposes israeli currency event devaluation israeli currency dollar amount dollars available payment cash dividends prior years earnings decrease accordingly cash dividends paid israeli corporation united states residents subject withholding israeli income tax source rate 25 depending particular facilities generated earnings source dividends investments 1997 whollyowned subsidiaries comverse quantum industrial holdings ltd organized two new companies make investments primarily relating israel including investments high technology ventures participant committed total 25000000 capital new companies use suitable investment opportunities identified quantum industrial holdings ltd principal direct investment vehicle quantum group investment funds managed soros fund management llc guaranties company obtained bank guaranties primarily performance certain obligations contracts customers guaranties aggregated approximately 20919000 january 31 1999 released companys performance specified contract milestones scheduled completed primarily 1999 litigation november 5 1998 comverses subsidiary comverse network systems inc cns filed complaint priority call management inc pcm alleging pcm infringing infringed certain patents owned cns seeking declaratory judgment injunctive relief compensatory treble damages attorneys fees pcm answered complaint asserting numerous affirmative defenses seeking declaratory judgment infringed cns patents invalid march 16 1999 pcm filed amended answer counterclaim asserting violations sherman antitrust act tortious interference patent misuse counterclaim pcm seeks declaratory judgments compensatory treble damages unspecified amounts attorneys fees currently parties engaged discovery company subject certain legal actions arising normal course business taking consideration legal counsels evaluation actions management opinion final resolution significant adverse effect upon companys financial position results operations 21 fair value financial instruments estimated fair value amounts determined company using available market information appropriate valuation methodologies however considerable judgment necessarily required interpreting market data develop estimates fair value accordingly estimates presented herein necessarily indicative amounts company could realize current market exchange use different market assumptions andor estimation methodologies may material effect estimated fair value amounts cash equivalents bank time deposits shortterm investments accounts receivable investments accounts payable carrying amounts items reasonable estimate fair value convertible subordinated debentures foreign exchange forward contracts fair value securities estimated based quoted market prices recent sales similar securities fair value estimates presented herein based pertinent information available management january 31 1999 although management aware factors would significantly affect estimated fair value amounts comprehensively revalued purposes financial statements since date current estimates fair value may differ significantly amounts presented herein 22 effect new accounting pronouncement 1998 financial accounting standards board issued statement financial accounting standards 133 accounting derivative instruments hedging activities sfas 133 sfas 133 requires derivative financial instruments recognized either assets liabilities balance sheet measurement fair value derivative designed hedging instrument changes fair value ie gains losses recognized earnings period change certain conditions met derivative may designed hedge case accounting changes fair value depend specific exposure hedged method used assessing effectiveness hedging derivative well measurement approach determining ineffective aspects hedge must established inception hedge methods must consistent companys approach managing risk sfas 133 effective fiscal years beginning june 15 1999 company currently evaluating impact adoption sfas 133 financial statements 23 quarterly information unaudited following table shows selected results operations quarters years ended december 31 1997 january 31 1999 difference income per share sum income per share quarters comprising year due differences calculation weighted average number shares outstanding respective periods rounding adjustments signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized comverse technology inc registrant kobi alexander date april 22 1999 kobi alexander president pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated kobi alexander april 22 1999 kobi alexander president chairman board chief executive officer director igal nissim april 22 1999 igal nissim chief financial officer zvi alexander april 22 1999 zvi alexander director itsik danziger april 22 1999 itsik danziger director john h friedman april 22 1999 john h friedman director francis e girard april 22 1999 francis e girard director sam oolie april 22 1999 sam oolie director william f sorin april 22 1999 william f sorin director carmel vernia april 22 1999 carmel vernia director shaula yemini april 22 1999 dr shaula yemini director exhibit index description 21 agreement plan merger dated august 20 1997 registrant boston technology inc incorporated reference definitive proxy materials registrants annual meeting stockholders held january 13 1998 3 articles incorporation bylaws 31 certificate incorporation incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 32 certificate amendment certificate incorporation effective february 26 1993 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 33 certificate amendment certificate incorporation effective january 12 1995 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1994 34 bylaws amended incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 4 instruments defining rights security holders including indentures 41 excerpts certificate incorporation incorporated reference registrants registration statement form s1 securities exchange act 1933 registration 339147 42 excerpt certificate amendment certificate incorporation effective february 26 1993 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 43 excerpt certificate amendment certificate incorporation effective january 12 1995 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1994 44 excerpts bylaws amended incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 45 specimen stock certificate incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 46 indenture dated october 4 1996 comverse technology inc chase manhattan bank na trustee incorporated reference registrants current report form 8k securities exchange act 1934 filed october 10 1996 47 specimen 5 34 convertible subordinated debenture due 2006 incorporated reference registrants current report form 8k securities exchange act 1934 filed october 10 1996 48 indenture dated june 30 1998 comverse technology inc chase manhattan bank trustee incorporated reference registrants current report form 8k securities exchange act 1934 filed july 2 1998 49 specimen 4 12 convertible subordinated debenture due 2005 incorporated reference registrants current report form 8k securities exchange act 1934 filed july 2 1998 10 material contracts 101 proxy agreement dated september 5 1991 among comverse government systems corporation james r allen robert w bazley robert marsh comverse technology inc incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1991 102 visitation approval procedure agreement dated september 5 1991 among comverse government systems corporation james r allen robert w bazley robert marsh comverse technology inc incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1991 103 form stock option agreement pertaining shares certain subsidiaries comverse technology inc incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1993 104 employment agreement effective july 1 1994 comverse technology inc kobi alexander incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1994 105 1994 stock option plan incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1994 106 1995 stock option plan incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1995 107 1996 stock option plan incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1996 108 form incentive stock option agreement incorporated reference registrants registration statement form s1 securities act 1933 registration 339147 109 deed guarantee comverse technology inc bank hapoalim bm dated july 30 1986 incorporated reference registrants registration statement form s1 securities act 1933 registration 339147 1010 continuing guarantee comverse technology inc bank leumi leisrael bm incorporated reference registrants registration statement form s1 securities act 1933 registration 339147 1011 patent license agreement efrat future technology ltd vmx inc incorporated reference registrants registration statement form s1 securities act 1933 registration 339147 1012 form indemnity agreement comverse technology inc officers directors incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 1013 1987 stock option plan amended incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 1014 form stock option agreement options incentive stock options incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 1015 1997 employee stock purchase plan incorporated reference definitive proxy materials registrants annual meeting stockholders held january 13 1998 1016 1997 stock incentive compensation plan incorporated reference definitive proxy materials registrants annual meeting stockholders held january 13 1998 1017 memorandum agreement dated november 22 1995 boston technology inc att incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1996 confidential treatment requested certain portions 1018 lease dated november 5 1990 boston technology inc wakefield park limited partnership incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1991 1019 first amendment dated march 31 1993 lease dated november 5 1990 boston technology inc wakefield park limited partnership incorporated reference quarterly report boston technology inc form 10q securities exchange act 1934 quarter ended october 31 1993 1020 second amendment dated august 31 1994 lease dated november 5 1990 boston technology inc wakefield park limited partnership incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1995 1021 license agreement dated november 15 1988 boston technology inc vmx inc incorporated reference registration statement boston technology inc form s1 securities act 1933 registration 3332134 1022 license agreement dated january 22 1990 boston technology inc dytel corporation incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1990 1023 settlement agreement dated december 28 1993 boston technology inc theis research inc peter f theis incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1994 1024 boston technology inc 1995 director stock option plan incorporated reference quarterly report boston technology inc form 10q securities exchange act 1934 quarter ended july 31 1995 1025 boston technology inc 1992 directors stock option plan amended incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1994 1026 boston technology inc 1994 stock incentive plan incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1994 1027 boston technology inc 1989 incentive stock option plan amended incorporated reference definitive proxy materials boston technology incs annual meeting stockholders held july 14 1992 1028 boston technology inc employee savings profit sharing plan incorporated reference registration statement boston technology inc form s1 securities act 1933 registration 3332134 1029 boston technology inc employee severance benefit plan incorporated reference current report boston technology inc form 8k securities exchange act 1934 dated may 9 1991 1030 boston technology inc 1996 stock incentive plan incorporated reference definitive proxy materials boston technology incs annual meeting stockholders held june 25 1996 1031 lease dated june 7 1996 boston technology inc wbam limited partnership incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1997 21 subsidiaries registrant 27 financial data schedule incorporated referenceitem 14 exhibits financial statement schedules reports form 8k exhibits description 3 articles incorporation bylaws 31 certificate incorporation incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 32 certificate amendment certificate incorporation effective february 26 1993 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 33 certificate amendment certificate incorporation effective january 12 1995 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1994 34 certificate amendment certificate incorporation dated october 18 1999 35 bylaws amended incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 4 instruments defining rights security holders including indentures 41 excerpts certificate incorporation incorporated reference registrants registration statement form s1 securities exchange act 1933 registration 339147 42 excerpt certificate amendment certificate incorporation effective february 26 1993 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 43 excerpt certificate amendment certificate incorporation effective january 12 1995 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1994 44 excerpts bylaws amended incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 45 specimen stock certificate incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 46 indenture dated june 30 1998 comverse technology inc chase manhattan bank trustee incorporated reference registrants current report form 8k securities exchange act 1934 filed july 2 1998 47 specimen 4 12 convertible subordinated debenture due 2005 incorporated reference registrants current report form 8k securities exchange act 1934 filed july 2 1998 10 material contracts 101 form stock option agreement pertaining shares certain subsidiaries comverse technology inc incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1993 102 form incentive stock option agreement incorporated reference registrants registration statement form s1 securities act 1933 registration 339147 103 form stock option agreement options incentive stock options incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 104 form indemnity agreement comverse technology inc officers directors incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 105 1997 employee stock purchase plan amended incorporated reference definitive proxy materials registrants annual meeting stockholders held october 8 1999 106 1997 stock incentive compensation plan incorporated reference definitive proxy materials registrants annual meeting stockholders held january 13 1998 107 1999 stock incentive compensation plan incorporated reference definitive proxy materials registrants annual meeting stockholders held october 8 1999 108 memorandum agreement dated november 22 1995 boston technology inc att incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1996 confidential treatment requested certain portions 109 lease dated november 5 1990 boston technology inc wakefield park limited partnership incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1991 1010 first amendment dated march 31 1993 lease dated november 5 1990 boston technology inc wakefield park limited partnership incorporated reference quarterly report boston technology inc form 10q securities exchange act 1934 quarter ended october 31 1993 1011 second amendment dated august 31 1994 lease dated november 5 1990 boston technology inc wakefield park limited partnership incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1995 1012 license agreement dated january 22 1990 boston technology inc dytel corporation incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1990 1013 settlement agreement dated december 28 1993 boston technology inc theis research inc peter f theis incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1994 1014 lease dated june 7 1996 boston technology inc wbam limited partnership incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1997 21 subsidiaries registrant 23 consent deloitte touche llp 27 financial data schedule incorporated reference comverse technology inc subsidiaries index consolidated financial statements page independent auditors report consolidated balance sheets january 31 1999 2000 consolidated statements income years ended december 31 1997 january 31 1999 2000 consolidated statements stockholders equity years ended december 31 1997 january 31 1999 2000 consolidated statements cash flows years ended december 31 1997 january 31 1999 2000 notes consolidated financial statements independent auditors report board directors stockholders comverse technology inc woodbury new york audited accompanying consolidated balance sheets comverse technology inc subsidiaries company january 31 1999 2000 related consolidated statements income stockholders equity cash flows years ended december 31 1997 january 31 1999 2000 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position comverse technology inc subsidiaries january 31 1999 2000 results operations cash flows years ended december 31 1997 january 31 1999 2000 conformity generally accepted accounting principles united states america deloitte touche llp new york new york march 6 2000 april 3 2000 note 12 comverse technology inc subsidiaries consolidated balance sheets january 31 1999 2000 thousands except share data see notes consolidated financial statements comverse technology inc subsidiaries consolidated statements income years ended december 31 1997 january 31 1999 2000 thousands except per share data december 31 january 31 january 31 1997 1999 2000 sales 488940 696094 872190 cost sales 202640 279690 329802 gross margin 286300 416404 542388 operating expenses research development net 96626 132820 168132 selling general administrative 138305 151985 184080 royalties license fees 12325 16552 18841 merger expenses 2016 income operations 39044 115047 169319 interest income net 4879 8263 16519 income tax provision 43923 123310 185838 income tax provision 9398 11783 15577 net income 34525 111527 170261 earnings per share basic 027 084 118 diluted 025 078 107 see notes consolidated financial statements comverse technology inc subsidiaries consolidated statements stockholders equity years ended december 31 1997 january 31 1999 2000 thousands except share data see notes consolidated financial statements comverse technology inc subsidiaries consolidated statements cash flows years ended december 31 1997 january 31 1999 2000 thousands see notes consolidated financial statements comverse technology inc subsidiaries notes consolidated financial statements years ended december 31 1997 january 31 1999 2000 1 organization business comverse technology inc comverse together subsidiaries cti company organized new york corporation october 1984 company engaged design development manufacture marketing support special purpose computer telecommunications systems software multimedia communications information processing applications 1998 company changed fiscal year calendar year fiscal year ending january 31 result change fiscal year companys results operations one month ended january 31 1998 previously reported separately transition period included transition report form 10k 2 summary significant accounting policies principles consolidation consolidated financial statements include accounts comverse whollyowned majorityowned subsidiaries material intercompany balances transactions eliminated cash equivalents bank time deposits company considers highly liquid investments purchased original maturities three months less cash equivalents bank deposits maturities excess three months classified bank time deposits shortterm investments company classifies shortterm investments including us treasury bills availableforsale accounted fair value resulting unrealized gains losses reported separate component stockholders equity netoftax basis concentration credit risk financial instruments potentially expose company concentration credit risk consist primarily cash investments accounts receivable company places cash investments highcredit quality financial institutions currently invests primarily bank time deposits money market funds placed major banks financial institutions corporate commercial paper corporate mediumterm notes us government obligations accounts receivable generally diversified due number commercial government entities comprising companys customer base dispersion across many geographical regions company believes significant concentration credit risk exists respect cash investments accounts receivable inventories stated lower cost market cost determined firstin firstout method property equipment property equipment carried cost less accumulated depreciation amortization company depreciates property equipment straightline basis periods ranging three seven years cost maintenance repairs charged operations incurred significant renewals betterments capitalized income taxes company accounts income taxes using asset liability method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities measured using enacted tax rates laws expected effect differences expected reverse revenue expense recognition revenue generally recognized time shipment sales systems require significant customization performed company collection resulting receivable deemed probable company companys systems generally bundled hardware software solution shipped together company generally obligations customers date products shipped except product warranties company generally warranties products one year sale provision estimated warranty costs recorded time sale customers may also purchase separate maintenance contracts generally consist bugfixing telephone access company technical personnel certain circumstances may also include right receive unspecified product updates upgrades enhancements revenue services recognized ratably contract period revenues certain development contracts recognized percentageofcompletion method basis physical completion date using actual costs incurred total expected costs contract revisions estimates costs profits reflected accounting period facts require revision become known time loss contract known entire amount estimated loss accrued amounts received customers excess revenues earned percentageofcompletion method recorded advance payments customers related contract costs include direct material labor costs indirect costs related contract performance included cost sales consolidated statements income expenses incurred connection research development activities certain software development costs capitalized selling general administrative expenses charged operations incurred software development costs software development costs capitalized upon establishment technological feasibility amortized estimated useful life software date four years less amortization begins period related product available general release customers amortization expenses amounted 3546000 3230000 5754000 years ended december 31 1997 january 31 1999 2000 respectively functional currency foreign currency transaction gains losses united states dollar functional currency major portion companys foreign operations companys sales materials purchased manufacturing denominated linked dollar certain operating costs principally salaries foreign operations denominated local currencies instances foreign subsidiary functional currency dollar company records necessary foreign currency translation adjustment reflected stockholders equity end reporting period net gains losses foreign currency transactions included consolidated statements income approximated 2192000 2847000 9422000 years ended december 31 1997 january 31 1999 2000 respectively company occasionally enters foreign exchange forward contracts options foreign currencies purpose companys foreign currency hedging activities protect company risk eventual dollar cash flows resulting sale products international customers adversely affected changes exchange rates gain loss foreign exchange contract hedges firm commitment deferred underlying transaction realized time included consolidated statement income company also purchases foreign exchange options permit require company exchange foreign currencies future date another party contracted exchange rate finance premiums paid options time company may also write offsetting options exercise prices limit eliminate effect purchased options hedge january 31 2000 company material outstanding foreign exchange contracts assets licenses patent rights acquired knowhow recorded cost amortized using straightline method estimated useful lives related technology exceeding five years goodwill intangible assets associated acquired subsidiaries amortized periods ranging five twelve years debt issue costs amortized using effective interest method term related debt longlived assets company reviews impairment longlived assets certain identifiable intangibles whenever events changes circumstances indicate carrying amount asset may recoverable impairment loss would recognized estimated future cash flows expected result use asset eventual disposition less carrying amount impairment losses identified company pervasiveness estimates preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates reclassifications certain prior year amounts reclassified conform manner presentation current year 3 research development significant portion companys research development operations located israel company derives substantial benefits participation programs sponsored government israel support research development activities conducted country companys research development activities include projects partially funded office chief scientist ministry industry trade state israel ocs funding organization reimburses portion companys research development expenditures approved project budgets company currently involved several ongoing research development projects supported ocs company accrues royalties ocs sale products incorporating technology developed projects addition terms applicable funding agreements products resulting projects funded ocs may manufactured outside israel without government approval amounts reimbursed ocs years ended december 31 1997 january 31 1999 2000 16276000 16732000 16797000 respectively 4 shortterm investments company classifies shortterm investments availableforsale securities following summary availableforsale securities january 31 2000 year ended january 31 2000 gross realized gains sales securities totaled approximately 11652000 gross realized losses totaled approximately 4613000 year ended january 31 1999 gross realized gains sales securities totaled approximately 1358000 gross realized losses totaled approximately 5472000 year ended december 31 1997 gross realized gains sales securities totaled approximately 4037000 gross realized losses totaled approximately 2503000 basis cost determined computing realized gain loss firstin firstout method amortized cost estimated fair value debt securities january 31 2000 contractual maturity follows estimated cost fair value thousands due one year less 374310 374075 due one year three years 20845 20549 due three years 10266 10003 405421 404627 5 inventories consist january 31 1999 2000 thousands raw materials 23944 38641 work process 11171 29755 finished goods 11574 29257 46689 97653 6 property equipment property equipment consists january 31 1999 2000 thousands fixtures equipment 120297 165370 land 25803 software 4034 13593 transportation vehicles 1985 808 leasehold improvements 3044 7408 129360 212982 less accumulated depreciation amortization 67915 91085 61445 121897 7 assets consist january 31 1999 2000 thousands software development costs net accumulated amortization 14126 19880 15140 21314 debt issue costs net accumulated amortization 1078 1404 9140 5703 assets 5129 8174 29409 35191 8 business combinations march 2000 company signed definitive agreement acquire outstanding stock loronix information systems inc loronix company develops softwarebased digital video recording management systems used variety applications industries companys acquisition loronix expected accounted pooling interests company issue 0385 new common shares outstanding loronix share approximately 1974000 new shares loronix shareholders assume outstanding loronix stock options loronix right terminate agreement value companys shares received loronix shareholders less 36 per loronix share case company right increase exchange ratio adjust consideration 36 per share unaudited pro forma consolidated statement income data fiscal years ended december 31 1997 january 31 1999 2000 follows unaudited pro forma consolidated statement income data combine historical statement income data company years ended december 31 1997 january 31 1999 2000 historical statement income data loronix fiscal years ended december 31 1997 1998 1999 respectively august 1999 company acquired outstanding stock intouch systems inc intouch company develops markets suite intelligent voicecontrolled software applications 679202 shares companys common stock assumption options purchase 79122 shares companys common stock combination accounted pooling interests company restate prior financial statements acquisition due immateriality recorded book value net assets intouch 1122000 statement stockholders equity february 1999 company acquired outstanding stock amarex technology inc amarex company develops softwarebased applications telephone network operator call center markets 692014 shares companys common stock assumption options warrants purchase 239286 shares companys common stock combination accounted pooling interests company restate prior financial statements acquisition due immateriality recorded book value net assets amarex 268000 statement stockholders equity january 1998 boston technology inc delaware corporation bti merged comverse transaction accounted pooling interests bti designed developed manufactured marketed supported standard customized enhanced services platforms software applications telephone network operator market pursuant merger issued outstanding shares bti effective date merger converted aggregate approximately 54423556 shares comverses common stock outstanding options warrants purchase bti stock converted options warrants purchase aggregate 10374796 comverse shares table sets forth unaudited separate combined results cti bti fiscal year ended december 31 1997 bti january 31 fiscal year end accordingly consolidated statement income data combines historical statement income data company year ended december 31 1997 historical statement income data bti eleven months ended december 31 1997 1998 company changed fiscal year calendar year fiscal year ending january 31 corresponding btis fiscal year result change fiscal year companys results operations one month ended january 31 1998 previously reported separately transition period included transition report form 10k consolidated statement operations data one month ended january 31 1998 follows thousands except per share amounts sales 14401 cost sales 21146 selling general administrative expenses 51892 research development 13481 royalties license fees 520 merger restructuring charges 41877 loss operations 114515 interest income net 175 loss income tax 114340 income tax provision 867 net loss 115207 net loss per share 089 connection merger company charged 41877000 operations merger restructuring related charges relate following asset writedowns impairments thousands research development equipment 9106 capitalized software costs 2987 prepaid license fees 2190 furniture equipment 1474 161 total asset writedowns impairments 15918 connection merger bti certain assets became impaired due closing duplicative facilities existence duplicative technology merged companies addition company decided develop new software platform combined company discontinue certain software enhancements development previously capitalized accordingly assets written net realizable value time merger net realizable value determined accordance companys accounting policies disclosed note 1 severance restructuring charges thousands terminated employment contracts severance 6825 terminated leases duplicative facilities 571 449 total 7845 connection merger bti management requisite authority determined close certain duplicate facilities sever certain employees otherwise streamline combined operations company also terminated certain employment contracts employees provided future benefit merged companies connection plan company recorded charge severance related fringe benefits 50 employees consisting 25 software engineers 10 operations employees 5 customer service employees 10 general administrative employees employment contracts employees terminated severance plan considered redundant company result merger prior merger company bti sales offices certain countries result merger duplicative facilities closed summary restructuring reserve follows one month ended year ended january 31 january 31 1998 1999 2000 thousands balance beginning period 7356 2063 provision 7845 payments terminated employment contracts severance 334 4528 1952 duplicative facilities 56 515 99 250 balance end period 7356 2063 111 professional fees direct merger expenses connection merger bti company recorded charge 11040000 professional fees lawyers investment bankers accountants well direct merger costs printer fees proxy statement incurred directly connection merger related charges thousands penalties product development agreements 5989 terminated development contracts 1085 7074 connection merger bti company also terminated certain existing development contracts provided future benefit merged companies prior merger company commitments third parties develop technology contractually obligated result merger company decided develop new software platform combined company discontinue certain enhancements development addition company incurred penalties product development agreements relating transfer technology addition approximately 36055000 charged selling general administrative expenses one month period ended january 31 1998 relating impairment receivables resulting merger included amount approximately 149 million international distributor refused pay company claiming exclusive distribution agreement violated result merger also included amount approximately 211 million due customers switched customers bti company bti order continue good customer relations company decided forgive amounts owed approximately 7831000 charged cost sales one month ended january 31 1998 relating merger charge relates writeoff inventory considered obsolete duplicative result merger company bti two enhanced services platform products result merger company decided one product company bti would longer sold february 1997 company acquired outstanding stock enhanced communications corporation ecc company providing outsourcing voice messaging 487500 shares companys common stock combination accounted pooling interests company restate prior financial statements acquisition due immateriality recorded book value net assets ecc 661000 statement stockholders equity 9 accounts payable accrued expenses accounts payable accrued expenses consist january 31 1999 2000 thousands accounts payable 63606 74074 accrued salaries 22645 28825 accrued vacation 9004 13568 accrued royalties 18165 26567 accrued expenses 71450 88211 184870 231245 10 convertible subordinated debentures june 1998 company issued 300000000 convertible subordinated debentures bearing interest 412 per annum payable semiannually debentures mature july 1 2005 debentures convertible shares companys common stock conversion price 2150 per share subject adjustment certain events debentures subordinated right payment existing future senior indebtedness company debentures redeemable option company whole part prices decreasing 1018 face amount july 10 2001 par july 10 2003 debenture holders may require company repurchase debentures par event common stock ceases publicly traded certain instances upon change control company october 1996 company issued 115000000 convertible subordinated debentures bearing interest 534 per annum payable semiannually october 1999 company called debentures redemption debentures converted 7540916 shares common stock 11 liability severance pay liability severance pay consists companys unfunded liability severance pay employees certain foreign subsidiaries accrued severance companys chief executive officer israeli law company obligated make severance payments employees israeli subsidiaries basis individuals current salary length employment liabilities currently provided primarily premiums paid company insurance providers company obligated agreement chief executive officer provide severance payment upon termination employment company approximately 1648000 1925000 accrued january 31 1999 2000 respectively relating liability 12 common stock splits april 15 1999 company effected threefortwo stock split paying 50 stock dividend stockholders record march 31 1999 april 3 2000 company effected twoforone stock split paying 100 stock dividend shareholders record march 27 2000 share per share information retroactively restated consolidated financial statements reflect splits increase authorized common shares annual meeting shareholders held october 8 1999 companys shareholders approved amendment companys certificate incorporation increase 100000000 300000000 aggregate number authorized common shares company 13 stock options employee stock options january 31 2000 23409800 shares common stock reserved issuance upon exercise options outstanding 90020 shares available future grant comverses stock option plans options may granted key employees directors persons rendering services company options designated incentive stock options option plans may granted exercise price less fair market value underlying shares date grant subject certain quantity limitations specified section 422 internal revenue code options intended qualify incentive stock options may granted price less par value underlying shares without restriction amount options underlying shares subject adjustment accordance terms plans event stock dividends recapitalizations similar transactions right exercise options generally vests annual increments periods four years date grant date commencement grantees employment company maximum term ten years options granted changes number options follows year ended december 31 january 31 1997 1999 2000 outstanding beginning year 16718884 24791386 20777464 options pooling interests transactions 224758 granted year 3314250 2690582 8463306 exercised year 3772408 5791814 5321244 canceled terminated expired 427014 912690 734484 outstanding end year 15833712 20777464 23409800 january 31 2000 options purchase aggregate 7087800 shares vested currently exercisable option plans options purchase additional 16322000 shares vest various dates extending year 2003 weighted average option exercise price information follows year ended december 31 january 31 1997 1999 2000 outstanding beginning year 554 864 962 assumed pooling interests 316 granted year 1435 1072 4436 exercised year 413 587 821 canceled terminated expired 899 1042 1210 exercisable year end 390 679 906 significant option groups outstanding january 31 2000 related weighted average price life information follows company applies accounting principles board opinion 25 accounting stock issued employees related interpretations accounting option plans accordingly options granted exercise prices equal fair market value date grant compensation expense recognized company connection stockbased compensation plans compensation cost companys stock option plans determined based upon fair value grant date awards plans consistent methodology prescribed statement financial accounting standards sfas 123 accounting stockbased compensation companys net income earnings per share would reduced approximately 13505000 28769000 44853000 010 020 027 per diluted share years ended december 31 1997 january 31 1999 2000 respectively weighted average fair value options granted years ended december 31 1997 january 31 1999 2000 respectively estimated 774 558 2167 date grant using blackscholes option pricing model following weighted average assumptions years ended december 31 1997 january 31 1999 2000 respectively volatility 54 55 riskfree interest rate 65 47 59 expected life 47 50 41 years options subsidiary shares accordance requirements employment agreement chief executive officer comverse holds options acquire 75 shares certain subsidiaries comverse network systems inc addition comverse granted certain employees company options acquire shares certain subsidiaries comverse network systems inc option issuances tied performance subsidiaries intended incentivize employees units direct responsibility portion shares subsidiaries upon options granted varies among subsidiaries affected exceeding instance 20 shares outstanding assuming exercise full options terms 15 years become exercisable vest various periods ranging seven years date initial grant exercise price option equal higher book value underlying shares date grant fair market value shares date determined basis armslength transaction third party transactions occurred reasonable basis determined committee board directors 14 warrants november 1995 company entered agreement supply products customer pursuant agreement company issued warrants purchase shares common stock exercise price 718 per share warrants vest five equal annual increments commencing first anniversary date grant remain exercisable 30 months first becoming exercisable january 31 2000 warrants purchase 1914432 shares outstanding none exercisable 15 employee stock purchase plan 1997 employee stock purchase plan espp employees completed three months employment entitled payroll deductions amounts 10 base salary purchase shares companys common stock 85 lesser market price offering commencement date offering termination date number shares available espp 1500000 587682 issued january 31 2000 16 earnings per share eps basic earnings per share determined using weighted average number shares common stock outstanding period diluted earnings per share assumes issuance common shares dilutive potential common shares outstanding calculation earnings per share years ended december 31 1997 january 31 1999 2000 follows debentures convertible 7540984 shares 21494472 shares outstanding december 31 1997 january 31 1999 respectively included computation diluted eps effect including would antidilutive 17 interest income net interest income net consists following year ended december 31 january 31 1997 1999 2000 thousands interest dividend income 15692 25410 36690 interest expense 9727 16065 19310 net 1086 1082 861 4879 8263 16519 18 income taxes provision income taxes consists following year ended december 31 january 31 1997 1999 2000 thousands current federal 3471 state 703 127 762 foreign 2216 11664 14743 6390 11791 15505 deferred benefit federal 2810 430 state 215 13 foreign 17 409 59 3008 8 72 9398 11783 15577 reconciliation us federal statutory tax rate companys effective tax rate follows year ended december 31 january 31 1997 1999 2000 us federal statutory rate 35 consolidated worldwide income excess us income 31 37 36 foreign income taxes 5 9 8 12 3 1 companys effective tax rate 21 10 8 deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes b operating loss carryforwards tax effects significant items comprising companys deferred tax asset liability january 31 1999 2000 follows january 31 1999 2000 thousands deferred tax liability expenses deductible tax purposes financial reporting purposes 94 151 unrealized gain availableforsale securities 1301 1154 1395 1305 deferred tax asset reserves currently deductible 22417 18408 tax loss carryforwards 25160 104733 inventory capitalization 276 408 47853 123549 less valuation allowance 46193 121883 total deferred tax asset 1660 1666 january 31 2000 company net operating loss carryforwards federal income tax purposes approximately 2831 million begin expire 2018 income tax provided unrepatriated earnings foreign subsidiaries currently intention company reinvest foreign earnings operations 19 business segment information company historically operated business based different geographical regions year ended january 31 2000 company changed manner operates various product business units companys reporting segments follows enhanced services platform products enables telecommunications network operators offer variety revenuegenerating services including broad range integrated messaging information distribution personal assistant services call answering voice mail fax mail unified messaging prepaid services wireless data internetbased services signaling software products interconnects complex switching database messaging systems manage vital number routing billing information form backbone todays communication networks products also enable voice data networks interoperate converge allowing service providers offer converged network services voice internet call waiting digital monitoring systems products supports voice fax data recording analysis activities call centers variety commercial governmental organizations supports monitoring recording surveillance information gathering analysis activities law enforcement intelligence agencies includes miscellaneous operations table presents information operating incomeloss segment assets year ended january 31 2000 reconciling items consist following sales elimination intersegment revenues operating income elimination intersegment operating income corporate operations total assets elimination intersegment receivables unallocated corporate assets historical operating information could reasonably restated prior years based companys new operating structure historical condensed operating information based geographical regions years ended december 31 1997 january 31 1999 follows sales country based enduser location percentage total sales years ended december 31 1997 january 31 1999 2000 follows december 31 january 31 1997 1999 2000 united states 33 26 21 germany 4 11 10 japan 13 8 9 foreign 50 55 60 total 100 customer accounted 10 sales years ended december 31 1997 january 31 1999 january 31 2000 longlived assets country domicile consist january 31 1999 2000 thousands united states 47996 67527 israel 41826 95275 2210 10416 92032 173218 20 commitments contingencies leases company leases office manufacturing warehouse space noncancelable operating leases rent expense leased premises approximated 11705000 15081000 22364000 years ended december 31 1997 january 31 1999 2000 respectively january 31 2000 minimum annual rent obligations company approximately follows twelve months ended january 31 amount thousands 2001 22546 2002 17941 2003 16522 2004 15323 2005 thereafter 41026 113358 employment agreements company obligated employment contracts chief executive officer provide salary bonuses fringe benefits january 31 2004 minimum salary payments contracts currently amount 642000 per year executive entitled annual bonuses equal least 275 companys consolidated aftertax net income year determined without regard acquisitionrelated expenses charges following termination expiration term employment executive entitled receive severance payment equal 112736 times number years beginning employment company amount payment increases rate 10 per annum compounded year employment following december 31 2000 plus continued fringe benefits three years insurance coverage 10 years executives employment terminated company without cause executive good reason terms defined agreement executive entitled additional payments attributable salary bonus monetary equivalence benefits otherwise would expected receive period three years balance agreement term whichever longer termination occurs following change control company required additional payment three times executives annual salary bonus executive additionally entitled accelerated vesting retirement benefits stock options payments sufficient reimburse associated excise tax liability income tax resulting reimbursement agreements also provide executive receive options entitling purchase 712 equity comverses subsidiaries comverse network systems inc prices equal higher book value underlying shares date option grant fair market value shares date determined basis armslength transaction third party transactions occurred reasonable basis determined board directors options well options granted executive companys stock option stock incentive plans become fully vested exercisable nonforfeitable event change control company termination executives employment company without cause executive good reason executives death disability employment agreements company terminable without cause prior notice 90 days less certain instances termination employment agreements without cause entitles employees certain benefits including acceleration vesting stock options severance payments much one years compensation licenses royalties company licenses certain technology knowhow software related rights use manufacture marketing products pays royalties third parties licenses agreements entered connection research product development activities company currently pays royalties sale product lines varying amounts based upon revenues attributed various components products royalties typically range 6 net sales related products case royalties due government funding sources respect research development projects required paid funding organization received total royalties ranging 100 150 amounts received company approved project budgets dividend restrictions ability comverses israeli subsidiaries pay dividends governed israeli law provides cash dividends may paid israeli corporation retained earnings determined statutory purposes israeli currency event devaluation israeli currency dollar amount dollars available payment cash dividends prior years earnings decrease accordingly cash dividends paid israeli corporation united states residents subject withholding israeli income tax source rate 25 depending particular facilities generated earnings source dividends investments 1997 whollyowned subsidiaries comverse quantum industrial holdings ltd organized two new companies make investments primarily relating israel including investments high technology ventures participant committed total 37500000 capital new companies use suitable investment opportunities identified quantum industrial holdings ltd principal direct investment vehicle quantum group investment funds managed soros fund management llc january 31 1999 2000 company invested approximately 3100000 11300000 respectively related ventures included caption investments accompanying balance sheets guaranties company obtained bank guaranties primarily performance certain obligations contracts customers guaranties aggregated approximately 58405000 january 31 2000 released companys performance specified contract milestones scheduled completed primarily 2000 litigation november 5 1998 comverses subsidiary comverse network systems inc cns filed complaint priority call management inc pcm alleging pcm infringing infringed certain patents owned cns october 6 1999 cns amended complaint include allegations misappropriations trade secrets confidential information conversion intentional interference contractual relations unfair deceptive practices cns seeking declaratory judgment injunctive relief compensatory treble damages attorneys fees pcm answered complaint asserting numerous affirmative defenses seeking declaratory judgment infringed cns patents invalid march 16 1999 pcm filed amended answer counterclaim asserting violations sherman antitrust act tortious interference patent misuse counterclaim pcm seeks declaratory judgments compensatory treble damages unspecified amounts attorneys fees currently parties engaged discovery company subject certain legal actions arising normal course business taking consideration legal counsels evaluation actions management opinion final resolution significant adverse effect upon companys financial position results operations 21 fair value financial instruments estimated fair value amounts determined company using available market information appropriate valuation methodologies however considerable judgment necessarily required interpreting market data develop estimates fair value accordingly estimates presented herein necessarily indicative amounts company could realize current market exchange use different market assumptions andor estimation methodologies may material effect estimated fair value amounts cash equivalents bank time deposits shortterm investments accounts receivable investments accounts payable carrying amounts items reasonable estimate fair value convertible subordinated debentures foreign exchange forward contracts fair value securities estimated based quoted market prices recent sales similar securities fair value estimates presented herein based pertinent information available management january 31 2000 although management aware factors would significantly affect estimated fair value amounts comprehensively revalued purposes financial statements since date current estimates fair value may differ significantly amounts presented herein 22 effect new accounting pronouncement 1998 financial accounting standards board issued statement financial accounting standards 133 accounting derivative instruments hedging activities sfas 133 sfas 133 requires derivative financial instruments recognized either assets liabilities balance sheet measurement fair value derivative designed hedging instrument changes fair value ie gains losses recognized earnings period change certain conditions met derivative may designed hedge case accounting changes fair value depend specific exposure hedged method used assessing effectiveness hedging derivative well measurement approach determining ineffective aspects hedge must established inception hedge methods must consistent companys approach managing risk sfas 133 amended statement financial accounting standards 137 effective fiscal years beginning june 15 2000 company currently evaluating impact adoption sfas 133 financial statements 23 quarterly information unaudited following table shows selected results operations quarters years ended january 31 1999 2000 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized comverse technology inc registrant april 28 2000 kobi alexander kobi alexander president pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated kobi alexander april 28 2000 kobi alexander president chairman board chief executive officer director david kreinberg april 28 2000 david kreinberg chief financial officer zvi alexander april 28 2000 zvi alexander director itsik danziger april 28 2000 itsik danziger director john h friedman april 28 2000 john h friedman director francis e girard april 28 2000 francis e girard director sam oolie april 28 2000 sam oolie director william f sorin april 28 2000 william f sorin director shaula yemini april 28 2000 dr shaula yemini directoritem 14 controls procedures company maintains disclosure controls procedures designed ensure information required disclosed companys filings securities exchange act 1934 amended recorded processed summarized reported within periods specified rules forms securities exchange commission information accumulated communicated companys management including principal executive officer principal financial officer appropriate allow timely decisions regarding required disclosure companys management including principal executive officer principal financial officer recognizes set controls procedures matter well designed operated provide reasonable assurance achieving desired control objectives within 90 day period prior date report company carried evaluation supervision participation companys management including companys principal executive officer principal financial officer effectiveness design operation companys disclosure controls procedures based evaluation companys principal executive officer principal financial officer concluded companys disclosure controls procedures effective b significant changes companys internal controls factors could significantly affect internal controls subsequent date evaluation including corrective actions regard significant deficiencies material weaknesses part iv item 15item 14 principal accounting fees services information required item incorporated reference independent accounting firm fees policy audit related nonaudit services proxy statement part iv item 15item 14 principal accounting fees services information required item incorporated reference independent accounting firm fees policy audit related nonaudit services proxy statement part iv item 15item 14 principal accounting fees services independent registered public accounting firm deloitte touche llp member firms deloitte touche tohmatsu respective affiliates collectively dt performed professional services cti subsidiaries fiscal years ended january 31 2009 2008 2007 2006 dt advised us direct indirect financial interests us subsidiaries last five years connection us subsidiaries independent registered public accounting firm certain activities described fees presented fiscal year incurred may relate services performed respect prior fiscal years following table sets forth aggregate amount fees billed professional services rendered dt cti subsidiaries years 1 aggregate fees billed professional services rendered dt audits consolidated annual financial statements internal control financial reporting review consolidated quarterly financial statements services normally provided dt connection statutory regulatory filings engagements services related accounting results investigations evaluations 2 aggregate fees billed audit related services rendered dt including acquisition due diligence services support divestiture activities 3 aggregate fees billed professional services rendered dt worldwide tax compliance tax advice tax planning 4 aggregate fees billed products services provided dt primarily related accounting advisory services cti’s audit committee determined provision services described foregoing table cti subsidiaries verint ulticom starhome compatible maintaining independence dt services described foregoing table respect cti subsidiaries verint ulticom starhome approved cti’s audit committee conformity preapproval policy described audit committee verint systems ulticom inc starhome bv determined provision services described foregoing table compatible maintaining independence dt approved services respect verint ulticom starhome respectively conformity preapproval policies preapproval policy audit related nonaudit services consistent applicable securities laws regarding auditor independence pursuant audit committee charter audit committee direct sole responsibility appointment evaluation compensation direction termination independent registered public accounting firm engaged purpose performing services cti subsidiaries verint ulticom starhome purpose audit committee adopted policy preapprove audit auditrelated tax permissible nonaudit services provided independent registered public accounting firm preapproval policy pursuant preapproval policy audit committee responsible preapproving audit auditrelated tax nonaudit services provided independent registered public accounting firm including proposed modification change scope extent services previously approved audit committee furtherance thereof annually prior commencement services audit committee reviews services expected rendered coming year specific engagement terms related fees conditions engagement independent registered public accounting firm services provided must approved audit committee advance quarterly audit committee receives status reports detailing services provided expected provided independent registered public accounting firm time expeditiously need arises fiscal year audit committee reviews appropriate approves services previously preapproved proposed additions modifications previously approved services lines service provided together changes fees respect permissible tax internal controlrelated services audit committee shall specifically consider impact provision services auditor’s independence ensure prompt handling unforeseeable unexpected matters arise audit committee meetings audit committee may delegate preapproval authority chairperson andor members committee chairperson may time designate provided interim preapprovals must reviewed full audit committee next meeting accordance audit committee charter delegation otherwise inconsistent law applicable rules sec nasdaq stock market audit committee cannot delegate preapproval authority members management part iv item 15item 14 principal accounting fees services independent registered public accounting firm deloitte touche llp member firms deloitte touche tohmatsu respective affiliates collectively dt rendered professional services cti subsidiaries fiscal years ended january 31 2010 2009 dt advised us direct indirect financial interests us subsidiaries last five years connection us subsidiaries independent registered public accounting firm certain activities described fees presented fiscal year incurred may relate services performed respect prior fiscal years following table sets forth aggregate amount fees billed professional services rendered dt cti subsidiaries years 1 aggregate fees billed professional services rendered dt audits consolidated annual financial statements internal control financial reporting review consolidated quarterly financial statements services normally provided dt connection statutory regulatory filings engagements also included fees billed services related accounting results investigations revenue recognition evaluations efforts become current periodic reporting obligations federal securities laws 2 aggregate fees billed auditrelated services rendered dt including acquisition due diligence services support divestiture activities 3 aggregate fees billed professional services rendered dt worldwide tax compliance tax advice tax planning 4 aggregate fees billed products services provided dt primarily related accounting advisory services cti’s audit committee determined provision services described foregoing table cti subsidiaries verint ulticom starhome compatible maintaining independence dt services described foregoing table respect cti subsidiaries verint ulticom starhome approved cti’s audit committee conformity preapproval policy described audit committee verint systems ulticom inc starhome bv determined provision services described foregoing table compatible maintaining independence dt approved services respect verint ulticom starhome respectively conformity preapproval policies preapproval policy audit related nonaudit services consistent applicable securities laws regarding auditor independence pursuant audit committee charter audit committee direct sole responsibility appointment evaluation compensation direction termination independent registered public accounting firm engaged purpose performing services cti subsidiaries verint ulticom starhome purpose audit committee adopted policy preapprove audit auditrelated tax permissible nonaudit services provided independent registered public accounting firm preapproval policy pursuant preapproval policy audit committee responsible preapproving audit auditrelated tax nonaudit services provided independent registered public accounting firm including proposed modification change scope extent services previously approved audit committee furtherance thereof annually prior commencement services audit committee reviews services expected rendered coming year specific engagement terms related fees conditions engagement independent registered public accounting firm services provided must approved audit committee advance quarterly audit committee receives status reports detailing services provided expected provided independent registered public accounting firm time expeditiously need arises fiscal year audit committee reviews appropriate approves services previously preapproved proposed additions modifications previously approved services lines service provided together changes fees respect permissible tax internal controlrelated services audit committee shall specifically consider impact provision services auditor’s independence ensure prompt handling unforeseeable unexpected matters arise audit committee meetings audit committee may delegate preapproval authority chairperson andor members committee chairperson may time designate provided interim preapprovals must reviewed full audit committee next meeting accordance audit committee charter delegation otherwise inconsistent law applicable rules sec nasdaq stock market audit committee cannot delegate preapproval authority members management part iv item 15item 14exhibits financial statement schedules reports form 8k pages documents filed part report 1 financial statements index consolidated financial statements independent auditors report consolidated balance sheets december 31 1995 1996 consolidated statements income years ended december 31 1994 1995 1996 consolidated statements stockholders equity years ended december 31 1994 1995 1996 consolidated statements cash flows years ended december 31 1994 1995 1996 notes consolidated financial statements 2 financial statement schedules none 3 exhibits index exhibits commences following page exhibits numbered 1016 1018 1019 10k 10l 10ddd 10eee 10lll comprise material compensatory plans arrangements registrant exhibit number description 1 applicable 2 applicable 3 articles incorporation bylaws 3a certificate incorporation 3a1 certificate amendment certificate incorporation effective february 26 1993 3a2 certificate amendment certificate incorporation effective january 12 1995 3b bylaws amended 4 instruments defining rights security holders including indentures 4a excerpts certificate incorporation 4a1 excerpt certificate amendment certificate incorporation effective february 26 1993 4a2 excerpt certificate amendment certificate incorporation effective january 12 1995 4b excerpts bylaws amended 4c1 specimen stock certificate incorporated reference exhibits filed annual report form 10k securities exchange act 1934 year ended december 31 1987 exhibit number shown exhibit number document filed annual report incorporated reference exhibits filed annual report form 10k securities exchange act 1934 year ended december 31 1992 exhibit number shown exhibit number document filed annual report incorporated reference exhibits filed registration statement form s1 securities act 1933 registration 33 9147 exhibit number shown exhibit number document filed registration statement incorporated reference exhibits filed annual report form 10k securities exchange act 1934 year ended december 31 1994 exhibit number shown exhibit number document filed annual report exhibit number description 4d indenture dated november 30 1993 comverse technology inc chase manhattan bank na trustee 4e specimen 514 convertible subordinated debenture due 2003 4 indenture dated october 4 1996 comverse technology inc chase manhattan bank na trustee 4f specimen 534 convertible subordinated debenture due 2006 5 applicable 6 applicable 7 applicable 8 applicable 9 applicable 10 material contracts 107 proxy agreement dated september 5 1991 among comverse government systems corporation james r allen robert w bazley robert marsh comverse technology inc 108 visitation approval procedure agreement dated september 5 1991 among comverse government systems corporation james r allen robert w bazley robert marsh comverse technology inc incorporated reference exhibits filed annual report form 10k securities exchange act 1934 year ended december 31 1993 exhibit number shown exhibit number document filed annual report incorporated reference exhibits filed current report form 8k securities exchange act 1934 filed october 10 1996 exhibit number shown exhibit number document filed current report included exhibit 4 incorporated reference exhibits filed annual report form 10k securities exchange act 1934 year ended december 31 1991 exhibit number shown exhibit number document filed annual report exhibit number description 1016 form stock option agreement pertaining shares certain subsidiaries comverse technology inc 1017 form asset purchase agreement dated march 1 1994 among comverse technology inc magnasyncmoviola corporation interactive information systems corporation magnasync comverse corporation 1018 employment agreement effective july 1 1994 comverse technology inc kobi alexander 1019 1994 stock option plan 1020 1995 stock option plan 1021 1996 stock option plan 10aa agreement among efrat future technology ltd tadiran israel electronics industries ltd boaz misholi kobi alexander yechiam yemini 10k 1984 incentive stock option plan 10l form incentive stock option agreement 10ggg deed guarantee comverse technology inc bank hapoalim bm dated july 30 1986 10gggg continuing guarantee comverse technology inc bank leumi leisrael bm incorporated reference exhibits filed annual report form 10k securities exchange act 1934 year ended december 31 1993 exhibit number shown exhibit number document filed annual report incorporated reference exhibits filed annual report form 10k securities exchange act 1934 year ended december 31 1994 exhibit number shown exhibit number document filed annual report incorporated reference exhibits filed annual report form 10k securities exchange act 1934 year ended december 31 1995 exhibit number shown exhibit number document filed annual report incorporated reference exhibits filed registration statement form s1 securities act 1933 registration 33 9147 exhibit number shown exhibit number document filed registration statement exhibit number description 10xx patent license agreement efrat future technology ltd vmx inc 10ccc form indemnity agreement comverse technology inc officers directors 10ddd 1987 stock option plan amended 10eee form stock option agreement options incentive stock options 11 statement computation earnings per share 12 applicable 13 applicable 14 applicable 15 applicable 16 applicable 17 applicable 18 applicable 19 applicable 20 applicable incorporated reference exhibits filed registration statement form s1 securities act 1933 registration 33 9147 exhibit number shown exhibit number document filed registration statement incorporated reference exhibits filed annual report form 10k securities exchange act 1934 year ended december 31 1987 exhibit number shown exhibit number document filed annual report exhibit number description 21 subsidiaries registrant 22 applicable 23 applicable 24 applicable 25 applicable 26 applicable 27 financial data schedule 28 applicable 99 applicable b reports form 8k registrant filed current report form 8k october 10 1996 reporting item 5 thereof issuance 534 convertible subordinated debentures due 2006 comverse technology inc subsidiaries index consolidated financial statements page independent auditors report consolidated balance sheets december 31 1995 1996 consolidated statements income years ended december 31 1994 1995 1996 consolidated statements stockholders equity years ended december 31 1994 1995 1996 consolidated statements cash flows years ended december 31 1994 1995 1996 notes consolidated financial statements independent auditors report board directors stockholders comverse technology inc woodbury new york audited accompanying consolidated balance sheets comverse technology inc subsidiaries company december 31 1995 1996 related consolidated statements income stockholders equity cash flows three years period ended december 31 1996 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position comverse technology inc subsidiaries december 31 1995 1996 results operations cash flows three years period ended december 31 1996 conformity generally accepted accounting principles deloitte touche llp new york new york february 5 1997 comverse technology inc subsidiaries consolidated balance sheets december 31 1995 1996 thousands except share data see notes consolidated financial statements see notes consolidated financial statements comverse technology inc subsidiaries consolidated statements income years ended december 31 1994 1995 1996 thousands except per share data see notes consolidated financial statements comverse technology inc subsidiaries consolidated statements stockholders equity years ended december 31 1994 1995 1996 thousands except share data see notes consolidated financial statements comverse technology inc subsidiaries consolidated statements cash flows years ended december 311994 1995 1996 thousands comverse technology inc subsidiaries consolidated statements cash flows years ended december 31 1994 1995 1996 thousands see notes consolidated financial statements comverse technology inc subsidiaries notes consolidated financial statements years ended december 31 1994 1995 1996 1 organization business comverse technology inc comverse together subsidiaries company organized new york corporation october 1984 company engaged design development manufacture marketing support special purpose computer telecommunications systems software multimedia communications information processing applications 2 summary significant accounting policies principles consolidation consolidated financial statements include accounts comverse whollyowned majorityowned subsidiaries material intercompany balances transactions eliminated cash equivalents bank time deposits company considers highly liquid investments purchased original maturities three months less cash equivalents bank deposits maturities excess three months classified bank time deposits shortterm investments company classifies shortterm investments including us treasury bills availableforsale accounted fair value resulting unrealized gains losses reported separate component stockholders equity netoftax basis concentration credit risk financial instruments potentially expose company concentration credit risk defined statement financial accounting standards 105 consist primarily cash investments accounts receivable company places cash investments high credit quality financial institutions currently invests primarily bank time deposits money market funds placed major institutional banks financial institutions us government obligations maturities one year less accounts receivable generally diversified due number commercial government entities comprising companys customer base dispersion across many geographical regions company believes significant concentration credit risk exists respect cash investments accounts receivable inventories stated lower cost market cost determined firstin firstout method property equipment property equipment carried cost less accumulated depreciation amortization company depreciates property equipment straightline basis periods ranging three seven years cost maintenance repairs charged operations incurred significant renewals betterments capitalized income taxes company accounts income taxes accordance statement financial accounting standards 109 requires asset liability method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities measured using enacted tax rates laws expected effect differences expected reverse revenue expense recognition revenues product sales generally recognized upon shipment products shipped customer trials carried finished goods inventory customer acceptance obtained time revenue recognized revenues certain contracts recognized percentageof completion method basis physical completion date method used management considers physical completion best available measure progress contracts revenues subsidiary engaged software development recognized percentage completion method using actual costs incurred total expected costs contract amounts received customers excess revenues earned percentageof completion method recorded advance payments customers related contract costs include direct material labor costs indirect costs related contract performance included cost sales consolidated statements income expenses incurred connection research development activities certain software development costs capitalized selling general administrative expenses charged operations incurred software development costs software development costs totaling 3592000 4697000 4466000 capitalized 1994 1995 1996 respectively accordance statement financial accounting standards 86 capitalized software development costs amortized estimated useful life software date four years less amortization begins period related product available general release customers amortization expenses amounted 2041000 2453000 3079000 1994 1995 1996 respectively deferred costs deferred costs include debt issue costs amortized tenyear term related debt straightline basis minority interest minority interest relates comverses majorityowned consolidated subsidiaries telemesser ltd telemesser israeli corporation operates telemessaging service bureau telexis corporation formerly applied silicon inc canada telexis canadian corporation designs manufactures markets digital video compression transmission product security market provides computer consulting development services primarily government agencies canada comverse owns approximately 75 outstanding shares telemesser 1995 comverse increased ownership outstanding shares telexis 51 55 june 1996 newbridge networks corporation canadian corporation invested approximately 1500000 telexis exchange newly issued shares telexis resulted gain company approximately 535000 result transaction companys equity interest telexis decreased 476 accordingly companys investment telexis carried equity method equity affiliates investments affiliates accounted equity method functional currency foreign currency transaction gains losses united states dollar functional currency major portion companys foreign operations companys sales materials purchased manufacturing denominated linked dollar certain operating costs principally salaries foreign operations denominated local currencies instances foreign subsidiary functional currency dollar company records necessary foreign currency translation adjustment reflected stockholders equity end reporting period net losses foreign currency transactions included consolidated statements income approximated 3000 249000 731000 1994 1995 1996 respectively company occasionally enters foreign exchange forward contracts options foreign currencies purpose companys foreign currency hedging activities protect company risk eventual dollar cash flows resulting sale products international customers adversely affected changes exchange rates transactions accounted accordance statement financial accounting standards 52 accordance statement gain loss foreign exchange contract hedges firm commitment deferred underlying transaction realized time included consolidated statement income december 31 1996 outstanding forward contracts purchase approximately 9250000 sell approximately 1212000 western european currencies deferred gains losses hedging commitments significant december 31 1996 intangible assets licenses patent rights acquired knowhow recorded cost amortized using straightline method estimated useful lives related technology exceeding five years goodwill intangible assets associated acquired subsidiaries amortized periods ranging five twelve years longlived assets accordance statement financial accounting standards 121 fas 121 accounting impairment longlived assets disposed company reviews impairment longlived assets certain identifiable intangibles whenever events changes circumstances indicate carrying amount asset may recoverable fas 121 impairment loss would recognized estimated future cash flows expected result use asset eventual disposition less carrying amount impairment losses identified company pervasiveness estimates preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates earnings per common equivalent share primary fully diluted earnings per common equivalent share determined using weighted average number shares common stock common stock equivalents outstanding using treasury stock method period computation 1996 assumes conversion companys 514 convertible subordinated debentures beginning year shares used computations three years ended december 31 1996 follows 1994 1995 1996 thousands primary 21868 22602 26447 fully diluted 21868 22709 26572 restatement pooling interests transaction consolidated financial statements retroactively restated include financial statements dale gesek mcwilliams sheridan inc dgms periods prior consummation acquisition discussed note 6 reclassifications certain prior year amounts reclassified conform manner presentation current year 3 research development significant portion companys research development operations located israel company derives substantial benefits participation programs sponsored government israel support research development activities conducted country years 1994 1995 1996 companys research development activities included projects partially funded office chief scientist ministry industry trade state israel ocs 1994 included projects partially funded israelunited states binational industrial research development foundation birdf funding organizations reimbursed portion companys research development expenditures approved project budgets companys research development activities also included projects partially funded canadian government agency reimbursed portion companys research development expenditures approved project budgets company currently involved several ongoing research development projects supported ocs canadian government agency company required pay royalties respective funding organizations based sale products incorporating technology developed projects note 17 addition terms applicable funding agreements products resulting projects funded ocs may manufactured outside israel without government approval governments united states israel certain nonexclusive irrevocable royalty free licenses use governmental purposes inventions developed projects funded birdf 4 shortterm investments company classifies shortterm investments including us treasury bills availableforsale securities following summary availableforsale securities december 31 1996 following summary availableforsale securities december 31 1995 1 amount includes 4691000 cost plus 299000 accretion discount included interest income 1996 gross realized gains sales securities totaled approximately 1922000 gross realized losses totaled approximately 1338000 amortized cost estimated fair value debt securities december 31 1996 contractual maturity follows estimated cost fair value thousands due one year less 12543 12547 due one year three years 993 999 due three years 50 51 13586 13597 5 inventories consist december 31 1995 1996 thousands raw materials 10364 17681 work process 2638 7853 finished goods 2771 5960 31494 15773 6 business acquisitions august 30 1995 company acquired dgms corporation develops markets telecommunications software products effect acquisition company issued 1078944 shares common stock outstanding common stock dgms acquisition accounted pooling interests therefore prior financial statements information restated include dgms companies combined periods presented prior acquisition dgms prepared financial statements fiscal year ending september 30 1995 combined companies reported basis comverses fiscal year ends december 31 accordingly restated statements income 1994 include results dgms year ended september 30 1994 result dgmss operations three month period ended december 31 1994 reflected consolidated statements income cash flows dgmss operating results three month period ended december 31 1994 comprising total revenues net loss approximately 2122000 2445000 respectively reflected adjustment retained earnings table sets forth unaudited separate combined results comverse dgms 1994 three month periods ended march 31 1995 june 30 1995 september 30 1995 7 accounts payable accrued expenses accounts payable accrued expenses consist december 31 1995 1996 thousands accounts payable 13252 19929 accrued salaries 3706 4737 accrued vacation 2109 2951 accrued royalties 1954 3426 accrued expenses 6209 9488 27230 40531 8 bank loans december 1996 subsidiary comverse borrowed 11000000 bank loan interest rate 6 repayable december 1997 loan secured 11000000 deposit bank 9 convertible subordinated debentures october 1996 company issued 115000000 convertible subordinated debentures bearing interest 534 per annum payable semiannually debentures mature october 1 2006 debentures convertible shares companys common stock conversion price 4575 per share subject adjustment certain events debentures subordinated right payment existing future senior indebtedness company debentures redeemable option company whole part prices decreasing 102 face amount october 12 1999 par october 1 2001 debenture holders may require company repurchase debentures par event common stock ceases publicly traded certain instances upon change control company november 1993 company issued 60000000 convertible subordinated debentures bearing interest 514 per annum payable semiannually november 1996 company called debentures redemption debentures converted 3096768 shares common stock 10 liability severance pay liability severance pay consists companys unfunded liability severance pay employees certain foreign subsidiaries accrued severance companys chief executive officer companys statutory obligation severance pay employees israeli subsidiaries determined basis individuals current salary length employment funding currently provided primarily premiums paid company insurance providers company obligated agreement amended 1995 chief executive officer provide severance payment upon termination employment company severance payment 77000 per year employment amount increased 10 per annum compounded year employment commencing december 1996 approximately 1001000 1186000 accrued december 31 1995 1996 respectively relating liability 11 related parties company paid accrued legal fees one directors amounts 309000 298000 254000 1994 1995 1996 respectively 12 capital stock december 31 1996 2513661 shares common stock reserved conversion 534 convertible subordinated debentures 3392847 shares common stock reserved exercise outstanding stock options comverse granted certain holders equity securities right cause company register securities applicable federal state securities laws permit public sale securities upon request holders 13 stock options employee stock options december 31 1996 3392847 shares common stock reserved issuance upon exercise options outstanding 1025913 shares common stock available future grant comverses stock option plans options may granted key employees directors persons rendering services company options designated incentive stock options option plans may granted exercise price less fair market value underlying shares date grant subject certain quantity limitations specified section 422 internal revenue code options intended qualify incentive stock options may granted price less par value underlying shares without restriction amount options underlying shares subject adjustment accordance terms plans event stock dividends recapitalizations similar transactions right exercise options generally vests annual increments periods four years date grant date commencement grantees employment company changes number options follows year ended december 31 1994 1995 1996 outstanding beginning year 1746072 2455755 2677333 granted year 1176000 650200 1086526 exercised year 85649 370442 276362 canceled terminated expired 380668 58180 94650 outstanding end year 2455755 2677333 3392847 december 31 1996 options purchase aggregate 1423521 shares vested currently exercisable option plans options purchase additional 1969326 shares vest various dates extending year 2001 weighted average option exercise price information years 1994 1995 1996 follows significant option groups outstanding december 31 1996 related weighted average price life information follows company applies accounting principles board opinion 25 accounting stock issued employees selected interpretations accounting option plans accordingly options granted exercise prices equal fair market value date grant compensation expense recognized company connection stockbased compensation plans compensation cost companys stock option plans determined based upon fair value grant date awards plans consistent methodology prescribed statement financial accounting standards 123 accounting stockbased compensation companys net income earnings per share would reduced approximately 1067000 2676000 04 09 per share 1995 1996 respectively weighted average fair value options granted 1995 1996 estimated 840 1366 date grant using blackscholes option pricing model following weighted average assumptions 1995 1996 respectively volatility 67 55 riskfree interest rate 68 61 expected life 5 years 1995 1996 options subsidiary shares comverse granted chief executive officer terms employment agreement options acquire 75 equity comverses subsidiaries efrat future technology ltd efrat addition comverse granted certain key executives company options acquire shares certain subsidiaries efrat means providing incentives directly tied performance subsidiaries different executives direct responsibility options upon exercise would represent aggregate 24 236 outstanding shares subsidiary terms ten years become exercisable vest equal ratable annual increments periods ranging three five years first anniversary date initial grant exercise price option equal higher book value underlying shares date grant fair market value shares date determined basis arms length transaction third party transactions occurred reasonable basis determined committee board directors upon exercise whole part option comverse receive irrevocable proxy vote underlying shares right first refusal purchase shares upon proposed sale transfer disposition time shares shall sold bona fide open market transaction 14 foreign operations condensed net assets exclusive intercompany balances applicable foreign operations principally located israel included consolidated balance sheets summarized follows condensed operating information exclusive intercompany transactions applicable foreign operations principally located israel included consolidated statements income summarized follows operating results shown reflect inclusion costs expenses fixed charges incurred comverses foreign subsidiaries necessary support level activity greater shown table due exclusion intercompany revenue foreign operations 1996 profitable intercompany transactions included 15 income taxes provision income taxes consists following year ended december 31 1994 1995 1996 thousands current federal 667 529 1544 state 340 272 560 foreign 720 1022 1950 1727 1823 4054 deferred benefit federal 25 621 state 12 97 foreign 44 221 22 56 234 696 1783 2057 3358 reconciliation us federal statutory tax rate companys effective tax rate follows deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes b operating loss carryforwards tax effects significant items comprising companys deferred tax asset liability december 31 1995 1996 follows december 31 1996 company net operating loss carryforwards us income tax purposes resulting employees exercise stock options approximately 1460000 expiring various periods 2010 utilization net operating loss carryforwards increase additional paidin capital december 31 1996 startel corporation startel whollyowned subsidiary comverse net operating loss carryforwards approximately 1490000 us income tax reporting purposes expiring various periods 2005 may used reduce future us taxable income startel company limited utilizing approximately 188000 per year startels net operating loss carryforwards section 382 internal revenue code company utilized approximately 188000 accumulated net operating loss carryforwards 1996 reduced goodwill approximately 65000 income tax provided unrepatriated earnings foreign subsidiaries currently intention company reinvest foreign earnings operations 16 business segment information company engaged one business segment design development manufacture marketing support special purpose computer telecommunications systems software multimedia communications information processing applications sales geographic regions percentage total sales years ended december 31 1994 1995 1996 follows 17 commitments contingencies leases company leases office manufacturing warehouse space noncancelable operating leases rent expense leased premises approximated 2562000 3014000 3511000 1994 1995 1996 respectively december 31 1996 annual minimum rent obligations company approximately follows amount thousands 1997 5365 1998 5322 1999 5099 2000 4469 2001 thereafter 3566 23821 employment agreements company obligated employment contracts chief executive officer provide salary bonuses fringe benefits june 30 2000 minimum salary payments contracts currently amount 350000 per year aggregate 1100000 june 30 2000 executive entitled annual bonuses equal least 3 companys consolidated aftertax net income year upon termination expiration term employment executive entitled receive severance payment equal 77000 year previous current employment company increased rate 10 per annum compounded year employment commencing december 1996 see note 10 plus continued employmentrelated benefits period 36 months thereafter termination employment results unilateral termination fundamental breach agreement company resignation executive within six months following change control company approved executive capacity director comverse executive entitled additional payment equal 299 average annual cash compensation including salary bonus payments received executive company three immediately preceding fiscal years plus amount equal income tax resulting payment agreements also provide executive receive options entitling purchase 712 equity comverses subsidiaries efrat prices equal higher book value underlying shares date option grant fair market value shares date determined basis armslength transaction third party transactions occurred reasonable basis determined board directors see note 13 employment agreements company terminable without cause prior notice 60 days less licenses royalties company licenses certain technology know software related rights use manufacture marketing products pays royalties third parties licenses agreements entered connection research product development activities company currently pays royalties sale substantially trilogue audiodisk product lines varying amounts based upon revenues attributed various components products royalties typically range approximately 15 5 net sales related products case royalties due government funding sources respect research development projects required paid funding organization received total royalties ranging 100 150 amounts received company approved project budgets dividend restrictions ability comverses israeli subsidiaries pay dividends governed israeli law provides cash dividends may paid israeli corporation retained earnings determined statutory purposes israeli currency event devaluation israeli currency dollar amount dollars available payment cash dividends prior years earnings decrease accordingly cash dividends paid israeli corporation foreign residents subject withholding israeli income tax source rate 15 depending particular facilities generated earnings source dividends investments january 1997 whollyowned subsidiaries comverse quantum industrial holdings ltd organized new company primary focus investment high technology ventures related israel participant committed 15000000 capital new company use suitable investment opportunities identified quantum industrial holdings ltd principal direct investment vehicle quantum group investment funds managed soros fund management llc guaranties company obtained bank guaranties primarily performance certain obligations contracts customers guaranties aggregated approximately 14200000 december 31 1996 released companys performance specified contract milestones scheduled completed primarily 1997 litigation company subject certain legal actions arising course business taking consideration legal counsels evaluation actions management opinion final resolution significant adverse effect upon companys business consolidated financial statements 18 fair value financial instruments following disclosure estimated fair value financial instruments made accordance requirements statement financial accounting standards 107 estimated fair value amounts determined company using available market information appropriate valuation methodologies however considerable judgment necessarily required interpreting market data develop estimates fair value accordingly estimates presented herein necessarily indicative amounts company could realize current market exchange use different market assumptions andor estimation methodologies may material effect estimated fair value amounts cash equivalents bank time deposits shortterm investments accounts receivable longterm receivables investments accounts payable carrying amounts items reasonable estimate fair value convertible subordinated debentures foreign exchange forward contracts fair value securities estimated based quoted market prices recent sales similar securities fair value estimates presented herein based pertinent information available management december 31 1996 although management aware factors would significantly affect estimated fair value amounts comprehensively revalued purposes financial statements since date current estimates fair value may differ significantly amounts presented herein 19 quarterly information unaudited following table shows selected results operations quarters 1995 1996 difference income per share sum income per share quarters comprising year due differences calculation weighted average number shares outstanding respective periods rounding adjustments signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized comverse technology inc registrant kobi alexander kobi alexander president date march 25 1997 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated kobi alexander march 25 1997 kobi alexander president chairman board chief executive officer director igal nissim march 25 1997 igal nissim chief financial officer zvi alexander march 25 1997 zvi alexander director sam oolie march 25 1997 sam oolie director john h friedman march 25 1997 john h friedman director william f sorin march 25 1997 william f sorin director yechiam yemini march 25 1997 yechiam yemini directoritem 14 principal accounting fees services independent registered public accounting firm deloitte touche llp member firms deloitte touche tohmatsu respective affiliates collectively dt rendered professional services cti subsidiaries fiscal years ended january 31 2011 2010 dt advised us direct indirect financial interests us subsidiaries last five years connection us subsidiaries independent registered public accounting firm certain activities described fees presented fiscal year incurred may relate services performed respect prior fiscal years following table sets forth aggregate amount fees billed professional services rendered dt cti subsidiaries years aggregate fees billed professional services rendered dt ulticom represent services billed prior ulticom sale december 3 2010 1 aggregate fees billed professional services rendered dt audits annual financial statements internal control financial reporting review quarterly financial statements services normally provided dt connection statutory regulatory filings engagements also included fees billed services related accounting results investigations revenue recognition evaluations efforts become current periodic reporting obligations federal securities laws 2 aggregate fees billed auditrelated services rendered dt including acquisition due diligence services support divestiture activities 3 aggregate fees billed professional services rendered dt worldwide tax compliance tax advice tax planning 4 aggregate fees billed products services provided dt primarily related accounting advisory services cti’s audit committee determined provision services described foregoing table cti subsidiaries verint ulticom starhome compatible maintaining independence dt services described foregoing table respect cti subsidiaries verint ulticom starhome approved cti’s audit committee conformity preapproval policy described audit committee verint systems starhome bv determined provision services described foregoing table compatible maintaining independence dt approved services respect verint starhome respectively conformity preapproval policies audit committee ulticom inc prior sale december 3 2010 determined provision services described foregoing table compatible maintaining independence dt approved services respect ulticom conformity preapproval policies preapproval policy audit related nonaudit services consistent applicable securities laws regarding auditor independence pursuant audit committee charter audit committee direct sole responsibility appointment evaluation compensation direction termination independent registered public accounting firm engaged purpose performing services cti subsidiaries verint starhome purpose audit committee adopted policy preapprove audit auditrelated tax permissible nonaudit services provided independent registered public accounting firm preapproval policy pursuant preapproval policy audit committee responsible preapproving audit auditrelated tax nonaudit services provided independent registered public accounting firm including proposed modification change scope extent services previously approved audit committee furtherance thereof annually prior commencement services audit committee reviews services expected rendered coming year specific engagement terms related fees conditions engagement independent registered public accounting firm services provided must approved audit committee advance quarterly audit committee receives status reports detailing services provided expected provided independent registered public accounting firm time expeditiously need arises fiscal year audit committee reviews appropriate approves services previously preapproved proposed additions modifications previously approved services lines service provided together changes fees respect permissible tax internal controlrelated services audit committee shall specifically consider impact provision services auditor’s independence ensure prompt handling unforeseeable unexpected matters arise audit committee meetings audit committee may delegate preapproval authority chairperson andor members committee chairperson may time designate provided interim preapprovals must reviewed full audit committee next meeting accordance audit committee charter delegation otherwise inconsistent law applicable rules sec nasdaq stock market audit committee cannot delegate preapproval authority members management part iv item 15item 14 exhibits financial statement schedules reports form 8k pages documents filed part report 1 financial statements index consolidated financial statements independent auditors report consolidated balance sheets january 31 2000 2001 consolidated statements income years ended january 31 1999 2000 2001 consolidated statements stockholders equity years ended january 31 1999 2000 2001 consolidated statements cash flows years ended january 31 1999 2000 2001 notes consolidated financial statements 2 financial statement schedules none 3 exhibits index exhibits commences following page exhibits numbered 101 103 105 108 comprise material compensatory plans arrangements registrant 35 exhibits description 3 articles incorporation bylaws 31 certificate incorporation incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 32 certificate amendment certificate incorporation effective february 26 1993 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 33 certificate amendment certificate incorporation effective january 12 1995 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1994 34 certificate amendment certificate incorporation dated october 18 1999 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended january 31 2000 35 certificate amendment certificate incorporation dated september 19 2000 36 bylaws amended incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 4 instruments defining rights security holders including indentures 41 excerpts certificate incorporation incorporated reference registrants registration statement form s1 securities exchange act 1933 registration 339147 42 excerpt certificate amendment certificate incorporation effective february 26 1993 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 43 excerpt certificate amendment certificate incorporation effective january 12 1995 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1994 36 44 excerpts bylaws amended incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 45 specimen stock certificate incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 46 indenture dated june 30 1998 comverse technology inc chase manhattan bank trustee incorporated reference registrants current report form 8k securities exchange act 1934 filed july 2 1998 47 specimen 4 12 convertible subordinated debenture due 2005 incorporated reference registrants current report form 8k securities exchange act 1934 filed july 2 1998 48 indenture dated november 22 2000 comverse technology inc chase manhattan bank trustee incorporated reference registrants registration statement form s3 securities act 1933 registration 33355526 49 specimen 1 12 convertible senior debenture due 2005 incorporated reference registrants registration statement form s3 securities act 1933 registration 33355526 10 material contracts 101 form stock option agreement pertaining shares certain subsidiaries comverse technology inc incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1993 102 form incentive stock option agreement incorporated reference registrants registration statement form s1 securities act 1933 registration 339147 103 form stock option agreement options incentive stock options incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 104 form indemnity agreement comverse technology inc officers directors incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 105 1997 employee stock purchase plan amended incorporated reference definitive proxy materials registrants annual meeting stockholders held october 8 1999 106 1997 stock incentive compensation plan incorporated reference definitive proxy materials registrants annual meeting stockholders held january 13 1998 37 107 1999 stock incentive compensation plan incorporated reference definitive proxy materials registrants annual meeting stockholders held october 8 1999 108 2000 stock incentive compensation plan incorporated reference definitive proxy materials registrants annual meeting stockholders held september 15 2000 109 memorandum agreement dated november 22 1995 boston technology inc att incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1996 confidential treatment requested certain portions 1010 lease dated november 5 1990 boston technology inc wakefield park limited partnership incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1991 1011 first amendment dated march 31 1993 lease dated november 5 1990 boston technology inc wakefield park limited partnership incorporated reference quarterly report boston technology inc form 10q securities exchange act 1934 quarter ended october 31 1993 1012 second amendment dated august 31 1994 lease dated november 5 1990 boston technology inc wakefield park limited partnership incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1995 1013 license agreement dated january 22 1990 boston technology inc dytel corporation incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1990 1014 settlement agreement dated december 28 1993 boston technology inc theis research inc peter f theis incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1994 1015 lease dated june 7 1996 boston technology inc wbam limited partnership incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1997 21 subsidiaries registrant 23 consent deloitte touche llp incorporated reference 38 comverse technology inc subsidiaries index consolidated financial statements page independent auditors report consolidated balance sheets january 31 2000 2001 consolidated statements income years ended january 31 1999 2000 2001 consolidated statements stockholders equity years ended january 31 1999 2000 2001 consolidated statements cash flows years ended january 31 1999 2000 2001 notes consolidated financial statements independent auditors report board directors stockholders comverse technology inc woodbury new york audited accompanying consolidated balance sheets comverse technology inc subsidiaries company january 31 2000 2001 related consolidated statements income stockholders equity cash flows three years period ended january 31 2001 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position comverse technology inc subsidiaries january 31 2000 2001 results operations cash flows three years period ended january 31 2001 conformity accounting principles generally accepted united states america deloitte touche llp new york new york march 8 2001 comverse technology inc subsidiaries consolidated balance sheets january 31 2000 2001 thousands except share data assets 2000 2001 current assets cash equivalents 342535 1275105 bank time deposits 9800 3000 shortterm investments 429254 457735 accounts receivable net 266203 359317 inventories 101728 115799 prepaid expenses current assets 41243 64729 total current assets 1190763 2275685 property equipment net 126101 183444 investments 19749 96870 assets 36234 69265 total assets 1372847 2625264 liabilities stockholders equity 2000 2001 current liabilities accounts payable accrued expenses 235860 288921 bank loans 1160 4066 advance payments customers 94777 122175 current liabilities 662 144 total current liabilities 332459 415306 convertible debentures 300000 900000 liability severance pay 6185 7924 liabilities 9364 12404 total liabilities 648008 1335634 minority interest 53465 commitments contingencies stockholders equity preferred stock 001 par valueauthorized 2500000 shares issued none common stock 010 par value authorized 600000000 shares issued outstanding 155776298 168643623 shares 15577 16864 additional paidin capital 424075 692014 retained earnings 282764 520144 accumulated comprehensive income 2423 7143 total stockholders equity 724839 1236165 total liabilities stockholders equity 1372847 2625264 see notes consolidated financial statements comverse technology inc subsidiaries consolidated statements income years ended january 31 1999 2000 2001 thousands except per share data january 31 january 31 january 31 1999 2000 2001 sales 708805 909667 1225058 cost sales 288113 352748 460630 gross margin 420692 556919 764428 operating expenses research development net 134201 169816 232198 selling general administrative 157106 193996 259607 royalties license fees 16552 18841 22028 merger expenses 2016 15971 income operations 112833 172250 234624 interest income net 8315 16595 33339 income tax provision 121148 188845 267963 income tax provision 11783 15698 18827 net income 109365 173147 249136 earnings per share basic 081 119 154 diluted 075 108 139 see notes consolidated financial statements comverse technology inc subsidiaries consolidated statements stockholders equity years ended january 31 1999 2000 2001 thousands except share data comverse technology inc subsidiaries consolidated statements cash flows years ended january 31 1999 2000 2001 thousands see notes consolidated financial statements comverse technology inc subsidiaries notes consolidated financial statements years ended january 31 1999 2000 2001 1 organization business comverse technology inc cti together subsidiaries company organized new york corporation october 1984 company engaged design development manufacture marketing support special purpose computer telecommunications systems software multimedia communications information processing applications 2 summary significant accounting policies principles consolidation consolidated financial statements include accounts comverse whollyowned majorityowned subsidiaries material intercompany balances transactions eliminated cash equivalents bank time deposits company considers highly liquid investments purchased original maturities three months less cash equivalents bank deposits maturities excess three months classified bank time deposits shortterm investments company classifies shortterm investments including us treasury bills availableforsale accounted fair value resulting unrealized gains losses reported separate component stockholders equity netoftax basis concentration credit risk financial instruments potentially expose company concentration credit risk consist primarily cash investments accounts receivable company places cash investments highcredit quality financial institutions currently invests primarily bank time deposits money market funds placed major banks financial institutions corporate commercial paper corporate mediumterm notes us government obligations accounts receivable generally diversified due number commercial government entities comprising companys customer base dispersion across many geographical regions january 31 2000 2001 companys allowance doubtful accounts approximately 29319000 23755000 respectively company believes significant concentration credit risk exists respect cash investments accounts receivable inventories stated lower cost market cost determined firstin firstout method property equipment property equipment carried cost less accumulated depreciation amortization company depreciates property equipment straightline basis periods ranging three seven years leasehold improvements amortized shorter estimated useful lives related lease term cost maintenance repairs charged operations incurred significant renewals betterments capitalized income taxes company accounts income taxes using asset liability method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities measured using enacted tax rates laws expected effect differences expected reverse revenue expense recognition revenue generally recognized time shipment sales systems require significant customization performed company collection resulting receivable deemed probable company companys systems generally bundled hardware software solution shipped together company generally obligations customers date products shipped except product warranties company generally warranties products one year sale provision estimated warranty costs recorded time sale customers may also purchase separate maintenance contracts generally consist bugfixing telephone access company technical personnel certain circumstances may also include right receive unspecified product updates upgrades enhancements revenue services recognized ratably contract period revenues certain development contracts recognized percentageofcompletion method basis physical completion date using actual costs incurred total expected costs contract revisions estimates costs profits reflected accounting period facts require revision become known time loss contract known entire amount estimated loss accrued amounts received customers excess revenues earned percentageofcompletion method recorded advance payments customers related contract costs include direct material labor costs indirect costs related contract performance included cost sales consolidated statements income expenses incurred connection research development activities certain software development costs capitalized selling general administrative expenses charged operations incurred software development costs software development costs capitalized upon establishment technological feasibility amortized estimated useful life software date four years less amortization begins period related product available general release customers amortization expenses amounted 3649000 6304000 7203000 years ended january 31 1999 2000 2001 respectively functional currency foreign currency transaction gains losses united states dollar functional currency major portion companys foreign operations companys sales materials purchased manufacturing denominated linked dollar certain operating costs principally salaries foreign operations denominated local currencies instances foreign subsidiary functional currency dollar company records necessary foreign currency translation adjustment reflected stockholders equity end reporting period net gains losses foreign currency transactions included consolidated statements income approximated 2847000 9422000 646000 years ended january 31 1999 2000 2001 respectively company occasionally enters foreign exchange forward contracts options foreign currencies purpose companys foreign currency hedging activities protect company risk eventual dollar cash flows resulting sale products international customers adversely affected changes exchange rates gain loss foreign exchange contract hedges firm commitment deferred underlying transaction realized time included consolidated statement income company may also purchase foreign exchange options permit require company exchange foreign currencies future date another party contracted exchange rate finance premiums paid options time company may also write offsetting options exercise prices limit eliminate effect purchased options hedge january 31 2000 2001 company material outstanding foreign exchange contracts assets licenses patent rights acquired knowhow recorded cost amortized using straightline method estimated useful lives related technology exceeding five years goodwill intangible assets associated acquired subsidiaries amortized periods ranging five twelve years debt issue costs amortized using effective interest method term related debt longlived assets company reviews impairment longlived assets certain identifiable intangibles whenever events changes circumstances indicate carrying amount asset may recoverable impairment loss would recognized estimated future cash flows expected result use asset eventual disposition less carrying amount pervasiveness estimates preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates reclassifications certain prior year amounts reclassified conform manner presentation current year 3 research development significant portion companys research development operations located israel company derives substantial benefits participation programs sponsored government israel support research development activities conducted country companys research development activities include projects partially funded office chief scientist ministry industry trade state israel ocs funding organization reimburses portion companys research development expenditures approved project budgets company currently involved several ongoing research development projects supported ocs company accrues royalties ocs sale products incorporating technology developed projects addition terms applicable funding agreements products resulting projects funded ocs may manufactured outside israel without government approval amounts reimbursed ocs years ended january 31 1999 2000 2001 16732000 16797000 21508000 respectively 4 shortterm investments company classifies shortterm investments availableforsale securities following summary availableforsale securities january 31 2001 following summary availableforsale securities january 31 2000 year ended january 31 2001 gross realized gains sales securities totaled approximately 9905000 gross realized losses totaled approximately 8394000 year ended january 31 2000 gross realized gains sales securities totaled approximately 11652000 gross realized losses totaled approximately 4613000 year ended january 31 1999 gross realized gains sales securities totaled approximately 1358000 gross realized losses totaled approximately 5472000 basis cost determined computing realized gain loss firstin firstout method amortized cost estimated fair value debt securities january 31 2001 contractual maturity follows estimated cost fair value thousands due one year less 321834 319764 due one year three years 87284 85665 due three years 8117 8580 417235 414009 5 inventories consist january 31 2000 2001 thousands raw materials 41391 49014 work process 29790 27423 finished goods 30547 39362 101728 115799 6 property equipment property equipment consists january 31 2000 2001 thousands fixtures equipment 166966 242922 land 26029 27569 software 18315 24293 transportation vehicles 1597 1263 leasehold improvements 7640 11832 220547 307879 less accumulated depreciation amortization 94446 124435 126101 183444 7 assets consist january 31 2000 2001 thousands software development costs net accumulated amortization 21628 25959 22230 28325 debt issue costs net accumulated amortization 1404 3157 5703 15784 assets 8301 25156 36234 69265 8 business combinations july 2000 company acquired outstanding stock loronix information systems inc loronix company develops softwarebased digital video recording management systems 1994806 shares companys common stock assumption options purchase 370101 shares companys common stock combination accounted pooling interests six months ended june 30 2000 loronix sales approximately 181 million net loss including merger related expenses approximately 23 million table sets forth separate combined results comverse loronix fiscal years ended january 31 1999 2000 cti loronix combined thousands except per share data amounts january 31 1999 sales 696094 12711 708805 net income loss 111527 2162 109365 earnings per share diluted 078 075 january 31 2000 sales 872190 37477 909667 net income 170261 2886 173147 earnings per share diluted 107 108 consolidated statement income data combines historical statement income data company fiscal years ended january 31 1999 2000 historical statement income data loronix fiscal years ended december 31 1998 1999 respectively loronixs net loss period july 1 2000 july 31 2000 approximately 705000 excluded companys consolidated statement income year ended january 31 2001 result conforming fiscal years included adjustment retained earnings july 2000 company acquired outstanding stock syborg informationsysteme gmbh syborg company develops softwarebased digital voice internet recording workforce management systems 201251 shares companys common stock combination accounted pooling interests company restate prior financial statements acquisition due immateriality recorded book value net assets syborg approximately 475000 statement stockholders equity august 2000 company acquired outstanding stock exalink ltd exalink company specializing routerbased protocol gateways applications software delivery internetbased services types wireless devices 5261211 shares companys common stock assumption options warrants purchase 810377 shares companys common stock combination accounted pooling interests company restate prior financial statements acquisition due immateriality recorded book value net assets exalink approximately 973000 statement stockholders equity august 2000 company acquired outstanding stock gaya software industries ltd gaya company specializing softwarebased intelligent internet protocol ip gateways voiceoverip technology 283758 shares companys common stock assumption options warrants purchase 10505 shares companys common stock combination accounted pooling interests company restate prior financial statements acquisition due immateriality recorded book value net assets gaya approximately 1470000 statement stockholders equity august 1999 company acquired outstanding stock intouch systems inc intouch company develops markets suite intelligent voicecontrolled software applications 679202 shares companys common stock assumption options purchase 79122 shares companys common stock combination accounted pooling interests company restate prior financial statements acquisition due immateriality recorded book value net assets intouch 1122000 statement stockholders equity february 1999 company acquired outstanding stock amarex technology inc amarex company develops softwarebased applications telephone network operator call center markets 692014 shares companys common stock assumption options warrants purchase 239286 shares companys common stock combination accounted pooling interests company restate prior financial statements acquisition due immateriality recorded book value net assets amarex 268000 statement stockholders equity connection acquisitions company charged 2016000 15971000 respectively operations years ended january 31 2000 2001 merger related charges relate following asset writedowns impairments thousands inventory 3685 property equipment 1528 capitalized software costs 2186 total asset writedowns impairments 7399 connection acquisitions year ended january 31 2001 certain assets became impaired due existence duplicative technology property equipment inventory merged companies accordingly assets written net realizable value time merger professional fees direct merger expenses connection acquisitions years ended january 31 2000 2001 company recorded charge 2016000 8572000 respectively professional fees lawyers investment bankers accountants well direct merger costs connection mergers printing costs filing fees 9 accounts payable accrued expenses accounts payable accrued expenses consist january 31 2000 2001 thousands accounts payable 76546 87999 accrued salaries 29890 37479 accrued vacation 13568 18940 accrued royalties 26567 40670 accrued expenses 89289 103833 235860 288921 10 convertible debentures november 2000 company issued 500000000 aggregate principal amount 150 convertible senior debentures due december 2005 debentures december 2000 company issued additional 100000000 debentures result initial purchaser exercising full overallotment option debentures unsecured senior obligations company ranking equally companys existing future unsecured senior indebtedness senior right payment companys existing future subordinated indebtedness debentures convertible option holders shares companys common stock conversion price 116325 per share subject adjustment certain events subject redemption time december 1 2003 whole part option company redemption prices expressed percentages principal amount 100375 redeemed twelvemonth period beginning december 1 2003 100 principal amount redeemed thereafter debenture holders may require company repurchase debentures par event common stock ceases publicly traded certain instances upon change control company upon occurrence change control instead paying repurchase price cash company may pay repurchase price common stock june 1998 company issued 300000000 convertible subordinated debentures bearing interest 450 per annum payable semiannually debentures mature july 1 2005 debentures convertible shares companys common stock conversion price 2150 per share subject adjustment certain events debentures subordinated right payment existing future senior indebtedness company debentures redeemable option company whole part prices decreasing 1018 principal amount july 10 2001 par july 10 2003 debenture holders may require company repurchase debentures par event common stock ceases publicly traded certain instances upon change control company october 1996 company issued 115000000 convertible subordinated debentures bearing interest 575 per annum payable semiannually october 1999 company called debentures redemption debentures converted 7540916 shares common stock 11 liability severance pay liability severance pay consists companys unfunded liability severance pay employees certain foreign subsidiaries accrued severance companys chief executive officer israeli law company obligated make severance payments employees israeli subsidiaries basis individuals current salary length employment liabilities currently provided primarily premiums paid company insurance providers company obligated agreement chief executive officer provide severance payment upon termination employment company approximately 1925000 2270000 accrued january 31 2000 2001 respectively relating liability 12 common stock splits april 15 1999 company effected threefortwo stock split paying 50 stock dividend stockholders record march 31 1999 april 3 2000 company effected twoforone stock split paying 100 stock dividend shareholders record march 27 2000 share per share information retroactively restated consolidated financial statements reflect splits increase authorized common shares annual meeting shareholders held october 8 1999 companys shareholders approved amendment companys certificate incorporation increase 100000000 300000000 aggregate number authorized common shares company annual meeting shareholders held september 15 2000 companys shareholders approved amendment companys certificate incorporation increase 300000000 600000000 aggregate number authorized common shares company issuance subsidiary stock april 2000 subsidiary company ulticom inc ulticom issued 4887500 shares common stock initial public offering result initial public offering companys ownership interest ulticom reduced 804 proceeds offering based offering price 1300 per share totaled approximately 58062000 net offering expenses october 2000 ulticom issued additional 2843375 shares common stock public offering result public offering companys ownership interest ulticom reduced 745 proceeds offering based offering price 5000 per share totaled approximately 137169000 net offering expenses company recorded gain approximately 145854000 recorded increase stockholders equity result issuances 13 stock options employee stock options january 31 2001 26163560 shares common stock reserved issuance upon exercise options outstanding 507856 shares available future grant comverses stock option plans options may granted key employees directors persons rendering services company options designated incentive stock options option plans may granted exercise price less fair market value underlying shares date grant subject certain quantity limitations specified section 422 internal revenue code options intended qualify incentive stock options may granted price less par value underlying shares without restriction amount options underlying shares subject adjustment accordance terms plans event stock dividends recapitalizations similar transactions right exercise options generally vests increments periods four years date grant date commencement grantees employment company maximum term ten years options granted changes number options follows january 31 2001 options purchase aggregate 6980474 shares vested currently exercisable option plans options purchase additional 19183086 shares vest various dates extending year 2004 weighted average option exercise price information follows year ended january 31 1999 2000 2001 outstanding beginning year 864 959 2214 assumed pooling interests 316 321 granted year 1053 4398 8483 exercised year 587 823 1445 canceled terminated expired 1038 1196 3101 exercisable year end 687 905 1473 significant option groups outstanding january 31 2001 related weighted average price life information follows company applies accounting principles board opinion 25 accounting stock issued employees related interpretations accounting option plans accordingly options granted exercise prices equal fair market value date grant compensation expense recognized company connection stockbased compensation plans compensation cost companys stock option plans determined based upon fair value grant date awards plans consistent methodology prescribed statement financial accounting standards sfas 123 accounting stockbased compensation companys net income earnings per share would reduced approximately 29261000 45239000 87112000 020 027 047 per diluted share years ended january 31 1999 2000 2001 respectively weighted average fair value options granted years ended january 31 1999 2000 2001 respectively estimated 551 2154 5038 date grant using blackscholes option pricing model following weighted average assumptions years ended january 31 1999 2000 2001 respectively volatility 56 65 riskfree interest rate 47 59 55 expected life 50 41 49 years options subsidiary shares accordance requirements employment agreement chief executive officer company holds options acquire 75 shares certain subsidiaries comverse network systems inc addition company granted options certain employees acquire shares certain subsidiaries comverse network systems inc option issuances tied performance subsidiaries intended incentivize employees units direct responsibility portion shares subsidiaries upon options granted varies among subsidiaries affected exceeding instance 20 shares outstanding assuming exercise full options terms 15 years become exercisable vest various periods ranging seven years date initial grant exercise price option equal higher book value underlying shares date grant fair market value shares date determined basis armslength transaction third party transactions occurred reasonable basis determined committee board directors 14 warrants november 1995 company entered agreement supply products customer pursuant agreement company issued warrants purchase shares common stock exercise price 718 per share warrants vest five equal annual increments commencing first anniversary date grant remain exercisable 30 months first becoming exercisable january 31 2001 warrants purchase 1914432 shares outstanding exercisable february 2001 warrants exercised 15 employee stock purchase plan 1997 employee stock purchase plan espp employees completed three months employment entitled payroll deductions amounts 10 base salary purchase shares companys common stock 85 lesser market price offering commencement date offering termination date number shares available espp 2000000 719134 issued january 31 2001 16 earnings per share eps basic earnings per share determined using weighted average number shares common stock outstanding period diluted earnings per share assumes issuance common shares dilutive potential common shares outstanding calculation earnings per share years ended january 31 1999 2000 2001 follows debentures convertible 21494472 weighted average shares 1059855 weighted average shares outstanding january 31 1999 january 31 2001 respectively included computation diluted eps effect including would dilutive 17 interest income net interest income net consists following year ended january 31 1999 2000 2001 thousands interest dividend income 25552 36872 63607 interest expense 16141 19423 18031 net 1096 854 12237 8315 16595 33339 18 income taxes provision income taxes consists following year ended january 31 1999 2000 2001 thousands current federal 171 1507 state 127 769 844 foreign 11664 14743 16698 11791 15683 19049 deferred benefit federal 430 49 37 state 13 5 88 foreign 409 59 97 8 15 222 11783 15698 18827 reconciliation us federal statutory tax rate companys effective tax rate follows year ended january 31 1999 2000 2001 us federal statutory rate 35 consolidated worldwide income excess us income 38 36 38 foreign income taxes 9 8 6 4 1 4 companys effective tax rate 10 8 7 deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes b operating loss carryforwards tax effects significant items comprising companys deferred tax asset liability january 31 2000 2001 follows january 31 2001 company net operating loss carryforwards federal income tax purposes approximately 5342 million begin expire 2012 2032 income tax provided unrepatriated earnings foreign subsidiaries currently intention company reinvest foreign earnings operations 19 business segment information company historically operated business based different geographical regions year ended january 31 2000 company changed manner operates various product business units companys reporting segments follows enhanced services platform products enable telecommunications network operators offer variety revenuegenerating services including broad range integrated messaging information distribution personal assistant services call answering voice mail fax mail unified messaging prepaid services wireless data internetbased services service enabling network software products interconnect complex circuit switching database messaging systems manage number routing billing information communication networks products also enable voice data networks interoperate converge allowing service providers offer converged network services voice internet call waiting segment represents companys ulticom subsidiary business intelligence intelligent recording products support voice fax data video recording analysis activities call centers variety commercial governmental organizations supports monitoring recording surveillance information gathering analysis activities law enforcement intelligence agencies includes miscellaneous operations table presents information operating incomeloss segment assets years ended january 31 2000 2001 1 operating income excluding merger expenses 10909000 would 4946000 2 includes merger related expenses 5062000 reconciling items consist following sales elimination intersegment revenues operating income loss elimination intersegment operating income corporate operations total assets elimination intersegment receivables unallocated corporate assets historical operating information could reasonably restated prior years based companys new operating structure historical condensed operating information based geographical regions year ended january 31 1999 follows sales country based enduser location percentage total sales years ended january 31 1999 2000 2001 follows january 31 1999 2000 2001 united states 27 24 25 germany 11 10 11 foreign 62 66 64 total 100 customer accounted 10 sales years ended january 31 1999 january 31 2000 january 31 2001 longlived assets country domicile consist january 31 2000 2001 thousands united states 72494 182473 israel 95275 142569 10570 8625 178339 333667 20 commitments contingencies leases company leases office manufacturing warehouse space noncancelable operating leases rent expense leased premises approximated 15168000 22500000 28304000 years ended january 31 1999 2000 2001 respectively january 31 2001 minimum annual rent obligations company approximately follows twelve months ended january 31 amount thousands 2002 32521 2003 32005 2004 30308 2005 28305 2006 thereafter 47150 170289 employment agreements company obligated employment contracts chief executive officer provide salary bonuses insurance fringe benefits january 31 2004 minimum salary payments contracts currently amount 642000 per year executive entitled annual bonuses equal least 275 companys consolidated aftertax net income year determined without regard acquisitionrelated expenses charges following termination expiration term employment executive entitled receive severance payment equal 124025 times number years beginning employment company amount payment increases rate 10 per annum compounded year employment following december 31 2000 plus continued fringe benefits three years insurance coverage 10 years executives employment terminated company without cause executive good reason terms defined agreement executive entitled additional payments attributable salary bonus monetary equivalence benefits otherwise would expected receive period three years balance agreement term whichever longer termination occurs following change control company required additional payment three times executives annual salary bonus executive additionally entitled accelerated vesting retirement benefits stock options payments sufficient reimburse associated excise tax liability income tax resulting reimbursement agreements also provide executive receive options entitling purchase 712 equity comverses subsidiaries comverse network systems inc prices equal higher book value underlying shares date option grant fair market value shares date determined basis armslength transaction third party transactions occurred reasonable basis determined board directors options well options granted executive companys stock option stock incentive plans become fully vested exercisable nonforfeitable event change control company termination executives employment company without cause executive good reason executives death disability insurance benefits include life insurance providing cumulative death benefits approximately 40000000 including amounts provided split dollar arrangement company reimbursed premiums benefit payments cash surrender value employment agreements company terminable without cause prior notice 90 days less certain instances termination employment agreements without cause entitles employees certain benefits including acceleration vesting stock options severance payments much one years compensation licenses royalties company licenses certain technology knowhow related rights use manufacture marketing products pays royalties third parties licenses agreements entered connection research development financing company currently pays royalties substantial portion product sales varying amounts based upon revenues attributed various components products royalties typically range 6 net sales related products case royalties due government funding sources respect research development projects required paid funding organization received total royalties ranging 100 150 amounts received company approved project budgets dividend restrictions ability comverses israeli subsidiaries pay dividends governed israeli law provides cash dividends may paid israeli corporation retained earnings determined statutory purposes israeli currency event devaluation israeli currency dollar amount dollars available payment cash dividends prior years earnings decrease accordingly cash dividends paid israeli corporation united states residents subject withholding israeli income tax source rate 25 depending particular facilities generated earnings source dividends investments 1997 whollyowned subsidiaries comverse quantum industrial holdings ltd organized two new companies make investments primarily relating israel including investments high technology ventures participant committed total 37500000 capital new companies use suitable investment opportunities identified quantum industrial holdings ltd principal direct investment vehicle quantum group investment funds managed soros fund management llc january 31 2000 2001 company invested approximately 11300000 22640000 respectively related ventures included caption investments accompanying balance sheets addition company committed 28035000 various companies ventures funds may called option investee guaranties company obtained bank guaranties primarily performance certain obligations contracts customers guaranties aggregated approximately 39982000 january 31 2001 released companys performance specified contract milestones scheduled completed primarily 2001 litigation company subject certain legal actions arising normal course business taking consideration legal counsels evaluation actions management opinion final resolution significant adverse effect upon companys financial position results operations 21 fair value financial instruments estimated fair value amounts determined company using available market information appropriate valuation methodologies however considerable judgment necessarily required interpreting market data develop estimates fair value accordingly estimates presented herein necessarily indicative amounts company could realize current market exchange use different market assumptions andor estimation methodologies may material effect estimated fair value amounts cash equivalents bank time deposits shortterm investments accounts receivable investments accounts payable carrying amounts items reasonable estimate fair value convertible debentures foreign exchange forward contracts fair value securities estimated based quoted market prices recent sales similar securities fair value estimates presented herein based pertinent information available management january 31 2001 amounts comprehensively revalued purposes financial statements since january 31 2001 current estimates fair value may differ significantly amounts presented herein 22 effect new accounting pronouncements 1998 financial accounting standards board issued sfas 133 accounting derivative instruments hedging activities subsequently amended sfas nos 137 138 collectively sfas 133 sfas 133 establishes accounting reporting standards derivative instruments including certain derivatives embedded contracts hedging activities requires entity recognize derivatives either assets liabilities measure instruments fair value sfas 133 certain contracts formerly considered derivatives may meet definition derivative sfas 133 effective fiscal quarters fiscal years beginning june 15 2000 company adopt sfas 133 effective february 1 2001 adoption sfas 133 material effect companys operations financial position 23 quarterly information unaudited following table shows selected results operations quarters years ended january 31 2000 2001 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized comverse technology inc registrant april 26 2001 kobi alexander kobi alexander chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated kobi alexander april 26 2001 kobi alexander chairman board chief executive officer director david kreinberg april 26 2001 david kreinberg chief financial officer zvi alexander april 26 2001 zvi alexander director itsik danziger april 26 2001 itsik danziger president director john h friedman april 26 2001 john h friedman director francis e girard april 26 2001 francis e girard director sam oolie april 26 2001 sam oolie director william f sorin april 26 2001 william f sorin director shaula yemini april 26 2001 dr shaula yemini directoritem 14 exhibits financial statement schedules reports form 8k 2 financial statement schedules none 3 exhibits index exhibits commences following page exhibits numbered 101 103 105 109 comprise material compensatory plans arrangements registrant exhibits description 3 articles incorporation bylaws 31 certificate incorporation incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 32 certificate amendment certificate incorporation effective february 26 1993 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 33 certificate amendment certificate incorporation effective january 12 1995 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1994 34 certificate amendment certificate incorporation dated october 18 1999 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended january 31 2000 35 certificate amendment certificate incorporation dated september 19 2000 36 bylaws amended incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 4 instruments defining rights security holders including indentures 41 excerpts certificate incorporation incorporated reference registrants registration statement form s1 securities exchange act 1933 registration 339147 42 excerpt certificate amendment certificate incorporation effective february 26 1993 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 43 excerpt certificate amendment certificate incorporation effective january 12 1995 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1994 44 excerpts bylaws amended incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 45 specimen stock certificate incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 46 indenture dated june 30 1998 comverse technology inc chase manhattan bank trustee incorporated reference registrants current report form 8k securities exchange act 1934 filed july 2 1998 47 specimen 4 12 convertible subordinated debenture due 2005 incorporated reference registrants current report form 8k securities exchange act 1934 filed july 2 1998 48 indenture dated november 22 2000 comverse technology inc chase manhattan bank trustee incorporated reference registrants registration statement form s3 securities act 1933 registration 33355526 49 specimen 1 12 convertible senior debenture due 2005 incorporated reference registrants registration statement form s3 securities act 1933 registration 33355526 10 material contracts 101 form stock option agreement pertaining shares certain subsidiaries comverse technology inc incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1993 102 form incentive stock option agreement incorporated reference registrants registration statement form s1 securities act 1933 registration 339147 103 form stock option agreement options incentive stock options incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 104 form indemnity agreement comverse technology inc officers directors incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 105 1997 employee stock purchase plan amended incorporated reference definitive proxy materials registrants annual meeting stockholders held october 8 1999 106 1997 stock incentive compensation plan incorporated reference definitive proxy materials registrants annual meeting stockholders held january 13 1998 107 1999 stock incentive compensation plan incorporated reference definitive proxy materials registrants annual meeting stockholders held october 8 1999 108 2000 stock incentive compensation plan incorporated reference definitive proxy materials registrants annual meeting stockholders held september 15 2000 109 2001 stock incentive compensation plan incorporated reference definitive proxy materials registrants annual meeting stockholders held june 15 2001 1010 memorandum agreement dated november 22 1995 boston technology inc att incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1996 confidential treatment requested certain portions 1011 lease dated november 5 1990 boston technology inc wakefield park limited partnership incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1991 1012 first amendment dated march 31 1993 lease dated november 5 1990 boston technology inc wakefield park limited partnership incorporated reference quarterly report boston technology inc form 10q securities exchange act 1934 quarter ended october 31 1993 1013 second amendment dated august 31 1994 lease dated november 5 1990 boston technology inc wakefield park limited partnership incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1995 1014 license agreement dated january 22 1990 boston technology inc dytel corporation incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1990 1015 settlement agreement dated december 28 1993 boston technology inc theis research inc peter f theis incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1994 1016 lease dated june 7 1996 boston technology inc wbam limited partnership incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1997 21 subsidiaries registrant 23 consent deloitte touche llp incorporated reference comverse technology inc subsidiaries index consolidated financial statements page independent auditors report consolidated balance sheets january 31 2001 2002 consolidated statements income years ended january 31 2000 2001 2002 consolidated statements stockholders equity years ended january 31 2000 2001 2002 consolidated statements cash flows years ended january 31 2000 2001 2002 notes consolidated financial statements independent auditors report board directors stockholders comverse technology inc woodbury new york audited accompanying consolidated balance sheets comverse technology inc subsidiaries company january 31 2001 2002 related consolidated statements income stockholders equity cash flows three years period ended january 31 2002 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position comverse technology inc subsidiaries january 31 2001 2002 results operations cash flows three years period ended january 31 2002 conformity accounting principles generally accepted united states america deloitte touche llp new york new york march 8 2002 see notes consolidated financial statements see notes consolidated financial statements see notes consolidated financial statements see notes consolidated financial statements comverse technology inc subsidiaries notes consolidated financial statements years ended january 31 2000 2001 2002 1 organization business comverse technology inc cti together subsidiaries company organized new york corporation october 1984 company engaged design development manufacture marketing support special purpose computer telecommunications systems software multimedia communications information processing applications 2 summary significant accounting policies principles consolidation consolidated financial statements include accounts comverse whollyowned majorityowned subsidiaries material intercompany balances transactions eliminated cash equivalents bank time deposits company considers highly liquid investments purchased original maturities three months less cash equivalents bank deposits maturities excess three months classified bank time deposits shortterm investments company classifies shortterm investments including us treasury bills availableforsale accounted fair value resulting unrealized gains losses reported separate component stockholders equity netoftax basis concentration credit risk financial instruments potentially expose company concentration credit risk consist primarily cash investments accounts receivable company places cash investments highcredit quality financial institutions currently invests primarily bank time deposits money market funds placed major banks financial institutions corporate commercial paper corporate mediumterm notes mortgage asset backed securities us government agency obligations accounts receivable generally diversified due number commercial government entities comprising companys customer base dispersion across many geographical regions january 31 2001 2002 companys allowance doubtful accounts approximately 23755000 41955000 respectively company believes significant concentration credit risk exists respect cash investments accounts receivable inventories stated lower cost market cost determined firstin firstout method property equipment property equipment carried cost less accumulated depreciation amortization company depreciates property equipment straightline basis periods ranging three seven years leasehold improvements amortized shorter estimated useful lives related lease term cost maintenance repairs charged operations incurred significant renewals betterments capitalized income taxes company accounts income taxes using asset liability method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities measured using enacted tax rates laws expected effect differences expected reverse revenue expense recognition revenue generally recognized time shipment sales systems require significant customization performed company collection resulting receivable deemed probable company companys systems generally bundled hardware software solution shipped together company generally obligations customers date products shipped except product warranties company generally warranties products one year sale provision estimated warranty costs recorded time sale customers may also purchase separate maintenance contracts generally consist bugfixing telephone access company technical personnel certain circumstances may also include right receive unspecified product updates upgrades enhancements revenue services recognized ratably contract period revenues certain development contracts recognized percentageofcompletion method basis physical completion date using actual costs incurred total expected costs contract revisions estimates costs profits reflected accounting period facts require revision become known time loss contract known entire amount estimated loss accrued amounts received customers excess revenues earned percentageofcompletion method recorded advance payments customers related contract costs include direct material labor costs indirect costs related contract performance included cost sales consolidated statements income expenses incurred connection research development activities certain software development costs capitalized selling general administrative expenses charged operations incurred software development costs software development costs capitalized upon establishment technological feasibility amortized estimated useful life software date four years less amortization begins period related product available general release customers amortization expenses amounted 6304000 7203000 9129000 years ended january 31 2000 2001 2002 respectively functional currency foreign currency transaction gains losses united states dollar functional currency major portion companys foreign operations companys sales materials purchased manufacturing denominated linked dollar certain operating costs principally salaries foreign operations denominated local currencies instances foreign subsidiary functional currency dollar company records necessary foreign currency translation adjustment reflected stockholders equity end reporting period january 31 2001 2002 company material outstanding foreign exchange contracts net gains losses foreign currency transactions included consolidated statements income approximated 9422000 646000 20788000 years ended january 31 2000 2001 2002 respectively assets licenses patent rights acquired knowhow recorded cost amortized using straightline method estimated useful lives related technology exceeding five years debt issue costs amortized using effective interest method term related debt liabilities january 2002 subsidiary cti verint systems inc verint took longterm bank loan amount 42000000 loan matures february 2003 bears interest libor plus 055 may prepaid without penalty loan guaranteed cti longlived assets company reviews impairment longlived assets certain identifiable intangibles whenever events changes circumstances indicate carrying amount asset may recoverable impairment loss would recognized estimated future undiscounted cash flows expected result use asset proceeds eventual disposition less carrying amount impairment measured fair value pervasiveness estimates preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates reclassifications certain prior year amounts reclassified conform manner presentation current year 3 research development significant portion companys research development operations located israel company derives benefits participation programs sponsored government israel support research development activities conducted country certain companys research development activities include projects partially funded office chief scientist ministry industry trade state israel ocs funding organization reimburses portion companys research development expenditures approved project budgets company accrues royalties ocs sale products incorporating technology developed projects year ended january 31 2002 one companys subsidiaries entered agreement ocs whereby subsidiary agreed pay lump sum royalty amount past amounts received ocs addition subsidiary receive lower amounts ocs historically received pay royalties future grants addition terms applicable funding agreements products resulting projects funded ocs may manufactured outside israel without government approval amounts reimbursed ocs years ended january 31 2000 2001 2002 16797000 21508000 9980000 respectively 4 shortterm investments company classifies shortterm investments availableforsale securities following summary availableforsale securities january 31 2002 year ended january 31 2002 gross realized gains sales securities totaled approximately 25252000 gross realized losses totaled approximately 18855000 year ended january 31 2001 gross realized gains sales securities totaled approximately 9905000 gross realized losses totaled approximately 8394000 year ended january 31 2000 gross realized gains sales securities totaled approximately 11652000 gross realized losses totaled approximately 4613000 basis cost determined computing realized gain loss firstin firstout method amortized cost estimated fair value debt securities january 31 2002 contractual maturity follows 8 business combinations july 2000 company acquired outstanding stock loronix information systems inc loronix company develops softwarebased digital video recording management systems 1994806 shares companys common stock assumption options purchase 370101 shares companys common stock combination accounted pooling interests six months ended june 30 2000 loronix sales approximately 181 million net loss including merger related expenses approximately 23 million table sets forth separate combined results company loronix fiscal year ended january 31 2000 consolidated statement income data combines historical statement income data company fiscal year ended january 31 2000 historical statement income data loronix fiscal year ended december 31 1999 loronixs net loss period july 1 2000 july 31 2000 approximately 705000 excluded companys consolidated statement income year ended january 31 2001 result conforming fiscal years included adjustment retained earnings july 2000 company acquired outstanding stock syborg informationsysteme gmbh syborg company develops softwarebased digital voice internet recording systems 201251 shares companys common stock combination accounted pooling interests company restate prior financial statements acquisition due immateriality recorded book value net assets syborg approximately 475000 statement stockholders equity august 2000 company acquired outstanding stock exalink ltd exalink company specializing routerbased protocol gateways applications software delivery internetbased services types wireless devices 5261211 shares companys common stock assumption options warrants purchase 810377 shares companys common stock combination accounted pooling interests company restate prior financial statements acquisition due immateriality recorded book value net assets exalink approximately 973000 statement stockholders equity august 2000 company acquired outstanding stock gaya software industries ltd gaya company specializing softwarebased intelligent internet protocol ip gateways voiceoverip technology 283758 shares companys common stock assumption options warrants purchase 10505 shares companys common stock combination accounted pooling interests company restate prior financial statements acquisition due immateriality recorded book value net assets gaya approximately 1470000 statement stockholders equity august 1999 company acquired outstanding stock intouch systems inc intouch company develops markets suite intelligent voicecontrolled software applications 679202 shares companys common stock assumption options purchase 79122 shares companys common stock combination accounted pooling interests company restate prior financial statements acquisition due immateriality recorded book value net assets intouch 1122000 statement stockholders equity february 1999 company acquired outstanding stock amarex technology inc amarex company develops softwarebased applications telephone network operator call center markets 692014 shares companys common stock assumption options warrants purchase 239286 shares companys common stock combination accounted pooling interests company restate prior financial statements acquisition due immateriality recorded book value net assets amarex 268000 statement stockholders equity connection acquisitions company charged 2016000 15971000 respectively operations years ended january 31 2000 2001 merger related charges relate following connection acquisitions year ended january 31 2001 certain assets became impaired due existence duplicative technology property equipment inventory merged companies accordingly assets written net realizable value time merger professional fees direct merger expenses connection acquisitions years ended january 31 2000 2001 company recorded charge 2016000 8572000 respectively professional fees lawyers investment bankers accountants well direct merger costs connection mergers printing costs filing fees 9 workforce reduction restructuring year ended january 31 2002 company took steps better align cost structure current business environment improve efficiency operations better position company realize emerging opportunities steps included reduction workforce announced april 2001 restructuring plan announced december 2001 connection actions company charged 63562000 operations year ended january 31 2002 charges relate following severance related costs consist primarily severance payments terminated employees fringe related costs associated severance payments termination costs legal consulting costs accrual balance 11862000 expected paid october 31 2002 facilities costs consist primarily contractually obligated lease liabilities operating expenses related facilities vacated primarily united states israel result restructuring plan accrual balance 24347000 expected paid various dates january 2011 connection restructuring plan company changed organizational structure product offerings result certain inventory property equipment capitalized software became impaired writtenoff 10 accounts payable accrued expenses accounts payable accrued expenses consist 11 convertible debentures november 2000 company issued 500000000 aggregate principal amount 150 convertible senior debentures due december 2005 debentures december 2000 company issued additional 100000000 debentures result initial purchaser exercising full overallotment option debentures unsecured senior obligations company ranking equally companys existing future unsecured senior indebtedness senior right payment companys existing future subordinated indebtedness debentures convertible option holders shares companys common stock conversion price 116325 per share subject adjustment certain events subject redemption time december 1 2003 whole part option company redemption prices expressed percentages principal amount 100375 redeemed twelvemonth period beginning december 1 2003 100 principal amount redeemed thereafter debenture holders may require company repurchase debentures par event common stock ceases publicly traded certain instances upon change control company upon occurrence change control instead paying repurchase price cash company may pay repurchase price common stock june 1998 company issued 300000000 convertible subordinated debentures bearing interest 450 per annum payable semiannually june 2001 company called debentures redemption debentures converted 13953462 shares common stock 12 liability severance pay liability severance pay consists companys unfunded liability severance pay employees certain foreign subsidiaries accrued severance companys chief executive officer israeli law company obligated make severance payments employees israeli subsidiaries basis individuals current salary length employment liabilities currently provided primarily premiums paid company insurance providers company obligated agreement chief executive officer provide severance payment upon termination employment company approximately 2270000 2631000 accrued january 31 2001 2002 respectively relating liability 13 common stock splits april 15 1999 company effected threefortwo stock split paying 50 stock dividend stockholders record march 31 1999 april 3 2000 company effected twoforone stock split paying 100 stock dividend shareholders record march 27 2000 share per share information retroactively restated consolidated financial statements reflect splits increase authorized common shares annual meeting shareholders held september 15 2000 companys shareholders approved amendment companys certificate incorporation increase 300000000 600000000 aggregate number authorized common shares company issuance subsidiary stock april 2000 subsidiary company ulticom inc ulticom issued 4887500 shares common stock initial public offering proceeds offering based offering price 1300 per share totaled approximately 58062000 net offering expenses october 2000 ulticom issued additional 2843375 shares common stock public offering proceeds offering based offering price 5000 per share totaled approximately 137169000 net offering expenses company recorded gain approximately 145854000 recorded increase stockholders equity result issuances january 31 2002 companys ownership interest ulticom approximately 724 14 stock options employee stock options january 31 2002 33089823 shares common stock reserved issuance upon exercise options outstanding 1834615 shares available future grant comverses stock option plans options may granted key employees directors persons rendering services company options designated incentive stock options option plans may granted exercise price less fair market value underlying shares date grant subject certain quantity limitations specified section 422 internal revenue code options intended qualify incentive stock options may granted price less par value underlying shares without restriction amount options underlying shares subject adjustment accordance terms plans event stock dividends recapitalizations similar transactions right exercise options generally vests increments periods four years date grant date commencement grantees employment company maximum term ten years options granted changes number options follows january 31 2002 options purchase aggregate 12616756 shares vested currently exercisable option plans options purchase additional 20473067 shares vest various dates extending year 2005 weighted average option exercise price information follows significant option groups outstanding january 31 2002 related weighted average price life information follows company applies accounting principles board opinion 25 accounting stock issued employees related interpretations accounting option plans accordingly options granted exercise prices equal fair market value date grant compensation expense recognized company connection stockbased compensation plans compensation cost companys stock option plans determined based upon fair value grant date awards plans consistent methodology prescribed statement financial accounting standards sfas 123 accounting stockbased compensation companys net income earnings per share would reduced approximately 45239000 87112000 181837000 027 047 100 per diluted share years ended january 31 2000 2001 2002 respectively weighted average fair value options granted years ended january 31 2000 2001 2002 respectively estimated 2154 5038 1085 date grant using blackscholes option pricing model following weighted average assumptions years ended january 31 2000 2001 2002 respectively volatility 56 65 76 riskfree interest rate 59 55 40 expected life 41 49 43 years options subsidiary shares accordance requirements employment agreement chief executive officer company holds options acquire 75 shares certain subsidiaries comverse inc addition company granted options certain employees acquire shares certain subsidiaries comverse inc option issuances tied performance subsidiaries intended incentivize employees units direct responsibility portion shares subsidiaries upon options granted varies among subsidiaries affected exceeding instance 20 shares outstanding assuming exercise full options terms 15 years become exercisable vest various periods ranging seven years date initial grant exercise price option equal higher book value underlying shares date grant fair market value shares date determined basis armslength transaction third party transactions occurred reasonable basis determined committee board directors 15 warrants november 1995 company entered agreement supply products customer pursuant agreement company issued warrants purchase shares common stock exercise price 718 per share january 31 2002 warrants exercised 16 employee stock purchase plan 1997 employee stock purchase plan espp employees completed three months employment entitled payroll deductions amounts 10 base salary purchase shares companys common stock 85 lesser market price offering commencement date offering termination date number shares available espp 2000000 1114000 issued january 31 2002 17 earnings per share eps basic earnings per share determined using weighted average number shares common stock outstanding period diluted earnings per share assumes issuance common shares dilutive potential common shares outstanding calculation earnings per share years ended january 31 2000 2001 2002 follows debentures convertible 1059855 weighted average shares 11291352 weighted average shares january 31 2001 january 31 2002 respectively included computation diluted eps effect including would dilutive 18 interest income expense net interest income expense net consists following 19 income taxes provision income taxes consists following deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes b operating loss carryforwards tax effects significant items comprising companys deferred tax asset liability january 31 2001 2002 follows january 31 2002 company net operating loss carryforwards federal income tax purposes approximately 686 million begin expire 2018 income tax provided unrepatriated earnings foreign subsidiaries currently intention company reinvest foreign earnings operations 20 business segment information companys reporting segments follows enhanced services solutions products enable telecommunications service providers offer variety revenuegenerating services accessible large numbers simultaneous users services include broad range integrated multimodal messaging information distribution personal communications services call answering onetouch call return voicemail ipbased unified messaging voice fax email single mailbox media conversion email voice visual mailbox presentation prepaid wireless calling services wireless data internetbased services short messaging services wireless information entertainment services multimedia messaging services wireless instant messaging interactive voice response voice portal services part voicecontrolled portfolio services voice dialing voicecontrolled web browsing voicecontrolled messaging applications service enabling signaling software products interconnect complex circuit switching database messaging systems manage vital number routing billing information form backbone todays public telecommunications networks products also embedded range packet softswitching products interoperate converge voice data networks facilitate services voice internet offload segment represents companys ulticom subsidiary security business intelligence recording products provides analytic solutions communications interception digital video security surveillance enterprise business intelligence software generates actionable intelligence collection retention analysis voice fax video email internet data transmissions multiple types communications networks segment represents companys verint subsidiary includes miscellaneous operations table presents information operating incomeloss segment assets years ended january 31 2000 2001 2002 reconciling items consist following sales elimination intersegment revenues operating income loss elimination intersegment operating income corporate operations total assets elimination intersegment receivables unallocated corporate assets sales country based enduser location percentage total sales years ended january 31 2000 2001 2002 follows 21 commitments contingencies leases company leases office manufacturing warehouse space noncancelable operating leases rent expense leased premises approximated 22500000 28304000 36461000 years ended january 31 2000 2001 2002 respectively january 31 2002 minimum annual rent obligations company approximately follows twelve months ended january 31 amount thousands 2003 34007 2004 30234 2005 20253 2006 18981 2007 thereafter 33666 137141 employment agreements company obligated employment contracts kobi alexander chairman chief executive officer provide salary bonuses insurance fringe benefits january 31 2004 minimum salary payments contracts currently amount 672000 per year executive entitled annual bonuses equal least 275 companys consolidated aftertax net income year determined without regard acquisitionrelated expenses charges year ended january 31 2002 mr alexander entitled receive 672000 salary bonus approximately 1500000 mr alexander voluntarily forfeited ninety percent 90 approximately 1955000 amount resulting total cash compensation excluding amounts paid accrued vacation approximately 217000 following termination expiration term employment executive entitled receive severance payment equal 112736 times number years beginning employment company amount payment increases rate 10 per annum compounded year employment following december 31 2000 plus continued fringe benefits three years insurance coverage 10 years executives employment terminated company without cause executive good reason terms defined agreement executive entitled additional payments attributable salary bonus monetary equivalence benefits otherwise would expected receive period three years balance agreement term whichever longer termination occurs following change control company required additional payment three times executives annual salary bonus executive additionally entitled accelerated vesting retirement benefits stock options payments sufficient reimburse associated excise tax liability income tax resulting reimbursement agreements also provide executive receive options entitling purchase 712 equity comverses subsidiaries comverse inc prices equal higher book value underlying shares date option grant fair market value shares date determined basis armslength transaction third party transactions occurred reasonable basis determined board directors options well options granted executive companys stock option stock incentive plans become fully vested exercisable nonforfeitable event change control company termination executives employment company without cause executive good reason executives death disability insurance benefits include life insurance providing cumulative death benefits approximately 40000000 including amounts provided split dollar arrangement company reimbursed premiums benefit payments cash surrender value employment agreements company terminable without cause prior notice 90 days less certain instances termination employment agreements without cause entitles employees certain benefits including acceleration vesting stock options severance payments much one years compensation licenses royalties company licenses certain technology knowhow related rights use manufacture marketing products pays royalties third parties licenses agreements entered connection research development financing company currently pays royalties certain product sales varying amounts based upon revenues attributed various components products royalties typically range 6 net sales related products case royalties due government funding sources respect research development projects required paid funding organization received total royalties amounts received company approved project budgets dividend restrictions ability comverses israeli subsidiaries pay dividends governed israeli law provides cash dividends may paid israeli corporation retained earnings determined statutory purposes israeli currency event devaluation israeli currency dollar amount dollars available payment cash dividends prior years earnings decrease accordingly cash dividends paid israeli corporation united states residents subject withholding israeli income tax source rate 25 depending particular facilities generated earnings source dividends investments 1997 subsidiary cti quantum industrial holdings ltd organized two new companies make investments including investments high technology ventures participant committed total 37500000 capital new companies use suitable investment opportunities identified quantum industrial holdings ltd member quantum group funds managed soros fund management llc affiliated management companies january 31 2001 2002 company invested approximately 22640000 25026000 respectively related ventures included caption investments accompanying balance sheets addition company committed 27726000 various companies ventures funds may called option investee guaranties company obtained bank guaranties primarily performance certain obligations contracts customers guaranties aggregated approximately 23421000 january 31 2002 released companys performance specified contract milestones scheduled completed primarily 2002 litigation october 19 2001 kevin beier v comverse technology inc et al cv 016972 first four virtually identical purported securities class action complaints filed cti certain executive officers united states district court eastern district new york four actions consolidated beier action january 15 2002 amended consolidated complaint filed march 4 2002 consolidated complaint generally alleges violations federal securities laws behalf individuals allege purchased ctis common stock purported class period april 30 2001 july 10 2001 consolidated complaint seeks unspecified amount damages behalf persons purchased cti stock purported class period company believes claims complaints without merit vigorously defend claims time company subject claims legal proceedings arising normal course business company believe currently party pending legal action could reasonably expected material adverse effect business operating results 22 fair value financial instruments estimated fair value amounts determined company using available market information appropriate valuation methodologies however considerable judgment necessarily required interpreting market data develop estimates fair value accordingly estimates presented herein necessarily indicative amounts company could realize current market exchange use different market assumptions andor estimation methodologies may material effect estimated fair value amounts cash equivalents bank time deposits shortterm investments accounts receivable investments accounts payable carrying amounts items reasonable estimate fair value convertible debentures fair value securities estimated based quoted market prices recent sales similar securities fair value estimates presented herein based pertinent information available management january 31 2002 amounts comprehensively revalued purposes financial statements since january 31 2002 current estimates fair value may differ significantly amounts presented herein 23 effect new accounting pronouncements 1998 financial accounting standards board fasb issued sfas 133 accounting derivative instruments hedging activities subsequently amended sfas nos 137 138 collectively sfas 133 sfas 133 establishes accounting reporting standards derivative instruments including certain derivatives embedded contracts hedging activities requires entity recognize derivatives either assets liabilities measure instruments fair value sfas 133 certain contracts formerly considered derivatives may meet definition derivative sfas 133 effective fiscal quarters fiscal years beginning june 15 2000 company adopted sfas 133 effective february 1 2001 adoption sfas 133 material effect companys consolidated financial statements june 2001 fasb issued sfas 141 business combinations sfas 141 applies prospectively business combinations initiated june 30 2001 business combinations accounted using purchase method date acquisition july 1 2001 later statement requires business combinations accounted using one method purchase method previously existing accounting rules business combinations accounted using one two methods poolingofinterests method purchase method adoption sfas 141 expected material effect companys consolidated financial statements june 2001 fasb issued sfas 142 goodwill intangible assets sfas 142 addresses financial accounting reporting acquired goodwill intangible assets sfas 142 goodwill intangible assets longer amortized rather reviewed impairment periodic basis provisions statement required applied starting fiscal years beginning december 15 2001 statement required applied beginning companys fiscal year applied goodwill intangible assets recognized financial statements date impairment losses goodwill certain intangible assets arise due initial application statement reported resulting change accounting principle goodwill intangible assets acquired june 30 2001 subject immediately provisions statement adoption sfas 142 expected material effect companys consolidated financial statements august 2001 fasb issued sfas 143 accounting asset retirement obligations sfas 143 establishes accounting standards recognition measurement liability asset retirement obligation associated asset retirement cost sfas 143 applies legal obligations associated retirement tangible longlived asset result acquisition construction development andor normal operation longlived asset statement effective fiscal years beginning june 15 2002 however early adoption encouraged adoption sfas 143 expected material effect companys consolidated financial statements october 2001 fasb issued sfas 144 accounting impairment disposal longlived assets sfas 144 addresses financial accounting reporting impairment disposal longlived assets sfas 144 supercedes certain provisions sfas 121 accounting impairment longlived assets disposed accounting principles board opinion 30 reporting results operationsreporting effects disposal segment business extraordinary unusual infrequently occurring events transactions sfas 144 effective financial statements issued fiscal years beginning december 15 2001 interim periods within fiscal years however early adoption encouraged company currently evaluating impact sfas 144 consolidated financial statements 24 subsequent event february 1 2002 verint acquired digital video recording business lanex llc lanex business provides digital video recording solutions security surveillance applications primarily north american banks purchase price consisted 95 million cash 22 million convertible note noninterest bearing matures february 1 2004 holder note may elect convert note whole part shares verints common stock conversion price 1606 per share time completion initial public offering verint note guaranteed cti pro forma results operations presented effects acquisition material 25 quarterly information unaudited following table shows selected results operations quarters years ended january 31 2001 2002 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized comverse technology inc registrant april 26 2002 kobi alexander kobi alexander chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated kobi alexander april 26 2002 kobi alexander chairman board chief executive officer director itsik danziger april 26 2002 itsik danziger president director david kreinberg april 26 2002 david kreinberg chief financial officer zvi alexander april 26 2002 zvi alexander director john h friedman april 26 2002 john h friedman director francis e girard april 26 2002 francis e girard director ron hiram april 26 2002 ron hiram director sam oolie april 26 2002 sam oolie director william f sorin april 26 2002 william f sorin director shaula yemini april 26 2002 dr shaula yemini directoritem 14 principal accounting fees services information called item 14 set forth heading “proposal 2 ratification appointment independent registered public accounting firm” 2012 proxy statement incorporated herein reference part iv item 15 item 7 managements discussion analysis financial condition results operations overview company benefited strong operating cash flow growth capital base past two years make significant new investment operations infrastructure intended enhance opportunities future growth profitability companys results operations reflect significant increase investment operations past two years company increased gross expenditures research development 6648000 1992 16808000 1994 adding new features capabilities existing product lines supporting planned introduction next generation products time company significantly expanded sales marketing activities internationally united states regional offices sales marketing support services opened united kingdom germany canada finland australia hong kong company increased direct sales activities throughout europe north america far east total revenues increased throughout period 38422000 1992 98843000 1994 companys backlog december 31 1994 stood record 38500000 1993 three customers constituted 41 companys total sales 1994 company increased customer base single customer constituting 8 sales company intends continue 1995 make significant investments growth business examine opportunities additional growth acquisitions strategic investments impact decisions future profitability cannot predicted assurance companys commitment growth may increase vulnerability unforeseen downturns markets technology changes shifts competitive conditions however company believes significant opportunities exist markets main product lines continued strong investment technical product development marketing sales capabilities enhance opportunities long term growth profitability results operations comparison 1993 1994 operations total revenues total revenues increased 1993 1994 approximately 28405000 40 reflecting increase trilogue sales 20517000 56 increase audiodisk sales 4462000 14 increase interest income 3426000 126 trilogue sales increased geographical regions largest increases occurring europe far east australia audiodisk sales increased primarily result consolidation dvl system operations previously conducted 50owned joint venture increase interest income resulted primarily fullyear investment funds generated operations issuance securities 1993 well increase interest rates 1994 cost sales cost sales increased approximately 11625000 42 1993 1994 result increase sales gross margins decreased approximately 59 1993 approximately 58 1994 resulting primarily lower gross margins associated newlyconsolidated dvl system operations research development expenses gross research development expenses 1994 increased approximately 5791000 53 1993 due overall growth research development operations initiation significant new research development projects product lines increases salaries costs associated research development operations israel net research development expenses reimbursement approved expenditures government funding programs increased approximately 4340000 62 higher rate growth net research development expense comparison gross research development expense primarily result lower rate reimbursement associated certain projects conducted government funding programs increase portion research development activities benefiting reimbursement arrangements selling general administrative expenses selling general administrative expenses increased 1993 1994 approximately 9599000 51 percentage total revenues increased approximately 27 1993 approximately 29 1994 increases result increased sales marketing administrative activities associated overall growth companys operations particularly expansion direct sales marketing activities internationally united states royalties license fees royalties license fees increased 1993 1994 approximately 275000 14 due growth sales royaltybearing products royalties license fees percentage total sales decreased approximately 28 1993 approximately 24 1994 decline resulted primarily significant reduction royalty payments made government israel respect marketing subsidies program discontinued 1993 income tax provision income taxes increased 1993 1994 approximately 694000 68 reflecting increase companys overall effective tax rate approximately 7 1993 approximately 13 1994 increase resulted primarily increase tax income companys united states operations due part substantial utilization net operating loss carryforwards reduced 1993 income tax provision companys remaining net operating loss carryforwards united states operations aggregating approximately 6100000 approximately 3900000 derived compensation component employee stock option exercises andapproximately 2200000 associated acquired subsidiary utilized net operating loss carryforwards affect income tax provision companys income statement reflected determination stockholders equity goodwill respectively companys balance sheet net operating loss carryforwards associated acquired subsidiary may utilized reduce taxable income subsidiary subject annual limitation approximately 150000 companys overall rate tax reduced significantly tax benefits associated qualified activities efrat entitled favorable income tax rates program israeli government approved enterprise investments country effective rate tax applicable efrats operations 45 1994 57 1993 reflecting substantial completion year investments new approved enterprise projects net income net income taxes decreased approximately 12707000 1993 approximately 11770000 1994 decrease approximately 937000 7 net income taxes percentage total revenues decreased approximately 18 1993 approximately 12 1994 decreases resulted primarily significant growth amounts invested companys operations 1994 including substantial increases research development marketing sales activities undertaken support companys strategic growth plan comparison 1992 1993 operations total revenues total revenues increased 1992 1993 approximately 32016000 83 reflecting primarily increase audiodisk sales europe approximately 13177000 increase trilogue sales far east australia approximately 11345000 increase total revenues 1993 also reflected fullyear consolidated operations subsidiaries acquired 1992 interest income increased approximately 1806000 196 resulting primarily investment funds generated issuance securities 1993 cost sales cost sales increased approximately 12378000 81 1992 1993 result increase sales gross margins remained approximately 59 reflecting impact large audiodisk system contracts performance year research development expenses gross research development expenses 1993 increased approximately 4369000 66 1992 due primarily initiation new research development projects net research development expenses reimbursement approved expenditures government funding programs increased approximately 3373000 93 higher rate growth net research development expense comparison gross research development expense primarily result lower rate reimbursement associated certain projects conducted government funding programs unreimbursed research development conducted united states selling general administrative expenses selling general administrative expenses increased 1992 1993 approximately 7126000 60 result increased marketing sales administrative activities associated overall growth companys operations selling general administrative expenses percentage total revenues decreased approximately 31 1992 approximately 27 1993 royalties license fees royalties license fees increased 1992 1993 approximately 1137000 147 due growth sales royalty bearing products royalty payments relating marketing subsidies provided government israel prior periods royalties license fees percentage total sales increased approximately 21 1992 approximately 28 1993 income tax provision income taxes utilization net operating loss carryforwards increased approximately 999000 1992 approximately 1021000 1993 increase approximately 22000 2 companys overall effective tax rate utilization net operating loss carryforwards decreased approximately 15 1992 approximately 7 1993 decrease due primarily reduction effective rate tax efrats operations approximately 17 1992 approximately 6 1993 due substantial completion 1993 investment new approved enterprise project companys overall effective tax rate also reflects utilization net operating loss carryforwards offset tax income united states operations net income net income taxes increased approximately 5677000 1992 approximately 12707000 1993 increase approximately 7030000 124 primarily result continued overall growth revenues sustained gross margins reduction selling general administrative expenses percentage total revenues lower effective tax rates net income taxes percentage total revenues increased approximately 15 1992 approximately 18 1993 liquidity capital resources december 31 1994 company cash equivalents approximately 38496000 bank time deposits approximately 15707000 shortterm investments approximately 73661000 working capital approximately 144659000 company believes existing working capital together funds generated operations sufficient provide planned operations foreseeable future company regularly examines opportunities strategic acquisitions companies lines business anticipates may time issue additional debt andor equity securities either direct consideration acquisitions raise additional funds used whole part payment acquired securities assets issuance securities expected dilutive impact companys shareholders assurance whether acquired business would contribute positive operating results commensurate associated acquisition cost companys liquidity capital resources anticipated materially affected restrictions pertaining ability subsidiaries israel pay dividends withholding taxes associated dividend payments cash dividends paid israeli corporation foreign residents subject withholding israeli income tax source rates 15 depending particular facilities generated earnings source dividends efrat currently restricted contract paying dividends exceeding 75 profits certain trends uncertainties industries company principally involved highly competitive characterized frequent technological market changes voice processing message management industry undergone consolidation recent periods result corporate acquisitions attrition addition industry experienced continuing evolution product offerings alternatives delivery services trends affected may expected significant continuing influence conditions industry although impact industry generally companys position industry cannot predicted assurance significant changes industry make planning decisions difficult increase risk inherent planning process market telecommunications monitoring systems also period significant transition budgetary constraints uncertainties resulting introduction new technologies telecommunications environment shifts pattern government expenditures resulting geopolitical events increased uncertainties market resulting certain instances attenuation government procurement programs beyond originally expected performance periods increased incidence delay cancellation reduction planned projects competitive conditions sector also affected efforts government contractors particularly developers integrators technology products redirect marketing strategies product plans reaction cutbacks traditional areas focus resulting increase number competitors range products offered response particular requests proposals lack predictability timing scope government procurements similarly made planning decisions difficult increased associated risks company historically derived significant portion revenue operating profit relatively small number contracts large system installations customers commercial government sectors growth companys business reduced dependence specific customers continues emphasize large capacity ssp systems product development marketing strategies contracts ssp installations typically involve lengthy complex bidding selection process ability company obtain particular contracts inherently difficult predict company believes opportunities ssp installations continue grow commercial government markets intends continue expand research development manufacturing sales marketing product support capabilities anticipation growth however timing scope opportunities pricing margins associated eventual contract award difficult forecast may vary substantially transaction companys future operating results may accordingly exhibit higher degree volatility operating results companies industries adopted different strategies company experienced prior periods although company actively pursuing number significant procurement opportunities united states internationally timing eventual procurements probability companys receipt significant contract awards uncertain degree dependence company large orders investment required enable company perform orders without assurance continuing order flow customers predictability gross margins future orders increase risk associated business company significantly increased expenditures areas operations recent periods including areas research development marketing sales company plans increase expenditures 1995 increase research development expenditures reflects companys concentration enhancing range features capabilities existing product lines developing new generations products company believes efforts essential long short term competitiveness product offerings positioning participate future growth opportunities commercial government sectors increase sales marketing expenditures primarily results companys decision expand activities direct presence number world markets companys costs operations also affected increases cost operations israel resulting general inflation increases cost attracting retaining qualified scientific engineering technical personnel israel demand personnel growing rapidly expansion technologybased industries country increase costs recent periods offset proportional devaluation israeli shekel us dollar accordingly negative impact companys overall results operations company currently derives majority total revenues sales customers outside united states international transactions involve particular risks including political decisions affecting tariffs trade conditions rapid unforeseen changes economic conditions individual countries turbulence foreign currency credit markets increased costs resulting lack proximity customer volatility international currency exchange rates may significant impact companys operating results extent unable completely hedge exchange rate risk long term contracts denominated foreign currencies cost hedging trading price companys shares may affected factors noted well prevailing economic financial trends conditions public securities markets recent periods share prices companies technology government contracting businesses particularly smaller mediumsized publicly traded companies company exhibited high degree volatility shortfalls revenues earnings levels anticipated public markets could immediate significant effect trading price companys shares given period shortfalls may result events beyond companys immediate control unpredictable since significant proportion companys sales fiscal quarter tend occur latter stages quarter may discernible end financial reporting period may contribute volatility trading value shares regardless companys longterm prospects trading price companys shares may also affected developments including reported financial results fluctuations trading prices shares publiclyheld companies voice processing industry may direct relationship companys business prospects item 8item 7 managements discussion analysis financial condition results operations overview company benefited strong operating cash flow growth capital base past three years make significant new investment operations infrastructure intended enhance opportunities future growth profitability companys results operations reflect significant increase investment operations past three years company increased gross expenditures research development 12187000 1993 27161000 1995 adding new features capabilities existing product lines supporting planned introduction next generation products time company significantly expanded sales marketing activities internationally united states regional offices sales marketing support services opened united kingdom germany canada finland australia hong kong company increased direct sales activities throughout europe north america far east total revenues increased throughout period 84591000 1993 145896000 1995 companys backlog december 31 1995 stood record 50200000 1995 company increased customer base single customer constituting 5 sales company intends continue 1996 make significant investments growth business examine opportunities additional growth acquisitions strategic investments impact decisions future profitability cannot predicted assurance companys commitment growth may increase vulnerability unforeseen downturns markets technology changes shifts competitive conditions however company believes significant opportunities exist markets main product lines continued strong investment technical product development marketing sales capabilities enhance opportunities long term growth profitability results operations comparison 1994 1995 operations total revenues total revenues increased 1994 1995 approximately 31584000 28 reflecting increase trilogue sales 17817000 25 increase audiodisk sales 11182000 31 increase interest income 2585000 42 trilogue sales increased europe far east australia north america audiodisk sales increased europe far east north america israel increase interest income resulted primarily increased interest dividend income realized gains sales shortterm investments cost sales cost sales increased approximately 11582000 24 1994 1995 primarily result increase sales gross margins increased approximately 559 1994 approximately 568 1995 research development expenses gross research development expenses 1995 increased approximately 9044000 50 1994 due overall growth research development operations initiation significant new research development projects product lines increases salaries costs associated research development operations israel net research development expenses reimbursement approved expenditures government funding programs increased approximately 6786000 54 higher rate growth net research development expense comparison gross research development expense primarily result increase portion research development activities benefiting reimbursement arrangements lower rate reimbursement associated certain projects conducted government funding programs selling general administrative expenses selling general administrative expenses increased 1994 1995 approximately 7707000 23 percentage total revenues decreased approximately 29 1994 approximately 28 1995 increased amount result increased sales marketing administrative activities associated overall growth companys operations particularly expansion direct sales marketing activities internationally united states royalties license fees royalties license fees increased 1994 1995 approximately 233000 11 due growth sales royalty bearing products royalties license fees percentage total sales decreased approximately 20 1994 approximately 18 1995 reflecting increase proportion total sales comprised products bearing lower rates royalty royalties due income tax provision income taxes increased 1994 1995 approximately 274000 15 companys overall effective tax rate decreased approximately 128 1994 approximately 108 1995 companys overall rate tax reduced significantly tax benefits associated qualified activities efrat entitled favorable income tax rates program israeli government approved enterprise investments country net income net income taxes increased approximately 12098000 1994 approximately 17050000 1995 increase approximately 4952000 41 net income taxes percentage total revenues increased approximately 106 1994 approximately 117 1995 increases resulted primarily factors described comparison 1993 1994 operations total revenues total revenues increased 1993 1994 approximately 29721000 35 reflecting increase trilogue sales 22300000 44 increase audiodisk sales 4462000 14 increase interest income 2959000 92 trilogue sales increased geographical regions largest increases occurring europe far east australia audiodisk sales increased primarily result consolidation dvl system operations previously conducted 50owned joint venture increase interest income resulted primarily fullyear investment funds generated operations issuance securities 1993 well increase interest rates 1994 cost sales cost sales increased approximately 12590000 36 1993 1994 result increase sales gross margins decreased approximately 568 1993 approximately 559 1994 resulting primarily lower gross margins associated newly consolidated dvl system operations research development expenses gross research development expenses 1994 increased 5930000 49 1993 due overall growth research development operations initiation significant new research development projects product lines increases salaries costs associated research development operations israel net research development expenses reimbursement approved expenditures government funding programs increased approximately 4479000 55 higher rate growth net research development expense comparison gross research development expense primarily result lower rate reimbursement associated certain projects conducted government funding programs increase portion research development activities benefiting reimbursement arrangements selling general administrative expenses selling general administrative expenses increased 1993 1994 approximately 10213000 44 percentage total revenues increased appropriately 28 1993 29 1994 increases result increased sales marketing administrative activities associated overall growth companys operations particularly expansion direct sales marketing activities internationally united states royalties license fees royalties license fees increased 1993 1994 approximately 275000 14 due growth sales royalty bearing products royalties license fees percentage total sales decreased approximately 23 1993 approximately 20 1994 decline resulted primarily significant reduction royalty payments made government israel respect marketing subsidies program discontinued 1993 income tax provision income taxes increased 1993 1994 approximately 762000 75 reflecting increase companys overall tax rate approximately 70 1993 approximately 128 1994 increase resulted primarily increase tax income companys united states operations due part substantial utilization net operating loss carryforwards reduced 1993 income tax provision companys overall rate tax reduced significantly tax benefits associated qualified activities efrat entitled favorable income tax rates program israeli government approved enterprise investments country net income net income taxes decreased approximately 13465000 1993 approximately 12098000 1994 decrease approximately 1367000 10 net income taxes percentage total revenues decreased approximately 159 1993 approximately 106 1994 decreases resulted primarily significant growth amounts invested companys operations 1994 including substantial increases research development marketing sales activities undertaken support companys strategic growth plan liquidity capital resources december 31 1995 company cash equivalents approximately 99862000 shortterm investments approximately 23070000 working capital approximately 155064000 company believes existing working capital together funds generated operations sufficient provide planned operations foreseeable future company regularly examines opportunities strategic acquisitions companies lines business anticipates may time issue additional debt andor equity securities either direct consideration acquisitions raise additional funds used whole part payment acquired securities assets issuance securities expected dilutive impact companys shareholders assurance whether acquired business would contribute positive operating results commensurate associated acquisition cost companys liquidity capital resources anticipated materially affected restrictions pertaining ability subsidiaries israel pay dividends withholding taxes associated dividend payments cash dividends paid israeli corporation foreign residents subject withholding israeli income tax source rates 15 depending particular facilities generated earnings source dividends certain trends uncertainties industries company principally involved highly competitive characterized frequent technological market changes voice processing message management industry undergone consolidation recent periods result corporate acquisitions attrition addition industry experienced continuing evolution product offerings alternatives delivery services trends affected may expected significant continuing influence conditions industry although impact industry generally companys position industry cannot predicted assurance significant changes industry make planning decisions difficult increase risk inherent planning process market telecommunications monitoring systems also period significant transition budgetary constraints uncertainties resulting introduction new technologies telecommunications environment shifts pattern government expenditures resulting geopolitical events increased uncertainties market resulting certain instances attenuation government procurement programs beyond originally expected performance periods increased incidence delay cancellation reduction planned projects competitive conditions sector also affected efforts government contractors particularly developers integrators technology products redirect marketing strategies product plans reaction cutbacks traditional areas focus resulting increase number competitors range products offered response particular requests proposals lack predictability timing scope government procurements similarly made planning decisions difficult increased associated risks company historically derived significant portion revenue operating profit relatively small number contracts large system installations customers commercial government sectors growth companys business reduced dependence specific customers continues emphasize large capacity systems product development marketing strategies contracts large installations typically involve lengthy complex bidding selection process ability company obtain particular contracts inherently difficult predict company believes opportunities large installations continue grow commercial government markets intends continue expand research development manufacturing sales marketing product support capabilities anticipation growth however timing scope opportunities pricing margins associated eventual contract award difficult forecast may vary substantially transaction companys future operating results may accordingly exhibit higher degree volatility operating results companies industries adopted different strategies company experienced prior periods although company actively pursuing number significant procurement opportunities united states internationally timing eventual procurements probability companys receipt significant contract awards uncertain degree dependence company large orders investment required enable company perform orders without assurance continuing order flow customers predictability gross margins future orders increase risk associated business company significantly increased expenditures areas operations recent periods including areas research development marketing sales company plans increase expenditures 1996 increase research development expenditures reflects companys concentration enhancing range features capabilities existing product lines developing new generations products company believes efforts essential long short term competitiveness product offerings positioning participate future growth opportunities commercial government sectors increase sales marketing expenditures primarily results companys decision expand activities direct presence number world markets companys costs operations also affected increases cost operations israel resulting general inflation increases cost attracting retaining qualified scientific engineering technical personnel israel demand personnel growing rapidly expansion technologybased industries country increase costs recent periods offset proportional devaluation israeli shekel us dollar accordingly negative impact companys overall results operations company currently derives majority total revenues sales customers outside united states international transactions involve particular risks including political decisions affecting tariffs trade conditions rapid unforeseen changes economic conditions individual countries turbulence foreign currency credit markets increased costs resulting lack proximity customer volatility international currency exchange rates may significant impact companys operating results extent unable completely hedge exchange rate risk long term contracts denominated foreign currencies cost hedging trading price companys shares may affected factors noted well prevailing economic financial trends conditions public securities markets recent periods share prices companies technology government contracting businesses particularly smaller mediumsized publicly traded companies company exhibited high degree volatility shortfalls revenues earnings levels anticipated public markets could immediate significant effect trading price companys shares given period shortfalls may result events beyond companys immediate control unpredictable since significant proportion companys sales fiscal quarter tend occur latter stages quarter may discernible end financial reporting period may contribute volatility trading value shares regardless companys longterm prospects trading price companys shares may also affected developments including reported financial results fluctuations trading prices shares publiclyheld companies voice processing industry may direct relationship companys business prospects item 8item 7 managements discussion analysis financial condition results operations forwardlooking statements report contains forwardlooking statements involve number risks uncertainties including without limitation information regarding competition future trends industries company competes companys future revenues expenses companys plans strategies expectations business number factors could cause companys actual results business plans differ materially forecasted projected forwardlooking statements factors include without limitation set forth caption certain trends uncertainties readers cautioned place undue reliance forwardlooking statements speak date hereof company undertakes obligations publicly release revisions forwardlooking statements reflect events circumstances date hereof reflect occurrence unanticipated events results operations following discussion analysis companys results operations covers operating results comverse consolidated subsidiaries fiscal years included foregoing selected financial data operating results boston included connection merger fiscal year company changed calendar year fiscal year ending january 31 corresponding bostons fiscal year company recognizing substantial charges relating merger resulting combination two companies effective upon consummation merger january 1998 sales january 1998 onemonth transition period including boston approximately 14401000 net loss approximately 115207000 comparison 1996 1997 operations total revenues total revenues increased 1996 1997 approximately 89179000 43 increase attributable primarily higher volume sales systems parts sales increased 1996 1997 approximately 83100000 42 primarily resulting increased sales trilogue product line interest income increased 1996 1997 approximately 6079000 60 resulting primarily increased interest dividend income investment funds generated issuance convertible subordinated debentures october 1996 realized gains sales investments cost sales cost sales increased approximately 34538000 41 1996 1997 primarily result increase sales gross margins increased approximately 572 1996 approximately 576 1997 selling general administrative expenses selling general administrative expenses increased 1996 1997 approximately 20717000 39 percentage total revenues decreased approximately 26 1996 approximately 25 1997 increased amount result increased sales marketing administrative activities associated overall growth companys operations particularly expansion direct sales marketing activities research development expenses net research development expenses 1997 increased approximately 11218000 41 1996 due overall growth research development operations initiation significant new research development projects increases salaries costs associated research development operations israel royalties license fees royalties license fees increased 1996 1997 approximately 2500000 57 due primarily growth sales royaltybearing products royalties license fees percentage total sales increased approximately 22 1996 approximately 24 1997 reflecting increase royalty rate payable funding agency became effective 1996 income tax provision income taxes increased 1996 1997 approximately 1457000 43 companys overall effective tax rate decreased approximately 107 1996 approximately 100 1997 companys overall rate tax reduced significantly tax benefits associated qualified activities one israeli subsidiaries entitled favorable income tax rates program israeli government approved enterprise investments country net income net income taxes increased approximately 27988000 1996 approximately 43500000 1997 increase approximately 15512000 55 net income taxes percentage total revenues increased approximately 135 1996 approximately 147 1997 increases resulted primarily factors described comparison 1995 1996 operations total revenues total revenues increased 1995 1996 approximately 61415000 42 increase attributable primarily higher volume sales systems parts sales increased 1995 1996 approximately 60032000 44 primarily resulting increased sales trilogue product line interest income increased 1995 1996 approximately 1383000 16 resulting primarily increased interest dividend income investment funds generated issuance convertible subordinated debentures october 1996 realized gains sales shortterm investments cost sales cost sales increased approximately 25022000 42 1995 1996 primarily result increase sales gross margins increased approximately 568 1995 approximately 572 1996 selling general administrative expenses selling general administrative expenses increased 1995 1996 approximately 11959000 29 percentage total revenues decreased approximately 28 1995 approximately 26 1996 increased amount result increased sales marketing administrative activities associated overall growth companys operations particularly expansion direct sales marketing activities research development expenses net research development expenses 1996 increased approximately 8015000 41 1995 due overall growth research development operations initiation significant new research development projects increases salaries costs associated research development operations israel royalties license fees royalties license fees increased 1995 1996 approximately 1946000 80 due primarily growth sales royaltybearing products royalties license fees percentage total sales increased approximately 18 1995 approximately 22 1996 reflecting increase royalty rate payable funding agency became effective 1996 income tax provision income taxes increased 1995 1996 approximately 1301000 63 companys overall effective tax rate decreased approximately 108 1995 approximately 107 1996 companys overall rate tax reduced significantly tax benefits associated qualified activities one israeli subsidiaries entitled favorable income tax rates program israeli government approved enterprise investments country net income net income taxes increased approximately 17050000 1995 approximately 27988000 1996 increase approximately 10938000 64 net income taxes percentage total revenues increased approximately 117 1995 approximately 135 1996 increases resulted primarily factors described liquidity capital resources december 31 1997 company cash equivalents approximately 173531000 bank time deposits approximately 40700000 shortterm investments approximately 60787000 working capital approximately 330303000 company believes existing working capital together funds generated operations sufficient provide planned operations least december 31 1998 company regularly examines opportunities strategic acquisitions companies lines business anticipates may time issue additional debt andor equity securities either direct consideration acquisitions raise additional funds used whole part payment acquired securities assets issuance securities expected dilutive impact companys shareholders assurance whether acquired business would contribute positive operating results commensurate associated acquisition cost companys liquidity capital resources anticipated materially affected restrictions pertaining ability subsidiaries israel pay dividends withholding taxes associated dividend payments cash dividends paid israeli corporation united states residents subject withholding israeli income tax source rates 25 depending particular facilities generated earnings source dividends year 2000 company taken actions understand nature extent work required make systems products infrastructure year 2000 compliant begun work prepare products financial information computerbased systems year 2000 including replacing andor updating existing legacy systems company continues evaluate estimated costs associated efforts involve additional costs company believes based available information able manage total year 2000 transition without material adverse effect business operations products financial prospects certain trends uncertainties company benefited growth business capital base past three years make significant new investment operations infrastructure intended enhance opportunities future growth profitability companys results operations reflect significant increase investment operations past three years company intends continue 1998 make significant investments growth business examine opportunities additional growth acquisitions strategic investments impact decisions future profitability cannot predicted assurance companys commitment growth may increase vulnerability unforeseen downturns markets technology changes shifts competitive conditions however company believes significant opportunities exist markets main product lines continued strong investment technical product development marketing sales capabilities enhance opportunities long term growth profitability merger involves integration two companies previously operated independently combination two sizable technologybased companies involves significant complexities assurance given combined company able integrate operations boston company without encountering difficulties experiencing loss key comverse boston personnel benefits expected integration realized integration two companies across geographically dispersed operations create risk disruption operations combined company neither companys management substantial experience managing integration operations entity size combined company expect realize cost savings near future result merger assurance given savings achieved future periods furthermore certainty merger adversely affect relationships key customers key vendors either company result significantly greater concentration small number large telephone company customers bostons business historically considerably volatile comverse operations combined company likely less predictable subject greater risks actions individual customers operations comverse recent years telecommunications industry subject rapid technological change companys revenue stream depend ability enhance existing products introduce new products timely costeffective basis includes customerrequested custom software enhancements required normal course product delivery customer demands technological convergence companys products companys products involve sophisticated hardware software technology performs critical functions highly demanding standards assurance companys current future products develop operational problems could material adverse effect company addition company delay introduction new products delay delivery specific custom software enhancements companys operating results could adversely affected company sells majority products companies telecommunications industry undergoing significant change result deregulation privatization worldwide reducing restrictions competition industry unforeseen changes regulatory environment may impact companys revenues andor costs given part world worldwide enhanced services systems industry already highly competitive company expects competition intensify company believes existing competitors continue present substantial competition companies many considerably greater financial marketing sales resources company may enter enhanced services systems markets 1997 acquisition octel communications corporation significant competitor company lucent technologies inc may intensify competitive environment industry assurance similar business combinations industry consolidation occur future enhanced services platforms industry experienced continuing evolution product offerings alternatives delivery services trends affected may expected significant continuing influence conditions industry although impact industry generally companys position industry cannot predicted assurance significant changes industry make planning decisions difficult increase risk inherent planning process market telecommunications monitoring systems also period significant transition budgetary constraints uncertainties resulting introduction new technologies telecommunications environment shifts pattern government expenditures resulting geopolitical events increased uncertainties market resulting certain instances attenuation government procurement programs beyond originally expected performance periods increased incidence delay cancellation reduction planned projects continuing delay uncertainties surrounding communications assistance law enforcement act calea significant impact acquisition plans law enforcement agencies north america engaged monitoring activities assurances given timing ultimate content proposed legislation competitive conditions sector also affected increasing use certain potential government customers internal development resources rather outside vendors provide certain technical solutions addition number established government contractors particularly developers integrators technology products taken steps redirect marketing strategies product plans reaction cutbacks traditional areas focus resulting increase number competitors range products offered response particular requests proposals lack predictability timing scope government procurements similarly made planning decisions difficult increased associated risks company historically derived significant portion sales operating profit relatively small number contracts large system installations major customers bostons operating results particular often characterized volatility lack predictability reflecting traditional customer concentration among major telecommunications services providers regional bell operating companies company continues emphasize large capacity systems product development marketing strategies contracts large installations typically involve lengthy complex bidding selection process ability company obtain particular contracts inherently difficult predict company believes opportunities large installations continue grow commercial government markets intends continue expand research development manufacturing sales marketing product support capabilities anticipation growth however timing scope opportunities pricing margins associated eventual contract award difficult forecast may vary substantially transaction companys future operating results may accordingly exhibit higher degree volatility operating results companies industries adopted different strategies company experienced prior periods although company actively pursuing number significant procurement opportunities united states internationally timing eventual procurements probability companys receipt significant contract awards uncertain degree dependence company large orders investment required enable company perform orders without assurance continuing order flow customers predictability gross margins future orders increase risk associated business company significantly increased expenditures areas operations recent periods including areas research development marketing sales company plans increase expenditures foreseeable future increase research development expenditures reflects companys concentration enhancing range features capabilities existing product lines developing new generations products company believes efforts essential continuing competitiveness product offerings positioning participate future growth opportunities commercial government sectors increase sales marketing expenditures primarily results companys decision expand activities direct presence growing number world markets companys costs operations also affected increases cost operations israel resulting general inflation increases cost attracting retaining qualified scientific engineering technical personnel israel demand personnel growing rapidly expansion technologybased industries country increase costs recent periods offset proportional devaluation israeli shekel united states dollar accordingly negative impact companys overall results operations continuation trends may material adverse effect companys future results operations significant portion companys research development manufacturing operations located israel may affected regulatory political military economic conditions country companys historical operating results reflect substantial benefits programs sponsored israeli government support research development well favorable tax rates available approved enterprises israel israeli government indicated intention reexamine certain policies areas recently government acted increase 2 3 associated product sales 3 associated product revenues including service related revenues annual rate royalties applied repayment benefits conditional grant program administered office chief scientist ministry industry trade program company regularly participated continues receive significant benefits reimbursement qualified research development expenditures companys repayment amounts received program accelerated higher royalty rates repayment completed addition permission government israel required company manufacture outside israel products resulting research development activities funded programs transfer outside israel related technology rights order obtain permission company may required increase royalties applicable funding agencies andor repay certain amounts received reimbursement research development costs company expects incur additional royalty expenses andor repayment obligations result merger location certain manufacturing research development operations pertaining trilogue product line boston facilities israeli authorities also indicated funding program reduced future particularly larger entities company israeli government also shortened period tax moratorium applicable approved enterprises four years two years although change affected tax status companys current projects apply future approved enterprises company changes law government policies regarding programs result termination adverse modification company become unable participate take advantage programs cost company operations israel would materially increase would adverse effect results companys operations whole extent company increases activities outside israel result merger possible future acquisitions increased activities eligible programs sponsored israel companys research development manufacturing operations attributable boston expected continue located united states thus eligible benefits programs accordingly effective cost company future research development activities particular operations general could significantly increase relative comverse historically company currently derives significant portion total sales customers outside united states international transactions involve particular risks including political decisions affecting tariffs trade conditions rapid unforeseen changes economic conditions individual countries turbulence foreign currency credit markets increased costs resulting lack proximity customer volatility international currency exchange rates may significant impact companys operating results company anticipates continue receive significant contracts denominated foreign primarily western european japanese currencies result unpredictable timing purchase orders payments contracts factors often practicable company effectively hedge risk significant changes currency rates contract period since company hedge exchange rate risks associated longterm contracts denominated foreign currencies limited extent operating results affected impact currency fluctuations well cost hedging company believes prevailing economic conditions far east southeast asia reduced demand systems certain countries overall sales region increased past 12 months company cannot currently predict effect business regional economic conditions fail improve trading price companys shares may affected factors noted well prevailing economic financial trends conditions public securities markets share prices companies technology government contracting businesses particularly smaller mediumsized publicly traded companies company tend exhibit high degree volatility companys revenues earnings may volatile comverse historically result greater concentration bostons business limited number large customers shortfalls revenues earnings levels anticipated public markets could immediate significant effect trading price companys shares given period shortfalls may result events beyond companys immediate control unpredictable since significant proportion companys sales fiscal quarter tend occur latter stages quarter may discernible end financial reporting period factors contribute volatility trading value shares regardless companys longterm prospects trading price companys shares may also affected developments including reported financial results fluctuations trading prices shares publiclyheld companies voice processing industry may direct relationship companys business prospects item 8item 7 managements discussion analysis financial condition results operations forwardlooking statements report contains forwardlooking statements involve number risks uncertainties including without limitation information regarding competition future trends industries company competes companys future revenues expenses companys plans strategies expectations business number factors could cause companys actual results business plans differ materially forecasted projected forwardlooking statements factors include without limitation set forth caption certain trends uncertainties readers cautioned place undue reliance forwardlooking statements speak date hereof company undertakes obligations publicly release revisions forwardlooking statements reflect events circumstances date hereof reflect occurrence unanticipated events results operations connection merger fiscal year company changed calendar year fiscal year ending january 31 corresponding bostons fiscal year following discussion analysis companys results operations compares operating results comverse consolidated subsidiaries including boston one month transition period ended january 31 1998 operating results comverse consolidated subsidiaries one month ended january 31 1997 combined results boston one month ended february 28 1997 comparison 1997 1998 operations total revenues total revenues decreased 1997 1998 approximately 3574000 18 decrease attributable primarily reduced volume sales systems parts sales decreased 1997 1998 approximately 4056000 22 interest income increased 1997 1998 approximately 482000 54 resulting primarily increased interest dividend income cost sales cost sales increased approximately 10595000 100 1997 1998 primarily result writedown inventory resulting merger gross margins decreased approximately 43 1997 approximately 47 1998 selling general administrative expenses selling general administrative expenses increased 1997 1998 approximately 43252000 501 percentage total revenues increased approximately 45 1997 approximately 329 1998 increased amount primarily result impairment receivables resulting duplicate customers distribution channels arising merger research development expenses net research development expenses 1998 increased approximately 5203000 63 1997 due overall growth research development operations initiation significant new research development projects increases salaries costs associated research development operations royalties license fees royalties license fees decreased 1997 1998 approximately 11000 2 due primarily reduced sales 1998 period merger related charges 1998 merger related charges totaling 41877000 charged operations resulting merger charges relate following 15918000 writeoff duplicate research development license fees capital equipment certain capitalized software ii 14919000 establishment reserves severance pay contract penalties termination fees closing duplicate facilities iii 11040000 professional fees direct merger costs income tax provision income taxes increased 1997 1998 approximately 570000 192 increase resulted increase valuation allowance deferred tax assets 1998 net loss net loss taxes increased approximately 10221000 1997 approximately 115207000 1998 increase approximately 104986000 1027 increase resulted primarily factors described liquidity capital resources january 31 1998 company cash equivalents approximately 180855000 bank time deposits approximately 35700000 shortterm investments approximately 60347000 working capital approximately 280793000 company believes existing working capital together funds generated operations sufficient provide planned operations least january 31 1999 company regularly examines opportunities strategic acquisitions companies lines business anticipates may time issue additional debt andor equity securities either direct consideration acquisitions raise additional funds used whole part payment acquired securities assets issuance securities expected dilutive impact companys shareholders assurance whether acquired business would contribute positive operating results commensurate associated acquisition cost companys liquidity capital resources anticipated materially affected restrictions pertaining ability subsidiaries israel pay dividends withholding taxes associated dividend payments cash dividends paid israeli corporation united states residents subject withholding israeli income tax source rates 25 depending particular facilities generated earnings source dividends year 2000 company taken actions understand nature extent work required make systems products infrastructure year 2000 compliant begun work prepare products financial information computerbased systems year 2000 including replacing andor updating existing legacy systems company continues evaluate estimated costs associated efforts involve additional costs company believes based available information able manage total year 2000 transition without material adverse effect business operations products financial prospects certain trends uncertainties company benefited growth business capital base past three years make significant new investment operations infrastructure intended enhance opportunities future growth profitability companys results operations reflect significant increase investment operations past three years company intends continue make significant investments growth business examine opportunities additional growth acquisitions strategic investments impact decisions future profitability cannot predicted assurance companys commitment growth may increase vulnerability unforeseen downturns markets technology changes shifts competitive conditions however company believes significant opportunities exist markets main product lines continued strong investment technical product development marketing sales capabilities enhance opportunities long term growth profitability merger involves integration two companies previously operated independently combination two sizable technologybased companies involves significant complexities assurance given combined company able integrate operations boston company without encountering difficulties experiencing loss key comverse boston personnel benefits expected integration realized integration two companies across geographically dispersed operations create risk disruption operations combined company neither companys management substantial experience managing integration operations entity size combined company expect realize cost savings near future result merger assurance given savings achieved future periods furthermore certainty merger adversely affect relationships key customers key vendors either company result significantly greater concentration small number large telephone company customers bostons business historically considerably volatile comverse operations combined company likely less predictable subject greater risks actions individual customers operations comverse recent years telecommunications industry subject rapid technological change companys revenue stream depend ability enhance existing products introduce new products timely costeffective basis includes customerrequested custom software enhancements required normal course product delivery customer demands technological convergence companys products companys products involve sophisticated hardware software technology performs critical functions highly demanding standards assurance companys current future products develop operational problems could material adverse effect company addition company delay introduction new products delay delivery specific custom software enhancements companys operating results could adversely affected company sells majority products companies telecommunications industry undergoing significant change result deregulation privatization worldwide reducing restrictions competition industry unforeseen changes regulatory environment may impact companys revenues andor costs given part world worldwide enhanced services systems industry already highly competitive company expects competition intensify company believes existing competitors continue present substantial competition companies many considerably greater financial marketing sales resources company may enter enhanced services systems markets 1997 acquisition octel communications corporation significant competitor company lucent technologies inc may intensify competitive environment industry assurance similar business combinations industry consolidation occur future enhanced services platforms industry experienced continuing evolution product offerings alternatives delivery services trends affected may expected significant continuing influence conditions industry although impact industry generally companys position industry cannot predicted assurance significant changes industry make planning decisions difficult increase risk inherent planning process market telecommunications monitoring systems also period significant transition budgetary constraints uncertainties resulting introduction new technologies telecommunications environment shifts pattern government expenditures resulting geopolitical events increased uncertainties market resulting certain instances attenuation government procurement programs beyond originally expected performance periods increased incidence delay cancellation reduction planned projects continuing delay uncertainties surrounding communications assistance law enforcement act calea significant impact acquisition plans law enforcement agencies north america engaged monitoring activities assurances given timing ultimate content proposed legislation competitive conditions sector also affected increasing use certain potential government customers internal development resources rather outside vendors provide certain technical solutions addition number established government contractors particularly developers integrators technology products taken steps redirect marketing strategies product plans reaction cutbacks traditional areas focus resulting increase number competitors range products offered response particular requests proposals lack predictability timing scope government procurements similarly made planning decisions difficult increased associated risks company historically derived significant portion sales operating profit relatively small number contracts large system installations major customers bostons operating results particular often characterized volatility lack predictability reflecting traditional customer concentration among major telecommunications services providers regional bell operating companies company continues emphasize large capacity systems product development marketing strategies contracts large installations typically involve lengthy complex bidding selection process ability company obtain particular contracts inherently difficult predict company believes opportunities large installations continue grow commercial government markets intends continue expand research development manufacturing sales marketing product support capabilities anticipation growth however timing scope opportunities pricing margins associated eventual contract award difficult forecast may vary substantially transaction companys future operating results may accordingly exhibit higher degree volatility operating results companies industries adopted different strategies company experienced prior periods although company actively pursuing number significant procurement opportunities united states internationally timing eventual procurements probability companys receipt significant contract awards uncertain degree dependence company large orders investment required enable company perform orders without assurance continuing order flow customers predictability gross margins future orders increase risk associated business company significantly increased expenditures areas operations recent periods including areas research development marketing sales company plans increase expenditures foreseeable future increase research development expenditures reflects companys concentration enhancing range features capabilities existing product lines developing new generations products company believes efforts essential continuing competitiveness product offerings positioning participate future growth opportunities commercial government sectors increase sales marketing expenditures primarily results companys decision expand activities direct presence growing number world markets companys costs operations also affected increases cost operations israel resulting general inflation increases cost attracting retaining qualified scientific engineering technical personnel israel demand personnel growing rapidly expansion technologybased industries country increase costs recent periods offset proportional devaluation israeli shekel united states dollar accordingly negative impact companys overall results operations continuation trends may material adverse effect companys future results operations significant portion companys research development manufacturing operations located israel may affected regulatory political military economic conditions country companys historical operating results reflect substantial benefits programs sponsored israeli government support research development well favorable tax rates available approved enterprises israel israeli government indicated intention reexamine certain policies areas recently government acted increase 2 3 associated product sales 3 associated product revenues including service related revenues annual rate royalties applied repayment benefits conditional grant program administered office chief scientist ministry industry trade program company regularly participated continues receive significant benefits reimbursement qualified research development expenditures companys repayment amounts received program accelerated higher royalty rates repayment completed addition permission government israel required company manufacture outside israel products resulting research development activities funded programs transfer outside israel related technology rights order obtain permission company may required increase royalties applicable funding agencies andor repay certain amounts received reimbursement research development costs company expects incur additional royalty expenses andor repayment obligations result merger location certain manufacturing research development operations pertaining trilogue product line boston facilities israeli authorities also indicated funding program reduced future particularly larger entities company israeli government also shortened period tax moratorium applicable approved enterprises four years two years although change affected tax status companys projects eligible moratorium prior 1997 applies subsequent approved enterprises company changes law government policies regarding programs result termination adverse modification company become unable participate take advantage programs cost company operations israel would materially increase would adverse effect results companys operations whole extent company increases activities outside israel result merger possible future acquisitions increased activities eligible programs sponsored israel companys research development manufacturing operations attributable boston expected continue located united states thus eligible benefits programs accordingly effective cost company future research development activities particular operations general could significantly increase relative comverse historically company currently derives significant portion total sales customers outside united states international transactions involve particular risks including political decisions affecting tariffs trade conditions rapid unforeseen changes economic conditions individual countries turbulence foreign currency credit markets increased costs resulting lack proximity customer volatility international currency exchange rates may significant impact companys operating results company anticipates continue receive significant contracts denominated foreign primarily western european japanese currencies result unpredictable timing purchase orders payments contracts factors often practicable company effectively hedge risk significant changes currency rates contract period since company hedge exchange rate risks associated longterm contracts denominated foreign currencies limited extent operating results affected impact currency fluctuations well cost hedging company believes prevailing economic conditions far east southeast asia reduced demand systems certain countries overall sales region increased past 12 months company cannot currently predict effect business regional economic conditions fail improve trading price companys shares may affected factors noted well prevailing economic financial trends conditions public securities markets share prices companies technology government contracting businesses particularly smaller mediumsized publicly traded companies company tend exhibit high degree volatility companys revenues earnings may volatile comverse historically result greater concentration bostons business limited number large customers shortfalls revenues earnings levels anticipated public markets could immediate significant effect trading price companys shares given period shortfalls may result events beyond companys immediate control unpredictable since significant proportion companys sales fiscal quarter tend occur latter stages quarter may discernible end financial reporting period factors contribute volatility trading value shares regardless companys longterm prospects trading price companys shares may also affected developments including reported financial results fluctuations trading prices shares publiclyheld companies voice processing industry may direct relationship companys business prospects item 8item 7 managements discussion analysis financial condition results operations results operations introduction january 14 1998 comverse consummated merger boston technology inc delaware corporation boston transaction accounted pooling interests companys financial statements years ended december 31 1996 1997 include operations boston fiscal year ended january 31 1997 eleven months ended december 31 1997 respectively comparison year ended january 31 1999 fiscal 1998 year ended december 31 1997 fiscal 1997 sales increased fiscal 1997 fiscal 1998 approximately 207154000 42 increase primarily attributable higher volume sales systems parts enhanced service platform products cost sales cost sales increased approximately 77050000 38 fiscal 1997 fiscal 1998 primarily result increase sales gross margins increased approximately 586 fiscal 1997 approximately 598 fiscal 1998 selling general administrative expenses selling general administrative expenses increased fiscal 1997 fiscal 1998 approximately 13680000 10 percentage sales decreased approximately 28 fiscal 1997 approximately 22 fiscal 1998 increased amount result increased sales marketing administrative activities associated overall growth companys operations particularly expansion direct sales marketing activities research development expenses net research development expenses fiscal 1998 increased approximately 36194000 37 fiscal 1997 due overall growth research development operations initiation significant new research development projects increases salaries costs associated research development operations israel royalties license fees royalties license fees increased fiscal 1997 fiscal 1998 approximately 4227000 34 due primarily growth sales royaltybearing products income tax provision income taxes increased fiscal 1997 fiscal 1998 approximately 2385000 25 companys overall effective tax rate decreased approximately 21 fiscal 1997 approximately 9 fiscal 1998 companys overall rate tax reduced significantly tax benefits associated qualified activities certain israeli subsidiaries entitled favorable income tax rates program israeli government approved enterprise investments country net income net income taxes increased approximately 34525000 fiscal 1997 approximately 111527000 fiscal 1998 increase approximately 77002000 223 net income taxes percentage sales increased approximately 71 fiscal 1997 approximately 160 fiscal 1998 increases resulted primarily factors described transition period 1998 company changed fiscal year calendar year fiscal year ending january 31 corresponding bostons fiscal year result change fiscal year companys results operations one month ended january 31 1998 previously reported separately transition period included transition report form 10k company sales 14401000 costs expenses 129608000 net loss 115207000 one month ended january 31 1998 included results 85763000 merger related costs comparison 1996 1997 operations sales increased 1996 1997 approximately 99301000 25 primarily resulting increased sales enhanced services platform products cost sales cost sales increased approximately 33116000 20 1996 1997 primarily result increase sales gross margins increased approximately 565 1996 approximately 586 1997 selling general administrative expenses selling general administrative expenses increased 1996 1997 approximately 44701000 48 percentage sales increased approximately 24 1996 approximately 28 1997 increased amount result increased sales marketing administrative activities associated overall growth companys operations particularly expansion direct sales marketing activities research development expenses net research development expenses 1997 increased approximately 30398000 46 1996 due overall growth research development operations initiation significant new research development projects increases salaries costs associated research development operations israel royalties license fees royalties license fees increased 1996 1997 approximately 1882000 18 due primarily growth sales royaltybearing products income tax provision income taxes decreased 1996 1997 approximately 772000 8 companys overall effective tax rate increased approximately 19 1996 approximately 21 1997 companys overall rate tax reduced significantly tax benefits associated qualified activities certain israeli subsidiaries entitled favorable income tax rates program israeli government approved enterprise investments country net income net income taxes decreased approximately 42137000 1996 approximately 34525000 1997 decrease approximately 7612000 18 net income taxes percentage sales decreased approximately 108 1996 approximately 71 1997 decreases resulted primarily factors described liquidity capital resources january 31 1999 company cash equivalents approximately 583959000 bank time deposits shortterm investments approximately 73658000 working capital approximately 707281000 company believes existing working capital together funds generated operations sufficient provide planned operations foreseeable future company regularly examines opportunities strategic acquisitions companies lines business anticipates may time issue additional debt andor equity securities either direct consideration acquisitions raise additional funds used whole part payment acquired securities assets issuance securities could expected dilutive impact companys shareholders assurance whether acquired business would contribute positive operating results commensurate associated investment companys liquidity capital resources anticipated materially affected restrictions pertaining ability foreign subsidiaries pay dividends withholding taxes associated dividend payments certain trends uncertainties company benefited growth business capital base past several years make significant new investment operations infrastructure intended enhance opportunities future growth profitability company intends continue make significant investments growth business examine opportunities additional growth acquisitions strategic investments impact decisions future profitability cannot predicted assurance companys commitment growth may increase vulnerability unforeseen downturns markets technology changes shifts competitive conditions however company believes significant opportunities exist markets main product lines continued strong investment technical product development marketing sales capabilities enhance opportunities long term growth profitability telecommunications industry subject rapid technological change companys revenue stream depend ability enhance existing products introduce new products timely costeffective basis includes customerrequested custom software enhancements required normal course product delivery customer demands technological convergence companys products companys products involve sophisticated hardware software technology performs critical functions highly demanding standards assurance companys current future products develop operational problems could material adverse effect company addition company delay introduction new products delay delivery specific custom software enhancements companys operating results could adversely affected company sells majority products companies telecommunications industry undergoing significant change result deregulation privatization worldwide reducing restrictions competition industry unforeseen changes regulatory environment may impact companys revenues andor costs given part world worldwide esp system industry already highly competitive company expects competition intensify company believes existing competitors continue present substantial competition companies many considerably greater financial marketing sales resources company may enter esp system markets moreover company enters new markets enhanced services result research development efforts acquisitions likely ecounter new competitors result significantly greater concentration small number large telephone company customers bostons business historically considerably volatile comverse operations combined company likely less predictable subject greater risks actions individual customers operations comverse recent years market telecommunications monitoring systems also period significant transition budgetary constraints uncertainties resulting introduction new technologies telecommunications environment shifts pattern government expenditures resulting geopolitical events increased uncertainties market resulting certain instances attenuation government procurement programs beyond originally expected performance periods increased incidence delay cancellation reduction planned projects delay uncertainties surrounding communications assistance law enforcement act calea significant negative impact acquisition plans law enforcement agencies north america engaged monitoring activities competitive conditions sector also affected increasing use certain potential government customers internal development resources rather outside vendors provide certain technical solutions addition number established government contractors particularly developers integrators technology products taken steps redirect marketing strategies product plans reaction cutbacks traditional areas focus resulting increase number competitors range products offered response particular requests proposals lack predictability timing scope government procurements similarly made planning decisions difficult increased associated risks company historically derived significant portion sales operating profit contracts large system installations major customers bostons operating results particular often characterized volatility lack predictability reflecting traditional customer concentration among major telecommunications services providers regional bell operating companies company continues emphasize large capacity systems product development marketing strategies contracts large installations typically involve lengthy complex bidding selection process ability company obtain particular contracts inherently difficult predict company believes opportunities large installations continue grow commercial government markets intends continue expand research development manufacturing sales marketing product support capabilities anticipation growth however timing scope opportunities pricing margins associated eventual contract award difficult forecast may vary substantially transaction companys future operating results may accordingly exhibit higher degree volatility operating results companies industries adopted different strategies company experienced prior periods although company actively pursuing number significant procurement opportunities united states internationally timing eventual procurements probability companys receipt significant contract awards uncertain degree dependence company large system orders investment required enable company perform orders without assurance continuing order flow customers predictability gross margins future orders increase risk associated business company significantly increased expenditures areas operations recent periods including areas research development marketing sales company plans increase expenditures foreseeable future increase research development expenditures reflects companys concentration enhancing range features capabilities existing product lines developing new generations products company believes efforts essential continuing competitiveness product offerings positioning participate future growth opportunities commercial government sectors increase sales marketing expenditures primarily results companys decision expand activities direct presence growing number world markets companys costs operations also affected increases cost operations israel resulting general inflation increases cost attracting retaining qualified scientific engineering technical personnel israel demand personnel growing rapidly expansion technologybased industries country increase costs recent years offset instance proportional devaluation israeli shekel united states dollar accordingly negative impact companys overall results operations continuation trends may material adverse effect companys future results operations significant portion companys research development manufacturing operations located israel may affected regulatory political military economic conditions country companys historical operating results reflect substantial benefits programs sponsored israeli government support research development well favorable tax rates available approved enterprises israel israeli government indicated intention reexamine certain policies areas recently government acted increase 2 3 associated product sales 3 associated product revenues including service related revenues annual rate royalties applied repayment benefits conditional grant program administered office chief scientist ministry industry trade program company regularly participated continues receive significant benefits reimbursement 50 qualified research development expenditures companys repayment amounts received program accelerated higher royalty rates repayment completed repayment amounts received programs approved office chief scientist january 1 1999 entail repayment amount received calculated us dollars plus interest amount rate equal 12month libor rate effect time approval program addition permission government israel required company manufacture outside israel products resulting research development activities funded programs transfer outside israel related technology rights order obtain permission company may required increase royalties applicable funding agencies andor repay certain amounts received reimbursement research development costs israeli authorities also indicated research development funding programs significantly reduced future particularly larger entities company israeli government also shortened period tax moratorium applicable approved enterprises four years two years although change affected tax status companys projects eligible moratorium prior 1997 applies subsequent approved enterprises company changes law government policies regarding programs result termination adverse modification company become unable participate take advantage programs cost company operations israel would materially increase would adverse effect results companys operations whole extent company increases activities outside israel increased activities eligible programs sponsored israel companys research development manufacturing operations attributable boston expected continue located united states thus eligible benefits programs accordingly effective cost company future research development activities particular operations general could significantly increase relative comverse historically company currently derives significant portion total sales customers outside united states international transactions involve particular risks including political decisions affecting tariffs trade conditions rapid unforeseen changes economic conditions individual countries turbulence foreign currency credit markets increased costs resulting lack proximity customer volatility international currency exchange rates may significant impact companys operating results company anticipates continue receive significant contracts denominated foreign primarily western european japanese currencies result unpredictable timing purchase orders payments contracts factors often practicable company effectively hedge risk significant changes currency rates contract period since company hedge exchange rate risks associated longterm contracts denominated foreign currencies limited extent operating results affected impact currency fluctuations well cost hedging prevailing economic conditions far east southeast asia significantly reduced demand companys systems certain countries company cannot currently predict effect business regional economic conditions fail improve moreover companys future operating results financial condition adversely affected current economic instability result widespread slowdown recessionary conditions major world markets severe trade currency disruptions company undertaken comprehensive program evaluate year 2000 compliance products systems company considers product year 2000 compliant product used properly conformity product information provided company accurately store display process provide andor receive data twentieth twentyfirst centuries including leap year calculations provided technology used combination company product properly exchanges date data product although company believes current products generally either upon completion current modification programs year 2000 compliant assurance given year 2000 compliance efforts prove fully successful unanticipated costs problems encountered efforts addition company determined older generations certain products cannot without unreasonable effort expense made year 2000 compliant costs incurred date related companys year 2000 compliance program less 5000000 program expected continue fiscal 1999 anticipated material adverse effect companys business financial condition company anticipates widespread litigation may brought future vendors systems components systems unable properly manage data related year 2000 companys agreements customers typically contain provisions designed limit generally companys liability customer claims possible however measures provide protection year 2000 liability claims result existing future laws unfavorable judicial decisions claims could result material adverse affect companys business financial condition results operations including increased warranty costs customer satisfaction issues potential legal damages company initiated comprehensive program address year 2000 readiness internal systems customers suppliers companys program designed address critical internal systems first gather information regarding year 2000 compliance products supplied companys products integrated assessment remediation proceeding tandem company intends critical internal systems year 2000 compliance end third quarter 1999 activities intended encompass major categories systems use company including manufacturing engineering sales finance human resources costs incurred date related programs less 5000000 company currently expects total cost year 2000 readiness programs current fiscal year exceed 5000000 total cost estimate include potential costs related customer claims costs internal software hardware replaced normal course business total cost estimate based current assessment companys year 2000 readiness needs subject change projects proceed company communicating significant suppliers financial institutions determine extent company vulnerable third parties failure remedy year 2000 concerns received assurances year 2000 compliance number contacted suppliers existing contracts company contractual obligation provide information company currently expects year 2000 issue pose significant operational problems failure fully identify year 2000 dependencies companys systems suppliers customers financial institutions could material adverse consequences including delays delivery sale products company consideration various contingency plans developed needed assure continuing operations event problems arise trading price companys shares may affected factors noted well prevailing economic financial trends conditions public securities markets share prices companies technology government contracting businesses particularly smaller mediumsized publicly traded companies company tend exhibit high degree volatility companys revenues earnings may volatile comverse historically result greater concentration bostons business limited number large customers shortfalls revenues earnings levels anticipated public markets could immediate significant effect trading price companys shares given period shortfalls may result events beyond companys immediate control unpredictable since significant proportion companys sales fiscal quarter tend occur latter stages quarter may discernible end financial reporting period factors contribute volatility trading value shares regardless companys longterm prospects trading price companys shares may also affected developments including reported financial results fluctuations trading prices shares publiclyheld companies telecommunications equipment industry general companys industry particular may direct relationship companys business prospects effect new accounting pronouncements 1998 financial accounting standards board issued statement financial accounting standards 133 accounting derivative instruments hedging activities sfas 133 sfas 133 requires derivative financial instruments recognized either assets liabilities balance sheet measurement fair value derivative designed hedging instrument changes fair value ie gains losses recognized earnings period change certain conditions met derivative may designed hedge case accounting changes fair value depend specific exposure hedged method used assessing effectiveness hedging derivative well measurement approach determining ineffective aspects hedge must established inception hedge methods must consistent companys approach managing risk sfas 133 effective fiscal years beginning june 15 1999 company currently evaluating impact adoption sfas 133 financial statements forwardlooking statements time company makes forwardlooking statements forwardlooking statements include financial projections statements plans objectives future operations statements future economic performance statements assumptions relating thereto company may include forwardlooking statements periodic reports securities exchange commission forms 10k 10q 8k annual report shareholders proxy statements press releases written materials statements made employees analysts investors representatives media others nature forwardlooking statements subject uncertainties general specific risks exist predictions forecasts projections forwardlooking statements achieved actual results may differ materially due variety factors including without limitation discussed certain trends uncertainties elsewhere report investors others carefully consider uncertainties events whether statements described forwardlooking statements made company intended apply time made unless explicitly stated contrary moreover whether stated connection forwardlooking statement company undertakes obligation correct update forwardlooking statement company later become aware likely achieved company particular instance update correct forwardlooking statement investors others conclude company make additional updates corrections thereafter item 7aitem 7 managements discussion analysis financial condition results operations results operations introduction january 14 1998 comverse consummated merger boston technology inc delaware corporation boston transaction accounted pooling interests companys financial statements year ended december 31 1997 include operations boston eleven months ended december 31 1997 cost sales include material costs subcontractor costs salary related benefits operations service departments depreciation amortization equipment used operations service departments amortization capitalized software costs overhead allocation research development costs include salaries related benefits well travel depreciation amortization research development equipment overhead allocation well costs associated research development activities selling general administrative costs include salary related benefits travel depreciation amortization marketing promotional materials recruiting expenses professional fees facility costs well costs associated sales marketing finance administrative departments year ended january 31 2000 compared year ended january 31 1999 sales fiscal year ended january 31 2000 fiscal 1999 increased approximately 1761 million 25 compared fiscal year ended january 31 1999 fiscal 1998 increase primarily attributable increase sales esp products approximately 1615 million increase principally due increased sales european customers addition sales multimedia digital monitoring systems network signaling software products increased approximately 65 million 63 million respectively cost sales cost sales fiscal 1999 increased approximately 501 million 18 compared fiscal 1998 increase cost sales primarily attributable increased materials production costs approximately 26 million due increase sales increased personnelrelated costs approximately 23 million due hiring additional personnel increased compensation benefits existing personnel gross margins increased approximately 60 fiscal 1998 approximately 62 fiscal 1999 selling general administrative expenses selling general administrative expenses fiscal 1999 increased approximately 321 million 21 compared fiscal 1998 percentage sales decreased approximately 22 fiscal 1998 approximately 21 fiscal 1999 increase primarily due hiring additional personnel increased compensation benefits existing personnel support increased level sales fiscal 1999 research development net research development expenses fiscal 1999 increased approximately 353 million 27 compared fiscal 1998 due overall growth research development operations initiation significant new research development projects increase primarily due hiring additional personnel increased compensation benefits existing personnel support higher volume research development activities royalties license fees royalties license fees fiscal 1999 increased approximately 23 million 14 compared fiscal 1998 increase primarily result growth sales royalty bearing products interest income net interest income net fiscal 1999 increased approximately 83 million compared fiscal 1998 principal reasons increase increased interest dividend income approximately 113 million increased realized gains companys investments approximately 112 million increases partially offset increased interest expense approximately 32 million change foreign currency gainslosses approximately 123 million increase interest dividend income interest expense primarily result inclusion full year fiscal 1999 companys 300 million convertible subordinated debentures issued june 1998 income tax provision income taxes increased fiscal 1998 fiscal 1999 approximately 38 million 32 due increased pretax income overall effective tax rate decreased approximately 10 fiscal 1998 approximately 8 fiscal 1999 companys overall rate tax reduced significantly tax benefits associated qualified activities certain israeli subsidiaries entitled favorable income tax rates program israeli government approved enterprise investments country net income net income increased approximately 587 million 53 fiscal 1999 compared fiscal 1998 percentage sales increased approximately 16 fiscal 1998 approximately 20 fiscal 1999 increase resulted primarily factors described year ended january 31 1999 compared year ended december 31 1997 sales fiscal 1998 increased approximately 2072 million 42 compared fiscal year ended december 31 1997 fiscal 1997 increase primarily attributable increase sales esp products approximately 1768 million increase principally due increased sales european customers addition sales multimedia digital monitoring systems increased approximately 25 million cost sales cost sales fiscal 1998 increased approximately 771 million 38 compared fiscal 1997 increase cost sales primarily attributable increased materials production costs approximately 48 million due increase sales increased personnelrelated costs approximately 14 million due hiring additional personnel increased compensation benefits existing personnel increase overhead costs approximately 85 million gross margins increased approximately 59 fiscal 1997 approximately 60 fiscal 1998 selling general administrative expenses selling general administrative expenses fiscal 1998 increased approximately 137 million 10 compared fiscal 1997 percentage sales decreased approximately 28 fiscal 1997 approximately 22 fiscal 1998 increase primarily due hiring additional personnel increased compensation benefits existing personnel support increased level sales fiscal 1998 research development net research development expenses fiscal 1998 increased approximately 362 million 37 compared fiscal 1997 due overall growth research development operations initiation significant new research development projects increase primarily due hiring additional personnel increased compensation benefits existing personnel support higher volume research development activities royalties license fees royalties license fees fiscal 1998 increased approximately 42 million 34 compared fiscal 1997 increase primarily result growth sales royalty bearing products interest income net interest income net fiscal 1998 increased approximately 35 million compared fiscal 1997 principal reasons increase increased interest dividend income approximately 97 million change foreign currency gainslosses approximately 50 million increases partially offset increased interest expense approximately 63 million net realized losses companys investments approximately 56 million increase interest dividend income interest expense fiscal 1998 primarily result issuance company 300 million convertible subordinated debentures issued june 1998 income tax provision income taxes increased fiscal 1997 fiscal 1998 approximately 24 million 25 due increased pretax income overall effective tax rate decreased approximately 21 fiscal 1997 approximately 10 fiscal 1998 companys overall rate tax reduced significantly tax benefits associated qualified activities certain israeli subsidiaries entitled favorable income tax rates program israeli government approved enterprise investments country net income net income increased approximately 770 million 223 fiscal 1998 compared fiscal 1997 percentage sales increased approximately 7 fiscal 1997 approximately 16 fiscal 1998 increase resulted primarily factors described transition period 1998 company changed fiscal year calendar year fiscal year ending january 31 corresponding bostons fiscal year result change fiscal year companys results operations one month ended january 31 1998 previously reported separately transition period included transition report form 10k company sales approximately 144 million costs expenses approximately 1296 million net loss approximately 1152 million one month ended january 31 1998 connection merger company charged 41877000 operations merger restructuring related charges relate following asset writedowns impairments thousands research development equipment 9106 capitalized software costs 2987 prepaid license fees 2190 furniture equipment 1474 161 total asset writedowns impairments 15918 connection merger certain assets became impaired due closing duplicative facilities existence duplicative technology merged companies addition company decided develop new software platform combined company discontinue certain software enhancements development previously capitalized accordingly assets written net realizable value time merger severance restructuring charges thousands terminated employment contracts severance 6825 terminated leases duplicative facilities 571 449 total 7845 connection merger management requisite authority determined close certain duplicate facilities sever certain employees otherwise streamline combined operations company also terminated certain employment contracts employees provided future benefit merged companies connection plan company recorded charge severance related fringe benefits 50 employees consisting 25 software engineers 10 operations employees 5 customer service employees 10 general administrative employees employment contracts employees terminated severance plan considered redundant company result merger prior merger company bti sales offices certain countries result merger duplicative facilities closed professional fees direct merger expenses connection merger company recorded charge 11040000 professional fees lawyers investment bankers accountants well direct merger costs printer fees proxy statement incurred directly connection merger related charges thousands penalties product development agreements 5989 terminated development contracts 1085 7074 connection merger company also terminated certain existing development contracts provided future benefit merged companies prior merger company commitments third parties develop technology contractually obligated result merger company decided develop new software platform combined company discontinue certain enhancements development addition company incurred penalties product development agreements relating transfer technology addition approximately 36055000 charged selling general administrative expenses one month period ended january 31 1998 relating impairment receivables resulting merger included amount approximately 149 million international distributor refused pay company claiming exclusive distribution agreement violated result merger also included amount approximately 211 million due customers switched customers bti company bti order continue good customer relations company decided forgive amounts owed approximately 7831000 charged cost sales one month ended january 31 1998 relating merger charge relates writeoff inventory considered obsolete duplicative result merger company bti two esp products result merger company decided one product company bti would longer sold liquidity capital resources companys working capital january 31 2000 1999 approximately 8488 million 7073 million respectively operations years ended january 31 2000 1999 december 31 1997 adding back noncash items provided cash approximately 2037 million 1324 million 565 million respectively years changes working capital used cash approximately 285 million 281 million 352 million respectively resulting cash provided operating activities working capital management approximately 1752 million 1043 million 213 million respectively investment activities years ended january 31 2000 fiscal 1999 fiscal 1998 december 31 1997 fiscal 1997 used cash approximately 4743 million 90 million 961 million respectively amounts include additions property fiscal 1999 fiscal 1998 fiscal 1997 approximately 848 million 247 million 365 million respectively ii maturities sales purchases bank time deposits investments net approximately 3776 million 242 million 535 million respectively iii capitalization software development costs approximately 119 million 86 million 60 million respectively property additions fiscal 1999 include increase companys fixtures equipment result growth company purchase land company approximately 258 million future construction purposes addition fiscal 1999 company increased amount bank time deposits investments better utilize net proceeds 1998 issuance convertible debentures financing activities fiscal 1999 fiscal 1998 fiscal 1997 provided cash approximately 521 million 3078 million 520 million respectively amounts include net proceeds issuance convertible debentures fiscal 1998 approximately 2927 million ii proceeds issuance common stock connection exercise stock options warrants employee stock purchase plan approximately 492 million 362 million 230 million respectively iii net proceeds repayments bank loans debt approximately 29 million 211 million 290 million respectively january 31 2000 company outstanding convertible subordinated debentures 300 million company believes existing working capital together funds generated operations sufficient provide planned operations foreseeable future company regularly examines opportunities strategic acquisitions companies lines business anticipates may time issue additional debt andor equity securities either direct consideration acquisitions raise additional funds used whole part payment acquired securities assets issuance securities could expected dilutive impact companys shareholders assurance whether acquired business would contribute positive operating results commensurate associated investment companys liquidity capital resources anticipated materially affected restrictions pertaining ability foreign subsidiaries pay dividends withholding taxes associated dividend payments certain trends uncertainties company benefited growth business capital base past several years make significant new investment operations infrastructure intended enhance opportunities future growth profitability company intends continue make significant investments growth business examine opportunities additional growth acquisitions strategic investments impact decisions future profitability cannot predicted assurance companys commitment growth may increase vulnerability unforeseen downturns markets technology changes shifts competitive conditions however company believes significant opportunities exist markets main product lines continued strong investment technical product development marketing sales capabilities enhance opportunities long term growth profitability telecommunications industry subject rapid technological change introduction new technologies telecommunications market new alternatives delivery services expected continue profound effect competitive conditions market success market participants including company companys revenue stream depend ability correctly anticipate technological trends industries react quickly effectively trends enhance existing products introduce new products timely costeffective basis companys products involve sophisticated hardware software technology performs critical functions highly demanding standards assurance companys current future products develop operational problems could material adverse effect company addition company delay introduction new products companys operating results could adversely affected telecommunications industry undergoing significant change result deregulation privatization worldwide reducing restrictions competition industry unforeseen changes regulatory environment may impact companys revenues andor costs given part world worldwide esp system industry already highly competitive company expects competition intensify company believes existing competitors continue present substantial competition companies many considerably greater financial marketing sales resources company may enter esp system markets moreover company enters new markets enhanced services result research development efforts acquisitions likely encounter new competitors market telecommunications monitoring systems also period significant transition budgetary constraints uncertainties resulting introduction new technologies telecommunications environment shifts pattern government expenditures resulting geopolitical events increased uncertainties market resulting certain instances attenuation government procurement programs beyond originally expected performance periods increased incidence delay cancellation reduction planned projects delays uncertainties surrounding communications assistance law enforcement act calea significant negative impact acquisition plans law enforcement agencies north america engaged monitoring activities competitive conditions sector also affected increasing use certain potential government customers internal development resources rather outside vendors provide certain technical solutions addition number established government contractors particularly developers integrators technology products taken steps redirect marketing strategies product plans reaction cutbacks traditional areas focus resulting increase number competitors range products offered response particular requests proposals lack predictability timing scope government procurements similarly made planning decisions difficult increased associated risks company historically derived significant portion sales operating profit contracts large system installations major customers company continues emphasize large capacity systems product development marketing strategies contracts large installations typically involve lengthy complex bidding selection process ability company obtain particular contracts inherently difficult predict company believes opportunities large installations continue grow commercial government markets intends continue expand research development manufacturing sales marketing product support capabilities anticipation growth however timing scope opportunities pricing margins associated eventual contract award difficult forecast may vary substantially transaction companys future operating results may accordingly exhibit higher degree volatility operating results companies industries adopted different strategies company experienced prior periods although company actively pursuing number significant procurement opportunities timing eventual procurements probability companys receipt significant contract awards uncertain degree dependence company large system orders investment required enable company perform orders without assurance continuing order flow customers predictability gross margins future orders increase risk associated business company significantly increased expenditures areas operations recent periods including areas research development marketing sales company plans increase expenditures foreseeable future increase research development expenditures reflects companys concentration enhancing range features capabilities existing product lines developing new generations products expanding new product areas company believes efforts essential continuing competitiveness product offerings positioning participate future growth opportunities commercial government sectors increase sales marketing expenditures primarily results companys decision expand activities direct presence growing number world markets companys costs operations also affected increases cost operations israel resulting appreciation israeli shekel relative united states dollar certain periods devaluation israeli shekel rates insufficient offset cost increases others increases cost attracting retaining qualified scientific engineering technical personnel israel demand personnel growing rapidly expansion high technology industries country continuation trends could material adverse effect companys future results operations significant portion companys research development manufacturing operations located israel companys historical operating results reflect substantial benefits received programs sponsored israeli government support research development well tax moratoriums favorable tax rates associated investments approved projects approved enterprises israel eligible programs tax benefits company must continue meet conditions including making specified investments fixed assets financing percentage investments share capital company fails meet conditions future tax benefits would canceled company could required refund tax benefits already received programs tax benefits may continued future current levels level israeli government reduced benefits available programs recent years israeli government authorities indicated government may reduce eliminate benefits future company currently pays royalties 3 5 6 certain circumstances associated product revenues including service related revenues government israel repayment benefits received conditional grant program administered office chief scientist ministry industry trade program company regularly participated continues receive significant benefits reimbursement 50 qualified research development expenditures amounts received programs approved office chief scientist january 1 1999 repayment amount received calculated us dollars plus interest amount rate equal 12month libor rate effect time approval program required application royalty payments addition permission government israel required company manufacture outside israel products resulting research development activities funded programs transfer outside israel related technology rights order obtain permission company may required increase royalties applicable funding agencies andor repay certain amounts received reimbursement research development costs israeli authorities also indicated funding program reduced significantly eliminated future particularly larger companies company termination reduction programs could adversely affect companys operating results israeli government also shortened period tax moratorium applicable approved enterprises four years two years although change affected tax status companys projects eligible moratorium prior 1997 applies subsequent approved enterprise projects changes law government policies regarding programs result termination adverse modification company become unable participate take advantage programs cost companys operations israel would increase could material adverse effect companys operations financial results extent company increases activities outside israel could result among things future acquisitions increased activities eligible programs sponsored israel company currently derives significant portion total sales customers outside united states international transactions involve particular risks including political decisions affecting tariffs trade conditions rapid unforeseen changes economic conditions individual countries turbulence foreign currency credit markets increased costs resulting lack proximity customer volatility international currency exchange rates may significant impact companys operating results company anticipates continue receive significant contracts denominated foreign primarily western european currencies result unpredictable timing purchase orders payments contracts factors often practicable company effectively hedge risk significant changes currency rates contract period since company hedge exchange rate risks associated longterm contracts denominated foreign currencies limited extent operating results affected impact currency fluctuations well cost hedging companys future operating results financial condition adversely affected economic instability result widespread slowdown recessionary conditions major world markets severe trade currency disruptions trading price companys shares may affected factors noted well prevailing economic financial trends conditions public securities markets share prices companies technology government contracting businesses particularly publicly traded companies company tend exhibit high degree volatility shortfalls revenues earnings levels anticipated public markets could immediate significant effect trading price companys shares given period shortfalls may result events beyond companys immediate control unpredictable since significant proportion companys sales fiscal quarter tend occur latter stages quarter may discernible end financial reporting period factors contribute volatility trading value shares regardless companys longterm prospects trading price companys shares may also affected developments including reported financial results fluctuations trading prices shares publiclyheld companies telecommunications equipment industry general companys business segments particular may direct relationship companys business prospects effect new accounting pronouncements 1998 financial accounting standards board issued statement financial accounting standards 133 accounting derivative instruments hedging activities sfas 133 sfas 133 requires derivative financial instruments recognized either assets liabilities balance sheet measurement fair value derivative designed hedging instrument changes fair value ie gains losses recognized earnings period change certain conditions met derivative may designed hedge case accounting changes fair value depend specific exposure hedged method used assessing effectiveness hedging derivative well measurement approach determining ineffective aspects hedge must established inception hedge methods must consistent companys approach managing risk sfas 133 amended statement financial accounting standards 137 effective fiscal years beginning june 15 2000 company currently evaluating impact adoption sfas 133 financial statements forwardlooking statements time company makes forwardlooking statements forwardlooking statements include financial projections statements plans objectives future operations statements future economic performance statements assumptions relating thereto company may include forwardlooking statements periodic reports securities exchange commission forms 10k 10q 8k annual report shareholders proxy statements press releases written materials statements made employees analysts investors representatives media others nature forwardlooking statements subject uncertainties general specific risks exist predictions forecasts projections forwardlooking statements achieved actual results may differ materially due variety factors including without limitation discussed certain trends uncertainties elsewhere report investors others carefully consider uncertainties events whether statements described forwardlooking statements made company intended apply time made unless explicitly stated contrary moreover whether stated connection forwardlooking statement company undertakes obligation correct update forwardlooking statement company later become aware likely achieved company particular instance update correct forwardlooking statement investors others conclude company make additional updates corrections thereafter item 7aitem 7 managements discussion analysis financial condition results operations critical accounting policies critical accounting policies important portrayal companys financial position results operations require managements difficult subjective complex judgments although companys critical accounting policies require management make difficult subjective complex judgments estimates following policies estimates company deems critical preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates company recognizes revenues accordance provisions statement position 972 software revenue recognition related interpretations companys systems generally bundled hardware software solution shipped together revenue generally recognized time shipment sales systems require significant customization performed company following criteria met 1 persuasive evidence arrangement exists 2 delivery occurred 3 fee fixed determinable 4 collectibility probable postcontract customer support pcs services sold separately part multiple element arrangement case related pcs element determined based upon vendorspecific objective evidence fair value portion total fee allocated pcs services generally recognized revenue ratably term pcs arrangement revenues certain development contracts recognized percentageofcompletion method basis physical completion date using actual costs incurred total expected costs contract revisions estimates costs profits reflected accounting period facts require revision become known time loss contract known entire amount estimated loss accrued amounts received customers excess revenues earned percentageofcompletion method recorded advance payments customers cost sales include material costs subcontractor costs salary related benefits operations service departments depreciation amortization equipment used operations service departments amortization capitalized software development costs royalties license fee costs travel costs overhead allocation research development costs include salary related benefits well travel depreciation amortization research development equipment overhead allocation well costs associated research development activities selling general administrative costs include salary related benefits travel depreciation amortization marketing promotional materials recruiting expenses professional fees facility costs well costs associated sales marketing finance administrative departments accounts receivable generally diversified due large number commercial government entities comprising companys customer base dispersion across many geographical regions end accounting period company records reserve bad debts included accounts receivable based upon current historical collection history software development costs capitalized upon establishment technological feasibility amortized estimated useful life software date four years less amortization begins period related product available general release customers results operations introduction explained greater detail certain trends uncertainties companys two business units serving telecommunications markets operating within industry experiencing deep capital spending contraction consequently experienced year revenue declines contrast verint services security enterprise business intelligence markets achieved revenue growth based part heightened awareness surrounding homeland defense security related initiatives us worldwide overall however substantial majority sales year ended january 31 2003 generated activities serving telecommunications industry company experienced year sales decline approximately 42 resulting operating loss period year ended january 31 2003 compared year ended january 31 2002 sales fiscal year ended january 31 2003 fiscal 2002 decreased approximately 5343 million 42 compared fiscal year ended january 31 2002 fiscal 2001 decrease sales primarily attributable decrease sales ess products approximately 5373 million decrease ess sales attributable geographic regions sales region percentage total sales remaining fairly consistent periods addition sales security business intelligence recording products service enabling signaling software products increased decreased approximately 265 million 233 million respectively consolidated basis sales international customers represented approximately 65 sales fiscal 2002 compared approximately 70 sales fiscal 2001 cost sales cost sales fiscal 2002 decreased approximately 1874 million 36 compared fiscal 2001 decrease cost sales primarily attributable decreased materials overhead costs approximately 1466 million due primarily decrease sales decreased royalty expense approximately 205 million decreased personnelrelated costs approximately 80 million decreased travel costs approximately 70 million partially offset charge approximately 59 million pertaining writedown value certain inventory writeoff certain prepaid licenses estimable future use gross margins decreased approximately 586 fiscal 2001 approximately 541 fiscal 2002 research development net research development expenses fiscal 2002 decreased approximately 607 million 21 compared fiscal 2001 primarily due reductions workforce reduction research development projects selling general administrative selling general administrative expenses fiscal 2002 decreased approximately 418 million 13 compared fiscal 2001 percentage sales increased approximately 254 fiscal 2001 approximately 382 fiscal 2002 decrease dollar amount expense primarily due reductions workforce reduction restructuring impairment charges order better align cost structure business environment improve efficiency operations company took steps reduce workforce restructure operations writeoff impaired assets fiscal 2001 fiscal 2002 connection steps company incurred charges approximately 636 million 667 million fiscal 2001 fiscal 2002 respectively primarily pertaining severance related costs elimination excess facilities related leasehold improvements writeoff certain property equipment company expects pay approximately 94 million severance related obligations year ended january 31 2004 approximately 405 million facilities related obligations various dates january 2011 interest income expense net interest income expense net fiscal 2002 increased approximately 623 million compared fiscal 2001 principal reasons increase decreased interest expense approximately 68 million due redemption companys 3000 million 45 convertible debentures june 2001 well companys repurchase approximately 2092 million face value 15 convertible debentures fiscal 2002 ii gain approximately 394 million recorded result companys repurchase approximately 2092 million face value 15 convertible debentures fiscal 2002 iii change foreign currency gainslosses approximately 485 million due primarily strengthening euro fiscal 2002 iv changes approximately 13 million net items offset decreased interest dividend income approximately 260 million due primarily decline interest rates fiscal 2002 ii increase net losses sale writedown investments approximately 46 million iii change equity affiliates approximately 22 million iv increase approximately 09 million minority interest income tax provision income taxes decreased fiscal 2001 fiscal 2002 approximately 11 million 26 due primarily overall decrease pretax income coupled shifts underlying mix tax jurisdiction companys overall rate tax reduced significantly existence net operating loss carryforwards federal income tax purposes united states well tax benefits associated qualified activities certain israeli subsidiaries entitled favorable income tax rates program israeli government approved enterprise investments country net income loss net income loss decreased approximately 1841 million fiscal 2002 compared fiscal 2001 percentage sales decreased approximately 43 fiscal 2001 approximately 176 fiscal 2002 decrease resulted primarily factors described year ended january 31 2002 compared year ended january 31 2001 sales fiscal 2001 increased approximately 452 million 4 compared fiscal year ended january 31 2001 fiscal 2000 increase primarily attributable increase sales ess products approximately 487 million increase principally due increased sales american customers addition sales security business intelligence recording products service enabling signaling software products increased decreased approximately 80 million 93 million respectively cost sales cost sales fiscal 2001 increased approximately 428 million 9 compared fiscal 2000 increase cost sales primarily attributable increased materials overhead costs approximately 218 million due primarily increase sales increased personnelrelated costs approximately 232 million due hiring additional personnel increased compensation benefits existing personnel gross margins decreased approximately 606 fiscal 2000 approximately 586 fiscal 2001 research development net research development expenses fiscal 2001 increased approximately 611 million 26 compared fiscal 2000 due overall growth research development operations initiation significant new research development projects increase primarily due hiring additional personnel increased compensation benefits existing personnel approximately 329 million lower reimbursements research development projects submitted funding ocs approximately 115 million increase depreciation amortization costs approximately 63 million increase overhead allocation approximately 36 million selling general administrative selling general administrative expenses fiscal 2001 increased approximately 634 million 24 compared fiscal 2000 percentage sales increased approximately 212 fiscal 2000 approximately 254 fiscal 2001 increase primarily due hiring additional personnel increased compensation benefits existing personnel support increased level sales first half fiscal 2001 acquisition expenses july 2000 company acquired outstanding stock loronix information systems inc company develops softwarebased digital video recording management systems outstanding stock syborg informationsysteme gmbh company develops softwarebased digital voice internet recording workforce management systems august 2000 company acquired outstanding stock gaya software industries ltd company specializing softwarebased intelligent ip gateways voip technology outstanding stock exalink ltd company specializing protocol gateways applications software delivery internetbased services types wireless devices business combinations accounted pooling interests connection acquisitions company charged operations approximately 160 million fiscal 2000 merger related charges relate following asset writedowns impairments connection acquisitions fiscal 2000 certain assets became impaired due existence duplicative technology property equipment inventory merged companies accordingly assets written net realizable value time mergers charge approximately 74 million charged operations professional fees direct merger expenses connection acquisitions fiscal 2000 company recorded charge approximately 86 million professional fees lawyers investment bankers accountants well direct merger costs connection mergers printing costs filing fees workforce reduction restructuring impairment charges fiscal 2001 company took steps better align cost structure business environment improve efficiency operations steps included reduction workforce announced april 2001 restructuring plan announced december 2001 connection implementation actions company incurred charges approximately 636 million cover costs severance elimination excess facilities related leasehold improvements writeoff certain inventory property equipment capitalized software restructuring related charges professional fees interest income expense net interest income expense net fiscal 2001 decreased approximately 391 million compared fiscal 2000 principal reasons decrease increased net realized losses writedowns companys investments decreased equity earnings affiliates approximately 221 million increased interest expense approximately 03 million change foreign currency gainslosses approximately 201 million decreases partially offset increased interest dividend income approximately 76 million increase interest dividend income primarily result inclusion proceeds full year fiscal 2001 companys 6000 million 15 convertible debentures issued november december 2000 partially offset decrease interest rates fiscal 2001 income tax provision income taxes decreased fiscal 2000 fiscal 2001 approximately 144 million 76 due primarily decreased pretax income companys overall effective tax rate increased approximately 70 fiscal 2000 approximately 75 fiscal 2001 companys overall rate tax reduced significantly tax benefits associated qualified activities certain israeli subsidiaries entitled favorable income tax rates program israeli government approved enterprise investments country net income loss net income decreased approximately 1945 million 78 fiscal 2001 compared fiscal 2000 percentage sales decreased approximately 203 fiscal 2000 approximately 43 fiscal 2001 decrease resulted primarily factors described liquidity capital resources companys working capital january 31 2003 2002 approximately 17665 million 20303 million respectively january 31 2003 2002 company total cash equivalents bank time deposits shortterm investments approximately 18089 million 18925 million respectively operations fiscal 2002 fiscal 2001 fiscal 2000 adjustment noncash items provided used cash approximately 357 million 1300 million 3097 million respectively years changes operating assets liabilities provided used cash approximately 1325 million 122 million 652 million respectively resulted net cash provided operating activities approximately 968 million 1422 million 2445 million fiscal 2002 fiscal 2001 fiscal 2000 respectively investing activities fiscal 2002 fiscal 2001 fiscal 2000 provided used cash approximately 359 million 1224 million 2073 million respectively amounts include net maturities sales purchases bank time deposits investments approximately 1145 million 448 million 945 million respectively ii additions property equipment approximately 341 million 546 million 973 million respectively iii capitalization software development costs approximately 134 million 230 million 155 million respectively iv net assets acquired result acquisitions approximately 311 million fiscal 2002 financing activities fiscal 2002 fiscal 2001 fiscal 2000 provided used cash approximately 918 million 670 million 8941 million respectively amounts include net proceeds issuance companys 15 convertible senior debentures due december 2005 debentures fiscal 2000 approximately 5884 million net repayments repurchase debentures fiscal 2002 approximately 1698 million ii proceeds issuance common stock connection exercise stock options employee stock purchase plan approximately 124 million 288 million 1114 million respectively iii net proceeds issuance common stock subsidiaries connection public offerings fiscal 2002 fiscal 2000 approximately 687 million 1952 million respectively iv net proceeds repayments bank loans debt approximately 31 million 382 million 09 million respectively november december 2000 company issued 6000 million aggregate principal amount debentures net proceeds approximately 5884 million fiscal 2002 company acquired open market purchases approximately 2092 million face amount debentures approximately 1698 million cash resulting pretax gain approximately 394 million included interest income expense net consolidated statements operations january 31 2003 company outstanding debentures approximately 3908 million march april 2003 company acquired open market purchases approximately 446 million face amount debentures approximately 413 million cash resulting pretax gain approximately 28 million january 2002 verint took bank loan amount 420 million loan matured february 2003 bore interest libor plus 055 guaranteed cti february 2003 verint repaid bank loan april october 2000 ulticom completed initial secondary public offerings common stock proceeds ulticom offerings totaled approximately 1952 million net offering expenses january 31 2003 companys ownership interest ulticom approximately 716 may 2002 verint completed initial public offering common stock proceeds offering totaled approximately 654 million net offering expenses january 31 2003 companys ownership interest verint approximately 786 february 2002 verint acquired digital video recording business lanex llc lanex business provides digital video recording solutions security surveillance applications primarily north american banks purchase price consisted 95 million cash 22 million convertible note noninterest bearing matures february 1 2004 holder note may elect convert note whole part shares verints common stock conversion price 1606 per share note guaranteed cti june 2002 company acquired odigo inc odigo privatelyheld provider instant messaging presence management solutions service providers purchase price approximately 201 million cash prior acquisition company strategic partner odigo holding equity position previously acquired approximately 3 million company obtained bank guaranties primarily performance certain obligations contracts customers guaranties aggregated approximately 295 million january 31 2003 released companys performance specified contract milestones scheduled completed primarily 2003 1997 subsidiary cti quantum industrial holdings ltd organized two new companies make investments including investments high technology ventures participant committed total 375 million capital new companies use suitable investment opportunities identified quantum industrial holdings ltd member quantum group funds managed soros fund management llc affiliated management companies january 31 2003 company invested approximately 253 million related ventures addition company committed approximately 216 million various companies ventures funds may called option investee company leases office manufacturing warehouse space noncancelable operating leases january 31 2003 minimum annual rent obligations company approximately 316 million 305 million 293 million 96 million 293 million respectively twelve months ended january 31 2004 2005 2006 2007 2008 thereafter total obligation approximately 1303 million ability ctis israeli subsidiaries pay dividends governed israeli law provides cash dividends may paid israeli corporation retained earnings determined statutory purposes israeli currency event devaluation israeli currency dollar amount dollars available payment cash dividends prior years earnings decrease accordingly cash dividends paid israeli corporation united states residents subject withholding israeli income tax source rate 25 depending particular facilities generated earnings source dividends companys liquidity capital resources anticipated materially affected restrictions pertaining ability foreign subsidiaries pay dividends withholding taxes associated dividend payments company regularly examines opportunities strategic acquisitions companies lines business anticipates may time issue additional debt andor equity securities either direct consideration acquisitions raise additional funds used whole part payment acquired securities assets issuance securities could expected dilutive impact companys shareholders assurance whether acquired business would contribute positive operating results commensurate associated investment company believes existing working capital together funds generated operations sufficient provide planned operations foreseeable future certain trends uncertainties company derives majority revenue telecommunications industry continues face unprecedented recession resulted significant reduction capital expenditures made telecommunications service providers tsp companys operating results financial condition continue adversely affected severe decline technology purchases capital expenditures tsps worldwide consequently companys operating results deteriorated significantly recent periods may continue deteriorate future periods conditions remain effect reasons risk factors outlined continues difficult company accurately forecast future revenues operating results companys business particularly dependent strength telecommunications industry telecommunications industry including company negatively affected among factors high costs large debt positions incurred tsps expand capacity enable provision future services corresponding risks associated development marketing adoption services discussed including cost acquisitions licenses provide broadband services reductions tsps actual projected revenues deterioration actual projected operating results accordingly tsps including companys customers significantly reduced actual planned expenditures expand replace equipment delayed reduced deployment services number tsps including certain customers company also indicated existence conditions excess capacity certain markets addition certain tsps delayed planned introduction new services broadband mobile telephone services would supported certain companys products certain companys customers also implemented changes procurement practices procedures including limitations purchases anticipation estimated future capacity requirements management use networks reduced companys sales also made difficult company project future sales continuation andor exacerbation negative trends adverse effect companys future results addition loss revenue weakness telecommunications industry affected continue affect companys business increasing risks credit business failures suppliers customers distributors customer requirements vendor financing longer payment terms delays defaults customer distributor payments price reductions instituted competitors retain acquire market share companys current plan operations predicated part recovery capital expenditures customers absence improvement company would experience deterioration operating results may determine modify plan future operations accordingly may include among things additional reductions workforce company intends continue make significant investments business examine opportunities growth acquisitions strategic investments activities may involve significant expenditures obligations cannot readily curtailed reduced anticipated demand associated products materialize delayed impact decisions future financial results cannot predicated assurance companys commitment growth may increase vulnerability downturns markets technology changes shifts competitive conditions company also may able identify future suitable merger acquisition candidates even company identify suitable candidates may able make transactions commercially acceptable terms company make acquisitions may able successfully incorporate personnel operations customers companies companys business addition company may fail achieve anticipated synergies combined businesses including marketing product integration distribution product development synergies integration process may strain companys existing financial managerial controls reporting systems procedures may result diversion management financial resources companys core business objectives addition acquisition merger may require company utilize cash reserves incur debt issue equity securities may result dilution existing stockholders company may negatively impacted assumption liabilities merged acquired company due rapidly changing market conditions company may find value acquired technologies related intangible assets goodwill recorded companys financial statements impaired resulting charges operations company may also fail retain acquired merged companies key employees customers company made future may continue make strategic investments companies investments made future investments likely made immature businesses unproven track records technologies investments high degree risk possibility company may lose total amount investments company may able identify suitable investment candidates even company may able make investments acceptable terms addition even company makes investments may gain strategic benefits investments companys products involve sophisticated hardware software technology performs critical functions highly demanding standards assurance companys current future products develop operational problems could material adverse effect company telecommunications industry subject rapid technological change introduction new technologies telecommunications market including delay adoption new technologies new alternatives delivery services expected continue profound effect competitive conditions market success market participants including company companys continued success depend ability correctly anticipate technological trends industries react quickly effectively trends enhance existing products introduce new products timely costeffective basis result life cycle companys products difficult estimate companys new product offerings may properly integrate existing platforms failure new product offerings accepted market could material adverse effect business results operations financial condition addition changing industry market conditions may dictate strategic decisions restructure business units discontinue others discontinuing business unit product line may result company recording accrued liabilities special charges costs associated reduction workforce strategic decisions could result changes determinations regarding products useful life recoverability carrying basis certain assets company relies limited number suppliers manufacturers specific components may able find alternate manufacturers meet requirements existing alternative sources may available favorable terms conditions thus shortage supply components company may experience interruption product supply addition loss third party software licensing could materially adversely affect companys business financial condition results operations telecommunications industry continues undergo significant change result deregulation privatization worldwide reducing restrictions competition industry unforeseen changes regulatory environment also may impact companys revenues andor costs given part world worldwide ess system industry already highly competitive company expects competition intensify company believes existing competitors continue present substantial competition companies many considerably greater financial marketing sales resources company may enter ess system markets moreover company enters new markets result research development efforts acquisitions likely encounter new competitors market companys digital security surveillance enterprise business intelligence products past affected weakness general economic conditions delays reductions customers purchases capital equipment uncertainties relating government expenditure programs companys business generated government contracts may adversely affected companys reputation relationship government agencies impaired ii company suspended otherwise prohibited contracting domestic foreign government significant law enforcement agency iii levels government expenditures authorizations law enforcement security related programs decrease remain constant shift programs areas company provide products services iv company prevented entering new government contracts extending existing government contracts based violations suspected violations procurement laws regulations v company granted security clearances required sell products domestic foreign governments security clearances revoked vi change government procurement procedures competitive conditions sector also affected increasing use certain potential customers internal development resources rather outside vendors provide certain technical solutions addition number established government contractors particularly developers integrators technology products taken steps redirect marketing strategies product plans reaction cutbacks traditional areas focus resulting increase number competitors range products offered response particular requests proposals company historically derived significant portion sales operating profit contracts large system installations major customers company continues emphasize large capacity systems product development marketing strategies contracts large installations typically involve lengthy complex bidding selection process ability company obtain particular contracts inherently difficult predict timing scope opportunities pricing margins associated eventual contract award difficult forecast may vary substantially transaction companys future operating results may accordingly exhibit higher degree volatility operating results companies industries adopted different strategies also may volatile company experienced prior periods degree dependence company large system orders investment required enable company perform orders without assurance continuing order flow customers predictability gross margins future orders increase risk associated business companys gross margins also may adversely affected increases material labor costs obsolescence charges price competition changes channels distribution mix products sold geopolitical economic military conditions could directly affect companys operations recent outbreak severe acute respiratory syndrome sars curtailed travel certain countries primarily asiapacific region continued additional restrictions travel regions account sars could material adverse effect companys business results operations financial condition continued threat terrorism heightened security military action response threat future acts terrorism may cause disruptions companys business extent disruptions result delays cancellations customer orders manufacture shipment companys products business operating results financial condition could materially adversely affected recently us military involvement overseas operations including example war iraq could material adverse effect companys business results operations financial condition since establishment state israel 1948 number armed conflicts taken place israel arab neighbors continued state hostility varying degree intensity led security economic problems israel since october 2000 significant increase violence primarily west bank gaza strip recently israel experienced terrorist incidents within borders period peace negotiations israel representatives palestinian authority sporadic currently suspended company could adversely affected hostilities involving israel interruption curtailment trade israel trading partners significant downturn economic financial condition israel addition sale products manufactured israel may adversely affected certain countries restrictive laws policies practices directed toward israel companies operations israel continuation exacerbation violence israel outbreak violent conflicts involving israel may impede companys ability sell products otherwise adversely affect company addition many companys israeli employees israel required perform annual compulsory military service israel subject called active duty time emergency circumstances absence employees may adverse effect upon companys operations companys costs operations times affected changes cost operations israel resulting changes value israeli shekel relative united states dollar certain periods negative impact difficulties attracting retaining qualified scientific engineering technical personnel israel availability personnel times severely limited changes cost factors time significant difficult predict could future material adverse effect companys results operations companys historical operating results reflect substantial benefits received programs sponsored israeli government support research development well tax moratoriums favorable tax rates associated investments approved projects approved enterprises israel programs tax benefits ceased others may continued future availability benefits company may affected number factors including budgetary constraints resulting adverse economic conditions government policies companys ability satisfy eligibility criteria israeli government reduced benefits available programs recent years israeli government authorities indicated government may reduce eliminate benefits future company regularly participated conditional grant program administered office chief scientist ministry industry trade state israel ocs received significant benefits reimbursement 50 qualified research development expenditures verint currently pays royalties 3 5 6 certain circumstances associated product revenues including service related revenues government israel repayment benefits received program royalty payments verint currently required made government reimbursed amounts received company plus amounts received projects approved ocs january 1 1999 interest amount rate equal 12month libor rate effect january 1 year approval obtained fiscal 2001 comverse entered arrangement ocs whereby comverse agreed pay lump sum royalty amount past amounts received ocs addition comverse began receive lower amounts ocs historically received pay royalty amounts grants amount reimbursement received company program reduced significantly company expect receive significant reimbursement program future addition permission government israel required company manufacture outside israel products resulting research development activities funded programs transfer outside israel related technology rights order obtain permission company may required increase royalties applicable funding agencies andor repay certain amounts received reimbursement research development costs continued reduction benefits received company program termination eligibility receive benefits future could adversely affect companys operating results companys overall effective tax rate benefits tax moratorium provided government israel approved enterprises undertaken country companys effective tax rate may increase future due among factors increased proportion taxable income associated activities higher tax jurisdictions relative ages companys eligible investments israel tax moratorium income companys approved enterprise investments made prior 1997 four years whereas subsequent approved enterprise projects eligible moratorium two years reduced tax rates apply case certain periods thereafter eligible tax benefits company must continue meet conditions including making specified investments fixed assets financing percentage investments share capital company fails meet conditions future tax benefits would canceled company could required refund tax benefits already received israeli authorities indicated additional limitations tax benefits associated approved enterprise projects may imposed certain categories taxpayers would include company changes law government policies regarding programs result termination adverse modification company become unable participate take advantage programs cost companys operations israel would increase could material adverse effect companys results operations financial condition companys success dependent recruiting retaining key management highly skilled technical managerial sales marketing personnel market highly skilled personnel remains competitive despite current economic conditions companys ability attract retain employees also may affected recent cost control actions including reductions companys workforce associated reorganization operations occurrence perception security breaches within company could harm companys business financial condition operating results company implements sophisticated security measures third parties may attempt breach companys security computer viruses electronic breakins disruptions successful confidential information including passwords financial information personal information may improperly obtained company may subject lawsuits liability even company held liable security breach could harm companys reputation even perception security risks whether valid could inhibit market acceptance companys products company currently derives significant portion total sales customers outside united states international transactions involve particular risks including political decisions affecting tariffs trade conditions rapid unforeseen changes economic conditions individual countries turbulence foreign currency credit markets increased costs resulting lack proximity customer company required obtain export licenses authorizations applicable governmental authorities certain countries within conducts business failure receive required license authorization would hinder companys ability sell products could adversely affect companys business results operations financial condition addition legal uncertainties regarding liability compliance local laws regulations labor laws employee benefits currency restrictions difficulty accounts receivable collection longer collection periods requirements may negative impact companys operating results volatility international currency exchange rates may significant impact companys operating results company anticipates continue receive contracts denominated foreign currencies particularly euro result unpredictable timing purchase orders payments contracts factors often practicable company effectively hedge risk significant changes currency rates contract period company may experience risk associated failure hedge exchange rate risks associated contracts denominated foreign currencies operating results negatively impacted certain periods recently positively impacted may continue affected material extent impact currency fluctuations operating results may also affected cost hedging activities company undertake company generally requires employees independent contractors consultants execute noncompetition confidentiality agreements companys intellectual property proprietary rights could infringed misappropriated could result expensive protracted litigation company relies combination patent copyright trade secret trademark law protect technology despite companys efforts protect intellectual property proprietary rights unauthorized parties may attempt copy otherwise obtain use products technology effectively policing unauthorized use companys products timeconsuming costly assurance steps taken company prevent misappropriation technology particularly foreign countries many instances local laws legal systems offer level protection united states others claim companys products infringe intellectual property rights company may forced seek expensive licenses reengineer products engage expensive timeconsuming litigation stop marketing products company attempts avoid infringing known proprietary rights third parties product development efforts company regularly conduct comprehensive patent searches determine whether technology used products infringes patents held third parties however many issued patents well patent applications fields company engaged patent applications united states publicly disclosed patent issued applications may filed relate companys software products company discover products violated potentially violated thirdparty proprietary rights might able obtain licenses continue offering products without substantial reengineering effort may successful company certain licenses would available commercially reasonable terms substantial litigation regarding intellectual property rights exists technology related industries company expects products may increasingly subject thirdparty infringement claims number competitors industry segments grows functionality software products different industry segments overlaps addition company agreed indemnify certain customers certain situations determined products infringe proprietary rights third parties thirdparty infringement claims could time consuming defend result costly litigation divert managements attention resources cause product service delays require company enter royalty licensing agreements royalty licensing arrangements required may available terms acceptable company successful claim infringement company failure inability license infringed similar technology could material adverse effect business financial condition results operations company holds large proportion net assets cash equivalents shortterm investments including variety public private debt equity instruments made significant venture capital investments directly private investment funds investments subject company risks inherent capital markets generally performance businesses direct control given relatively high proportion companys liquid assets relative overall size results operations materially affected results companys capital management investment activities risks associated activities declines public equity markets caused may expected continue cause company experience realized unrealized investment losses addition reduction prevailing interest rates due economic conditions government policies may continue adverse impact companys results operations severe decline public trading prices equity securities particularly technology telecommunications sectors corresponding decline values privatelyheld companies venture capital funds company invested may continue adverse impact companys financial results company past benefited longterm rise public trading price shares various ways including ability use equity incentive arrangements means attracting retaining highly qualified employees necessary growth business ability raise capital relatively attractive conditions decline price companys shares overall decline equity prices generally shares technology companies particular expected make difficult company significantly rely equity incentive arrangements means recruit retain talented employees trading price companys shares affected factors disclosed herein well prevailing economic financial trends conditions public securities markets share prices companies technologyrelated industries company tend exhibit high degree volatility announcement financial results fall short results anticipated public markets could immediate significant negative effect trading price companys shares given period shortfalls may result events beyond companys immediate control unpredictable since significant proportion companys sales fiscal quarter tend occur latter stages quarter may discernible end financial reporting period factors may contribute volatility trading value shares regardless companys longterm prospects trading price companys shares may also affected developments including reported financial results fluctuations trading prices shares publiclyheld companies telecommunications equipment industry general companys business segments particular may direct relationship companys business prospects effect new accounting pronouncements june 2001 fasb issued sfas 142 goodwill intangible assets sfas 142 addresses financial accounting reporting acquired goodwill intangible assets sfas 142 goodwill intangible assets longer amortized rather reviewed impairment periodic basis provisions statement required applied starting fiscal years beginning december 15 2001 beginning companys fiscal year goodwill intangible assets financial statements date impairment losses goodwill certain intangible assets arising due initial application statement reported resulting change accounting principle goodwill intangible assets acquired june 30 2001 subject immediately provisions statement adoption sfas 142 material effect companys consolidated financial statements august 2001 fasb issued sfas 143 accounting asset retirement obligations sfas 143 establishes accounting standards recognition measurement liability asset retirement obligation associated asset retirement cost sfas 143 applies legal obligations associated retirement tangible longlived asset result acquisition construction development andor normal operation longlived asset statement effective fiscal years beginning june 15 2002 however early adoption encouraged adoption sfas 143 expected material effect companys consolidated financial statements october 2001 fasb issued sfas 144 accounting impairment disposal longlived assets sfas 144 addresses financial accounting reporting impairment disposal longlived assets sfas 144 supercedes sfas 121 accounting impairment longlived assets longlived assets disposed certain provisions accounting principles board opinion 30 reporting results operationsreporting effects disposal segment business extraordinary unusual infrequently occurring events transactions sfas 144 effective financial statements issued fiscal years beginning december 15 2001 interim periods within fiscal years however early adoption encouraged adoption sfas 144 material effect companys consolidated financial statements april 2002 fasb issued sfas 145 rescission fasb statements 4 44 64 amendment fasb statement 13 technical corrections sfas 145 rescinds sfas 4 required gains losses extinguishment debt classified extraordinary item sfas 145 recognizes use debt extinguishment become part risk management strategy many companies therefore may considered part companys operating activities rescission sfas 4 effective fiscal years beginning may 15 2002 earlier application encouraged company adopted sfas 145 quarter ended july 31 2002 accordingly company intends periodically extinguish debt part risk management strategy gain approximately 394 million extinguishment debt relating companys 15 convertible debentures recorded continuing operations consolidated statements operations year ended january 31 2003 addition sfas 145 also rescinds sfas 44 accounting intangible assets motor carriers amends sfas 13 accounting leases require certain lease modifications economic effects similar saleleaseback transactions accounted manner saleleaseback transactions statement generally effective transactions occurring may 15 2002 earlier application encouraged items june 2002 fasb issued sfas 146 accounting exit disposal activities statement addresses recognition measurement reporting costs associated exit disposal activities statement includes restructuring activities currently accounted pursuant guidance set forth emerging issues task force eitf issue 943 liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring costs related terminating contract capital lease onetime benefit arrangements received employees involuntarily terminated nullifying guidance eitf issue 943 sfas 146 cost associated exit disposal activity recognized periods incurred rather date company committed exit plan statement effective exit disposal activities initiated december 31 2002 earlier application encouraged adoption sfas 146 material effect companys consolidated financial statements december 2002 fasb issued sfas 148 accounting stockbased compensationtransition disclosurean amendment fasb statement 123 sfas 148 amends sfas 123 accounting stockbased compensation provide alternative methods transition voluntary change fair value based method accounting stockbased employee compensation permit use original sfas 123 prospective method transition fiscal years beginning december 15 2003 addition sfas 148 amends disclosure requirements sfas 123 require prominent disclosures annual interim financial statements method accounting stockbased employee compensation effect method used reported results regardless whether entity adopts preferable fair value based method accounting sfas 148 improves prominence clarity pro forma disclosures required sfas 123 prescribing specific tabular format requiring disclosure summary significant accounting policies equivalent improves timeliness disclosures requiring inclusion financial reports interim periods disclosure requirements sfas 148 effective financial statements fiscal years ending interim periods beginning december 15 2002 adoption sfas 148 expected material effect companys consolidated financial statements november 2002 fasb issued fasb interpretation 45 guarantors accounting disclosure requirements guarantees including indirect guarantees indebtedness others interpretation fasb statements 5 57 107 rescission fasb interpretation 34 fin 45 fin 45 clarifies requirements sfas 5 accounting contingencies relating guarantors accounting disclosure issuance certain types guarantees specifically fin 45 requires guarantor recognize liability noncontingent component certain guarantees representing obligation stand ready perform event specified triggering events conditions occur provisions initial recognition measurement effective prospective basis guarantees issued modified december 31 2002 irrespective guarantors fiscal yearend however disclosure provisions fin 45 effective financial statements interim annual periods ending december 15 2002 adoption fin 45 expected material effect companys consolidated financial statements forwardlooking statements time company makes forwardlooking statements forwardlooking statements include financial projections statements plans objectives future operations statements future economic performance statements assumptions relating thereto company may include forwardlooking statements periodic reports securities exchange commission forms 10k 10q 8k annual report shareholders proxy statements press releases written materials statements made employees analysts investors representatives media others nature forwardlooking statements subject uncertainties general specific risks exist predictions forecasts projections forwardlooking statements achieved actual results may differ materially due variety factors including without limitation discussed certain trends uncertainties elsewhere report investors others carefully consider uncertainties events whether statements described forwardlooking statements made company intended apply time made unless explicitly stated contrary moreover whether stated connection forwardlooking statement company undertakes obligation correct update forwardlooking statement company later become aware likely achieved company particular instance update correct forwardlooking statement investors others conclude company make additional updates corrections thereafter item 7aitem 7 managements discussion analysis financial condition results operations critical accounting policies critical accounting policies important portrayal companys financial position results operations require managements difficult subjective complex judgments although companys critical accounting policies require management make difficult subjective complex judgments estimates following policies estimates company deems critical preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates company recognizes revenues accordance provisions statement position 972 software revenue recognition related interpretations companys systems generally bundled hardware software solution shipped together revenue generally recognized time shipment sales systems require significant customization performed company following criteria met 1 persuasive evidence arrangement exists 2 delivery occurred 3 fee fixed determinable 4 collectibility probable amounts received customers pursuant terms specified contracts revenue yet recognized recorded advance payments customers postcontract customer support pcs services sold separately part multiple element arrangement case related pcs element determined based upon vendorspecific objective evidence fair value portion total fee allocated pcs services generally recognized revenue ratably term pcs arrangement revenues certain development contracts recognized percentageofcompletion method basis physical completion date using actual costs incurred total expected costs contract revisions estimates costs profits reflected accounting period facts require revision become known time loss contract known entire amount estimated loss accrued amounts received customers excess revenues earned percentageofcompletion method recorded advance payments customers cost sales include material costs subcontractor costs salary related benefits operations service departments depreciation amortization equipment used operations service departments amortization capitalized software development costs royalties license fee costs travel costs overhead allocation research development costs include salary related benefits well travel depreciation amortization research development equipment overhead allocation well costs associated research development activities selling general administrative costs include salary related benefits travel depreciation amortization marketing promotional materials recruiting expenses professional fees insurance costs facility costs well costs associated sales marketing finance administrative departments accounts receivable generally diversified due large number commercial government entities comprising companys customer base dispersion across many geographical regions january 31 2004 single customer balance comprised 10 overall accounts receivable balance company required estimate collectibility accounts receivable accounting period record reserve bad debts considerable amount judgment required assessing realization receivables including current creditworthiness customer current historical collection history related aging past due balances company evaluates specific accounts becomes aware information indicating customer may able meet financial obligations due deterioration financial condition lower credit ratings bankruptcy reserve requirements based best facts available reevaluated adjusted additional information received software development costs capitalized upon establishment technological feasibility amortized estimated useful life software date four years less amortization begins period related product available general release customers results operations historical results consolidated results operations dollars percentage sales three years period ended january 31 2004 follows detailed description companys business segments well additional financial data found note 20 consolidated financial statements following summary sales income loss operations segment dollars percentage sales three years period ended january 31 2004 introduction explained greater detail certain trends uncertainties companys two business units serving telecommunications markets operating within industry experiencing challenging capital spending environment although evidence recent improvement companys cns business unit experienced slight decline revenue 25 year although achieved sequential revenue growth quarter throughout year ulticom experienced increase revenue 313 year verint services security business intelligence markets achieved record revenue net income based part increased sales due heightened awareness surrounding homeland defense security related initiatives united states abroad verint experienced increase revenue 222 year overall year ended january 31 2004 company experienced year revenue growth 41 substantial majority sales year generated activities serving telecommunications industry company incurred operating net loss year ended january 31 2004 compared year ended january 31 2003 sales fiscal year ended january 31 2004 fiscal 2003 increased approximately 300 million 4 compared fiscal year ended january 31 2003 fiscal 2002 increase primarily attributable increase security business intelligence recording sales approximately 350 million primarily result increased security surveillance sales increased service enabling signaling software sales approximately 91 million increases partially offset decrease cns sales approximately 134 million decrease cns sales due primarily decreased business asia pacific americas partially offset increased business europe consolidated basis service revenues represented approximately 30 26 sales fiscal 2003 fiscal 2002 respectively sales international customers represented approximately 66 65 sales fiscal 2003 fiscal 2002 respectively cost sales cost sales fiscal 2003 decreased approximately 106 million 3 compared fiscal 2002 decrease cost sales primarily attributable decreased personnelrelated travel costs approximately 181 million 49 million respectively primarily result workforce reduction cost reduction efforts net decrease various costs approximately 01 million partially offset increased royalty expense approximately 125 million primarily result prior period credit realized upon settlement ocs gross margins increased approximately 572 fiscal 2003 approximately 541 fiscal 2002 research development net research development expenses fiscal 2003 decreased approximately 161 million 7 compared fiscal 2002 decrease primarily attributable decreased personnelrelated costs approximately 172 million primarily result workforce reduction cost reduction efforts reduction research development projects selling general administrative selling general administrative expenses fiscal 2003 decreased approximately 268 million 10 compared fiscal 2002 percentage sales decreased approximately 332 fiscal 2003 approximately 382 fiscal 2002 decrease dollar amount selling general administrative expenses primarily attributable lower bad debt expense approximately 422 million partially offset increased personnelrelated costs approximately 136 million due primarily overall increase sales marketing staff increased headcount verint increased sales commissions net increase various costs approximately 18 million workforce reduction restructuring impairment charges credits year ended january 31 2002 company committed began implementing restructuring program better align cost structure business environment improve efficiency operations via reductions workforce restructuring operations writeoff impaired assets connection restructuring company changed organizational structure product offerings resulting impairment certain assets connection actions fiscal 2002 fiscal 2003 company incurred charges credits operations approximately 667 million 21 million respectively fiscal 2002 charge approximately 667 million comprised approximately 268 million severance related costs approximately 194 million elimination excess facilities related leasehold improvements approximately 205 million writeoff certain property equipment including reduction value certain unimproved land israel company acquired view future construction facilities israeli operations fiscal 2003 net credit approximately 21 million comprised charge approximately 45 million severance related costs credit approximately 80 million reversal previously taken charge elimination excess facilities related leasehold improvements primarily result sublet portion excess facilities charge approximately 14 million writeoff certain property equipment company expects pay approximately 31 million severance related obligations year ended january 31 2005 approximately 264 million facilities related obligations various dates january 2011 loss operations loss operations fiscal 2003 decreased approximately 1524 million 83 compared fiscal 2002 percentage sales approximately 40 fiscal 2003 compared approximately 248 fiscal 2002 changes resulted primarily factors described business segment basis loss operations cns fiscal 2003 decreased approximately 1386 million 77 compared fiscal 2002 percentage sales approximately 77 fiscal 2003 compared approximately 331 fiscal 2002 result decrease workforce reduction restructuring impairment charges credits approximately 662 million decrease costs expenses approximately 858 million primarily result workforce reduction cost reduction efforts partially offset decreased sales approximately 134 million income operations verint fiscal 2003 increased approximately 71 million 71 compared fiscal 2002 percentage sales increased approximately 89 fiscal 2003 approximately 64 fiscal 2002 income loss operations ulticom fiscal 2003 increased approximately 112 million compared fiscal 2002 percentage sales increased approximately 74 fiscal 2003 approximately 286 fiscal 2002 interest income expense net interest income expense net fiscal 2003 decreased approximately 199 million compared fiscal 2002 principal reasons decrease gain recorded result companys repurchases 150 convertible senior debentures due december 2005 debentures approximately 292 million ii decrease foreign currency gains approximately 228 million iii decreased interest dividend income approximately 127 million due primarily decline interest rates partially offset increase invested assets iv decrease approximately 02 million net items offset decrease net losses sale writedown investments approximately 404 million ii decreased interest expense approximately 46 million due primarily companys repurchases debentures debt reduction income tax provision income taxes increased fiscal 2002 fiscal 2003 approximately 49 million 149 due primarily shifts underlying mix pretax income entity tax jurisdiction companys overall rate tax reduced significantly existence net operating loss carryforwards federal income tax purposes united states well tax benefits associated qualified activities certain israeli subsidiaries entitled favorable income tax rates program israeli government approved enterprise investments country minority interest equity earnings losses affiliates minority interest equity earnings losses affiliates increased approximately 34 million result increased minority interest expense approximately 57 million primarily attributable overall increased earnings majorityowned subsidiaries partially offset change equity earnings losses affiliates approximately 23 million net loss net loss decreased approximately 1241 million fiscal 2003 compared fiscal 2002 percentage sales approximately 07 fiscal 2003 compared approximately 176 fiscal 2002 changes resulted primarily factors described year ended january 31 2003 compared year ended january 31 2002 sales fiscal 2002 decreased approximately 5343 million 42 compared fiscal year ended january 31 2002 fiscal 2001 decrease sales primarily attributable decrease cns sales approximately 5377 million decrease cns sales attributable geographic regions sales region percentage total sales remaining fairly consistent periods addition security business intelligence recording sales increased approximately 265 million service enabling signaling software sales decreased approximately 289 million respectively consolidated basis service revenues represented approximately 26 12 sales fiscal 2002 fiscal 2001 respectively sales international customers represented approximately 65 70 sales fiscal 2002 fiscal 2001 respectively cost sales cost sales fiscal 2002 decreased approximately 1874 million 36 compared fiscal 2001 decrease cost sales primarily attributable decreased materials overhead costs approximately 1466 million due primarily decrease sales decreased royalty expense approximately 205 million decreased personnelrelated costs approximately 80 million decreased travel costs approximately 70 million partially offset charge approximately 59 million pertaining writedown value certain inventory writeoff certain prepaid licenses estimable future use gross margins decreased approximately 586 fiscal 2001 approximately 541 fiscal 2002 research development net research development expenses fiscal 2002 decreased approximately 607 million 21 compared fiscal 2001 primarily due workforce reduction cost reduction efforts reduction research development projects selling general administrative selling general administrative expenses fiscal 2002 decreased approximately 418 million 13 compared fiscal 2001 percentage sales increased approximately 254 fiscal 2001 approximately 382 fiscal 2002 decrease dollar amount expense primarily due workforce reduction cost reduction efforts workforce reduction restructuring impairment charges fiscal 2001 company committed began implementing restructuring program better align cost structure business environment improve efficiency operations via reductions workforce restructuring operations writeoff impaired assets connection restructuring company changed organizational structure product offerings resulting impairment certain assets connection actions fiscal 2001 fiscal 2002 company incurred charges operations approximately 636 million 667 million respectively fiscal 2001 charge approximately 636 million comprised approximately 277 million severance related costs approximately 244 million elimination excess facilities related leasehold improvements approximately 46 million writeoff certain property equipment approximately 40 million 29 million writeoff certain inventory capitalized software respectively became impaired result change companys product offerings fiscal 2002 charge approximately 667 million comprised approximately 268 million severance related costs approximately 194 million elimination excess facilities related leasehold improvements approximately 205 million writeoff certain property equipment including reduction value certain unimproved land israel company acquired view future construction facilities israeli operations income loss operations income loss operations fiscal 2002 decreased approximately 2476 million compared fiscal 2001 percentage sales approximately 248 fiscal 2002 compared approximately 51 fiscal 2001 changes resulted primarily factors described business segment basis income loss operations cns fiscal 2002 decreased approximately 2456 million compared fiscal 2001 percentage sales approximately 331 fiscal 2002 compared approximately 61 fiscal 2001 result decreased sales approximately 5377 million partially offset decrease costs expenses approximately 2921 million primarily result workforce reduction cost reduction efforts decreased sales income loss operations verint fiscal 2002 increased approximately 126 million compared fiscal 2001 percentage sales increased approximately 64 fiscal 2002 approximately 19 fiscal 2001 income loss operations ulticom fiscal 2002 decreased approximately 169 million compared fiscal 2001 percentage sales approximately 286 fiscal 2002 compared approximately 147 fiscal 2001 interest income expense net interest income expense net fiscal 2002 increased approximately 654 million compared fiscal 2001 principal reasons increase decreased interest expense approximately 68 million due redemption companys 3000 million 45 convertible debentures june 2001 well companys repurchases debentures fiscal 2002 ii gain approximately 394 million recorded result companys repurchases debentures fiscal 2002 iii change foreign currency gainslosses approximately 485 million due primarily strengthening euro fiscal 2002 iv changes approximately 13 million net items offset decreased interest dividend income approximately 260 million due primarily decline interest rates fiscal 2002 ii increase net losses sale writedown investments approximately 46 million income tax provision income taxes decreased fiscal 2001 fiscal 2002 approximately 11 million 26 due primarily overall decrease pretax income coupled shifts underlying mix entity tax jurisdiction companys overall rate tax reduced significantly existence net operating loss carryforwards federal income tax purposes united states well tax benefits associated qualified activities certain israeli subsidiaries entitled favorable income tax rates program israeli government approved enterprise investments country minority interest equity earnings losses affiliates minority interest equity earnings losses affiliates decreased approximately 31 million result increased minority interest expense approximately 09 million primarily attributable overall increased earnings majorityowned subsidiaries change equity earnings losses affiliates approximately 22 million net income loss net income loss decreased approximately 1841 million fiscal 2002 compared fiscal 2001 percentage sales approximately 43 fiscal 2001 compared approximately 176 fiscal 2002 decrease resulted primarily factors described liquidity capital resources companys working capital january 31 2004 2003 approximately 21413 million 17665 million respectively january 31 2004 2003 company total cash equivalents bank time deposits shortterm investments approximately 21985 million 18089 million respectively operations fiscal 2003 fiscal 2002 fiscal 2001 adjustment noncash items provided used cash approximately 803 million 341 million 1306 million respectively years changes operating assets liabilities provided cash approximately 483 million 1309 million 116 million respectively resulted net cash provided operating activities approximately 1286 million 968 million 1422 million fiscal 2003 fiscal 2002 fiscal 2001 respectively investing activities fiscal 2003 fiscal 2002 fiscal 2001 provided used cash approximately 3106 million 359 million 1224 million respectively amounts include net maturities sales purchases bank time deposits investments approximately 2616 million 1145 million 448 million respectively ii purchases property equipment approximately 353 million 341 million 546 million respectively iii capitalization software development costs approximately 78 million 134 million 230 million respectively iv net assets acquired result acquisitions approximately 59 million 311 million fiscal 2003 fiscal 2002 respectively financing activities fiscal 2003 fiscal 2002 fiscal 2001 provided used cash approximately 3102 million 918 million 670 million respectively amounts include net proceeds issuance companys zero yield puttable securities due 2023 zyps approximately 4128 million fiscal 2003 ii partial repurchase companys debentures approximately 2533 million 1698 million fiscal 2003 fiscal 2002 respectively iii proceeds issuance common stock connection exercise stock options employee stock purchase plan approximately 613 million 124 million 288 million respectively iv net proceeds issuance common stock subsidiaries connection public offerings exercise stock options employee stock purchase plans approximately 1290 million 687 million fiscal 2003 fiscal 2002 respectively v net proceeds repayment bank loan 420 million 420 million fiscal 2003 fiscal 2001 respectively vi net approximately 24 million 31 million 38 million fiscal 2003 fiscal 2002 fiscal 2001 respectively may 2003 company issued 4200 million aggregate principal amount zyps net proceeds approximately 4128 million zyps unsecured senior obligations company ranking equally companys existing future unsecured senior indebtedness senior right payment companys existing future subordinated indebtedness zyps convertible contingent upon occurrence certain events shares companys common stock conversion price 1797 per share ability holders convert zyps common stock subject certain conditions including among others closing price common stock exceeding 120 conversion price certain periods specified events zyps mature may 15 2023 company right redeem zyps cash time may 15 2008 principal amount holders series put options pursuant may require company repurchase portion zyps may 15 2008 2013 2018 upon occurrence certain events zyps holders may require company repurchase zyps par event common stock ceases publicly traded certain instances upon change control company upon occurrence change control instead paying repurchase price cash company may certain circumstances pay repurchase price common stock fiscal 2002 2003 company acquired open market purchases approximately 2092 million 2661 million face amount debentures respectively approximately 1698 million 2533 million cash respectively resulting pretax gains net debt issuance costs approximately 394 million 102 million respectively included interest income expense net consolidated statements operations january 31 2004 company outstanding debentures approximately 1247 million february 2004 company acquired open market purchases approximately 305 million face amount debentures approximately 300 million cash resulting pretax gain net debt issuance costs approximately 02 million january 2002 verint took bank loan amount 420 million loan matured february 2003 bore interest libor plus 055 guaranteed cti february 2003 verint repaid bank loan may 2002 verint issued 4500000 shares common stock initial public offering proceeds offering based offering price 1600 per share totaled approximately 654 million net offering expenses company recorded gain approximately 481 million year ended january 31 2003 recorded increase stockholders equity result issuance june 2003 verint completed public offering 5750000 shares common stock price 2300 per share shares offered included 149731 shares issued smartsight networks incs smartsight former shareholders connection acquisition proceeds offering approximately 1222 million net offering expenses company recorded gain approximately 629 million recorded increase stockholders equity result issuance january 31 2004 companys ownership interest verint approximately 618 march 31 2004 verint acquired certain assets assumed certain liabilities relating ectel ltds ectel communication interception business approximately 35000000 cash acquisition expected provide verint additional communication interception capabilities mass collection analysis voice data communications technologies integrated verints existing product offerings addition ectels existing customers new customers new countries verint asia pacific latin america regions may 2003 verint acquired issued outstanding shares smartsight canadian corporation develops ipbased video edge devices software wireless video transmission purchase price consisted approximately 71 million cash 149731 shares verint common stock valued approximately 31 million 2046 per share february 2002 verint acquired digital video recording business lanex llc lanex business provides digital video recording solutions security surveillance applications primarily north american banks purchase price consisted approximately 95 million cash 22 million noninterest bearing note guaranteed cti convertible whole part shares verints common stock conversion price 1606 per share note matured converted shares verint common stock february 1 2004 june 2002 company acquired odigo inc odigo privatelyheld provider instant messaging presence management solutions service providers purchase price approximately 201 million cash prior acquisition company strategic partner odigo holding equity position previously acquired approximately 3 million ability companys israeli subsidiaries pay dividends governed israeli law provides cash dividends may paid israeli corporation retained earnings determined statutory purposes israeli currency event devaluation israeli currency dollar amount dollars available payment cash dividends prior years earnings decrease accordingly cash dividends paid israeli corporation united states resident corporate parents subject convention avoidance double taxation israel united states terms convention dividends subject taxation israel united states case israel dividends income derived respect period israeli company entitled reduced tax rate applicable approved enterprise generally subject withholding israeli income tax source rate 15 israeli company also subject additional israeli taxes respect dividends generally equal tax benefits previously granted respect underlying income virtue approved enterprise status companys liquidity capital resources anticipated materially affected restrictions pertaining ability foreign subsidiaries pay dividends withholding taxes associated dividend payments company regularly examines opportunities strategic acquisitions companies lines business anticipates may time issue additional debt andor equity securities either direct consideration acquisitions raise additional funds used whole part payment acquired securities assets issuance securities could expected dilutive impact companys shareholders assurance whether acquired business would contribute positive operating results commensurate associated investment company believes existing working capital together funds generated operations sufficient provide planned operations foreseeable future consolidated individual business segment basis certain trends uncertainties company derives majority revenue telecommunications industry experiencing challenging capital spending environment evidence capital spending environment improved spending companys customers remains uncertain companys operating results financial condition adversely affected declines technology purchases capital expenditures telecommunications service providers tsp companys operating results financial condition adversely affected event deterioration capital expenditures tsps resumes reasons risk factors outlined continues difficult company accurately forecast future revenues operating results companys business particularly dependent strength telecommunications industry telecommunications industry including company negatively affected among factors high costs large debt positions incurred tsps expand capacity enable provision future services corresponding risks associated development marketing adoption services discussed including cost acquisitions licenses provide broadband services reductions tsps actual projected revenues deterioration actual projected operating results accordingly tsps including companys customers significantly reduced actual planned expenditures expand replace equipment delayed reduced deployment services number tsps including certain customers company also indicated existence conditions excess capacity certain markets addition certain tsps delayed planned introduction new services broadband mobile telephone services would supported certain companys products certain companys customers also implemented changes procurement practices procedures including limitations purchases anticipation estimated future capacity requirements management use networks reduced companys sales also made difficult company project future sales continuation andor exacerbation negative trends adverse effect companys future results addition loss revenue weakness telecommunications industry affected continue affect companys business increasing risks credit business failures suppliers customers distributors customer requirements vendor financing longer payment terms delays defaults customer distributor payments price reductions instituted competitors retain acquire market share companys current plan operations predicated part recovery capital expenditures customers absence improvement company would experience deterioration operating results may determine modify plan future operations accordingly may include among things additional reductions workforce company intends continue make significant investments business examine opportunities growth acquisitions strategic investments activities may involve significant expenditures obligations cannot readily curtailed reduced anticipated demand associated products materialize delayed impact decisions future financial results cannot predicted assurance companys commitment growth may increase vulnerability downturns markets technology changes shifts competitive conditions company also may able identify future suitable merger acquisition candidates even company identify suitable candidates may able make transactions commercially acceptable terms company make acquisitions may able successfully incorporate personnel operations customers companies companys business addition company may fail achieve anticipated synergies combined businesses including marketing product integration distribution product development synergies integration process may strain companys existing financial managerial controls reporting systems procedures may result diversion management financial resources companys core business objectives addition acquisition merger may require company utilize cash reserves incur debt issue equity securities may result dilution existing stockholders company may negatively impacted assumption liabilities merged acquired company due rapidly changing market conditions company may find value acquired technologies related intangible assets goodwill recorded companys financial statements impaired resulting charges operations company may also fail retain acquired merged companies key employees customers may 2003 company issued 420000000 aggregate principal amount zero yield puttable securities zyps convertible shares companys common stock conversion price 1797 per share would result issuance aggregate approximately 234 million shares subject adjustment upon occurrence specified events ability holders convert zyps common stock subject certain conditions including among others closing price common stock exceeding 120 conversion price certain periods specified events zyps mature may 15 2023 company right redeem zyps cash time may 15 2008 principal amount holders series put options pursuant may require company repurchase portion zyps may 15 2008 2013 2018 upon occurrence certain events zyps holders may require company repurchase zyps par event common stock ceases publicly traded certain instances upon change control company may enough cash ability access enough cash pay zyps threshold conversion zyps achieved result dilution companys earnings per share zyps converted companys shares result dilution existing stockholders company made future may continue make strategic investments companies investments made future investments likely made immature businesses unproven track records technologies investments high degree risk possibility company may lose total amount investments company may able identify suitable investment candidates even company may able make investments acceptable terms addition even company makes investments may gain strategic benefits investments companys products involve sophisticated hardware software technology performs critical functions highly demanding standards assurance companys current future products develop operational problems could material adverse effect company offers complex products may contain undetected defects errors particularly first introduced new versions released company may discover defects errors product released used customer significant costs may incurred correct undetected defects errors companys products defects errors could result future lost sales addition defects errors companys products may result product liability claims could cause adverse publicity impair market acceptance telecommunications industry subject rapid technological change introduction new technologies telecommunications market including delay adoption new technologies new alternatives delivery services expected continue profound effect competitive conditions market success market participants including company addition companys products call answering experienced declines usage resulting among factors introduction new technologies adoption increased use existing technologies may include enhanced areas coverage mobile telephones caller id type services companys continued success depend ability correctly anticipate technological trends industries react quickly effectively trends enhance existing products introduce new products timely costeffective basis result life cycle companys products difficult estimate companys new product offerings may enter market timely manner acceptance new product offerings may properly integrate existing platforms failure offerings accepted market could material adverse effect companys business results operations financial condition companys sales operating results may adversely affected event customers delay purchases existing products await companys new product offerings changing industry market conditions may dictate strategic decisions restructure business units discontinue others discontinuing business unit product line may result company recording accrued liabilities special charges costs associated reduction workforce strategic decisions could result changes determinations regarding products useful life recoverability carrying basis certain assets company made continues make significant investments areas sales marketing research development companys research development activities may delayed behind schedule include ongoing significant investment development additional features functionality existing new product offerings success initiatives dependent upon among things emergence market types products acceptance existing new customers companys business may adversely affected failure correctly anticipate emergence market demand certain products services changes evolution market opportunities sufficient market emerge new enhanced product offerings developed company late introducing new product offerings company successful marketing products companys continued growth could adversely affected investment products may lost company relies limited number suppliers manufacturers specific components may able find alternate manufacturers meet requirements existing alternative sources may available favorable terms conditions thus shortage supply components company may experience interruption product supply addition loss third party software licensing could materially adversely affect companys business financial condition results operations telecommunications industry continues undergo significant change result deregulation privatization worldwide reducing restrictions competition industry unforeseen changes regulatory environment also may impact companys revenues andor costs given part world worldwide ess system industry already highly competitive company expects competition intensify company believes existing competitors continue present substantial competition companies many considerably greater financial marketing sales resources company may enter ess system markets moreover company enters new markets result research development efforts acquisitions likely encounter new competitors market companys security business intelligence products past affected weakness general economic conditions delays reductions customers information technology spending uncertainties relating government expenditure programs companys business generated government contracts may adversely affected companys reputation relationship government agencies impaired ii company suspended otherwise prohibited contracting domestic foreign government significant law enforcement agency iii levels government expenditures authorizations law enforcement security related programs decrease remain constant shift programs areas company provide products services iv company prevented entering new government contracts extending existing government contracts based violations suspected violations laws regulations including related procurement v company granted security clearances required sell products domestic foreign governments security clearances revoked vi change government procurement procedures competitive conditions sector also affected increasing use certain potential customers internal development resources rather outside vendors provide certain technical solutions addition number established government contractors particularly developers integrators technology products taken steps redirect marketing strategies product plans reaction cutbacks traditional areas focus resulting increase number competitors range products offered response particular requests proposals subsidiary company verint technology inc verint technology sells supports communications interception solutions various us government agencies required national industrial security program maintain facility security clearances insulated foreign ownership control influence company verint technology department defense entered proxy agreement verint among requirements appointed three us citizens holding requisite security clearances exercise prerogatives ownership verint technology including without limitation oversight verint technologys security arrangements holders proxies vote verint technology stock proxy agreement may terminated verint technologys facility security clearances may revoked event breach proxy agreement determined department defense termination national interest verint technologys facility security clearance revoked sales us government agencies adversely affected may adversely affect sales international government agencies addition concerns security verint personnel products may material adverse affect verints business financial condition results operations including negative impact sales us international government agencies company historically derived significant portion sales operating profit contracts large system installations major customers company continues emphasize large capacity systems product development marketing strategies contracts large installations typically involve lengthy complex bidding selection process ability company obtain particular contracts inherently difficult predict timing scope opportunities pricing margins associated eventual contract award difficult forecast may vary substantially transaction companys future operating results may accordingly exhibit higher degree volatility operating results companies industries adopted different strategies also may volatile company experienced prior periods degree dependence company large system orders investment required enable company perform orders without assurance continuing order flow customers predictability gross margins future orders increase risk associated business significant proportion companys sales large system installations occur late stages quarter delay cancellation factor resulting postponement cancellation sales may cause company miss financial projections may discernible end financial reporting period companys gross margins also may adversely affected increases material labor costs obsolescence charges price competition changes channels distribution mix products sold period evaluation purchase system customers may defer scale proposed orders companys products among reasons changes budgets purchasing priorities ii reduced need upgrade existing systems iii deferrals anticipation enhancements new products iv introduction products companys competitors v lower prices offered companys competitors geopolitical economic military conditions could directly affect companys operations outbreak severe acute respiratory syndrome sars curtailed travel certain countries primarily asiapacific region restrictions travel regions account additional incidents sars could material adverse effect companys business results operations financial condition continued threat terrorism heightened security military action response threat future acts terrorism may cause disruptions companys business extent disruptions result delays cancellations customer orders manufacture shipment companys products companys business operating results financial condition could materially adversely affected recently us military involvement overseas operations including example war iraq could material adverse effect companys business results operations financial condition since establishment state israel 1948 number armed conflicts taken place israel arab neighbors continued state hostility varying degree intensity led security economic problems israel since october 2000 significant increase violence primarily west bank gaza strip recently israel experienced terrorist incidents within borders period peace negotiations israel representatives palestinian authority sporadic currently suspended company could materially adversely affected hostilities involving israel interruption curtailment trade israel trading partners significant downturn economic financial condition israel addition sale products manufactured israel may materially adversely affected certain countries restrictive laws policies practices directed toward israel companies operations israel continuation exacerbation violence israel outbreak violent conflicts involving israel may impede companys ability sell products otherwise adversely affect company addition many companys israeli employees israel required perform annual compulsory military service israel subject called active duty time emergency circumstances absence employees may adverse effect upon companys operations companys costs operations times affected changes cost operations israel resulting changes value israeli shekel relative united states dollar certain periods negative impact difficulties attracting retaining qualified scientific engineering technical personnel israel availability personnel times severely limited changes cost factors time significant difficult predict could future material adverse effect companys results operations companys historical operating results reflect substantial benefits received programs sponsored israeli government support research development well tax moratoriums favorable tax rates associated investments approved projects approved enterprises israel programs tax benefits ceased others may continued future availability benefits company may affected number factors including budgetary constraints resulting adverse economic conditions government policies companys ability satisfy eligibility criteria israeli government reduced benefits available programs recent years israeli government authorities indicated government may reduce eliminate benefits future company regularly participated conditional grant program administered office chief scientist ministry industry trade state israel ocs received significant benefits reimbursement 50 qualified research development expenditures certain companys subsidiaries including comverse currently pay royalties 3 5 6 certain circumstances associated product revenues including service related revenues government israel repayment benefits received program royalty payments currently required made government reimbursed amounts received company linked us dollar plus amounts received projects approved ocs january 1 1999 interest amount rate equal 12month libor rate effect january 1 year approval obtained january 31 2004 subsidiaries company received approximately 538 million cumulative grants ocs recorded approximately 217 million cumulative royalties ocs year ended january 31 2003 comverse finalized arrangement ocs whereby comverse agreed pay lump sum royalty amount past amounts received ocs addition comverse began receive lower amounts ocs historically received pay royalty amounts grants amount reimbursement received company program reduced significantly company expect receive significant reimbursement program future addition permission government israel required company manufacture outside israel products resulting research development activities funded programs transfer outside israel related technology rights order obtain permission company may required increase royalties applicable funding agencies andor repay certain amounts received reimbursement research development costs continued reduction benefits received company program termination eligibility receive benefits future could adversely affect companys operating results companys overall effective tax rate benefits tax moratorium provided government israel approved enterprises undertaken country companys effective tax rate may increase future due among factors increased proportion taxable income associated activities higher tax jurisdictions relative ages companys eligible investments israel tax moratorium income companys approved enterprise investments made prior 1997 four years whereas subsequent approved enterprise projects eligible moratorium two years reduced tax rates apply case certain periods thereafter eligible tax benefits company must continue meet conditions including making specified investments fixed assets financing percentage investments share capital company fails meet conditions future tax benefits would canceled company could required refund tax benefits already received israeli authorities indicated additional limitations tax benefits associated approved enterprise projects may imposed certain categories taxpayers would include company changes law government policies regarding programs result termination adverse modification company become unable participate take advantage programs cost companys operations israel would increase could material adverse effect companys results operations financial condition companys success dependent recruiting retaining key management highly skilled technical managerial sales marketing personnel market highly skilled personnel remains competitive despite current economic conditions companys ability attract retain employees also may affected recent cost control actions including reductions companys workforce associated reorganization operations certain companys products often used customers compile analyze highly sensitive confidential information data company may come contact information data performs support maintenance functions customers internal policies procedures training employees connection performing functions even perception employees improperly handled sensitive confidential information data customer could harm reputation could inhibit market acceptance products occurrence perception security breaches within company could harm companys business financial condition operating results company implements sophisticated security measures third parties may attempt breach companys security computer viruses electronic breakins disruptions successful confidential information including passwords financial information personal information may improperly obtained company may subject lawsuits liability even company held liable security breach could harm companys reputation even perception security risks whether valid could inhibit market acceptance companys products company currently derives significant portion total sales customers outside united states international transactions involve particular risks including political decisions affecting tariffs trade conditions rapid unforeseen changes economic conditions individual countries turbulence foreign currency credit markets increased costs resulting lack proximity customer company required obtain export licenses authorizations applicable governmental authorities certain countries within conducts business failure receive required license authorization would hinder companys ability sell products could adversely affect companys business results operations financial condition addition legal uncertainties regarding liability compliance local laws regulations labor laws employee benefits currency restrictions difficulty accounts receivable collection longer collection periods requirements may negative impact companys operating results volatility international currency exchange rates may significant impact companys operating results company anticipates continue receive contracts denominated foreign currencies particularly euro result unpredictable timing purchase orders payments contracts factors often practicable company effectively hedge risk significant changes currency rates contract period company may experience risk associated failure hedge exchange rate risks associated contracts denominated foreign currencies operating results negatively impacted certain periods may continue affected material extent impact currency fluctuations operating results may also affected cost hedging activities company undertake company generally requires employees independent contractors consultants execute noncompetition confidentiality agreements companys intellectual property proprietary rights could infringed misappropriated could result expensive protracted litigation company relies combination patent copyright trade secret trademark law protect technology despite companys efforts protect intellectual property proprietary rights unauthorized parties may attempt copy otherwise obtain use products technology effectively policing unauthorized use companys products timeconsuming costly assurance steps taken company prevent misappropriation technology particularly foreign countries many instances local laws legal systems offer level protection united states others claim companys products infringe intellectual property rights company may forced seek expensive licenses reengineer products engage expensive timeconsuming litigation stop marketing products company attempts avoid infringing known proprietary rights third parties product development efforts company regularly conduct comprehensive patent searches determine whether technology used products infringes patents held third parties however many issued patents well patent applications fields company engaged patent applications united states publicly disclosed patent issued applications may filed relate companys software products company discover products violated potentially violated thirdparty proprietary rights might able obtain licenses continue offering products without substantial reengineering effort may successful company certain licenses would available commercially reasonable terms substantial litigation regarding intellectual property rights exists technology related industries company expects products may increasingly subject thirdparty infringement claims number competitors industry segments grows functionality software products different industry segments overlaps addition company agreed indemnify certain customers certain situations determined products infringe proprietary rights third parties thirdparty infringement claims could time consuming defend result costly litigation divert managements attention resources cause product service delays require company enter royalty licensing agreements royalty licensing arrangements required may available terms acceptable company successful claim infringement company failure inability license infringed similar technology could material adverse effect business financial condition results operations company holds large proportion net assets cash equivalents shortterm investments including variety public private debt equity instruments made significant venture capital investments directly private investment funds investments subject company risks inherent capital markets generally performance businesses direct control given relatively high proportion companys liquid assets relative overall size results operations materially affected results companys capital management investment activities risks associated activities declines public equity markets caused may expected continue cause company experience realized unrealized investment losses addition reduction prevailing interest rates due economic conditions government policies may continue adverse impact companys results operations severe decline public trading prices equity securities particularly technology telecommunications sectors corresponding decline values privatelyheld companies venture capital funds company invested may continue adverse impact companys financial results company past benefited longterm rise public trading price shares various ways including ability use equity incentive arrangements means attracting retaining highly qualified employees necessary growth business ability raise capital relatively attractive conditions decline price companys shares overall decline equity prices generally shares technology companies particular expected make difficult company significantly rely equity incentive arrangements means recruit retain talented employees companys operating results fluctuated past may future trading price companys shares affected factors disclosed herein well prevailing economic financial trends conditions public securities markets share prices companies technologyrelated industries company tend exhibit high degree volatility times unrelated operating performance company announcement financial results fall short results anticipated public markets could immediate significant negative effect trading price companys shares given period shortfalls may result events beyond companys immediate control unpredictable since significant proportion companys sales fiscal quarter tend occur latter stages quarter may discernible end financial reporting period factors may contribute volatility trading value shares regardless companys longterm prospects trading price companys shares may also affected developments including reported financial results fluctuations trading prices shares publiclyheld companies telecommunications equipment industry general companys business segments particular may direct relationship companys business prospects companys board directors ability designate issue 2500000 shares preferred stock issue additional shares common stock could adversely affect voting power holders common stock could effect making difficult person acquire could discourage person seeking acquire control company occurs investors could lose opportunity receive premium sale shares change control transaction offbalance sheet arrangements aggregate contractual obligations part ongoing business participate transactions generate relationships unconsolidated entities financial partnerships entities often referred structured finance special purpose entities spes would established purpose facilitating offbalance sheet arrangements contractually narrow limited purposes january 31 2004 involved unconsolidated spe transactions company obtained bank guaranties primarily performance certain obligations contracts customers well guarantee certain payment obligations guaranties aggregated approximately 396 million january 31 2004 generally released companys performance specified contract milestones scheduled completed primarily 2004 company exposed market risk changes foreign currency exchange rates may time use foreign currency exchange contracts derivative instruments reduce exposure risk eventual net cash inflows outflows resulting sale products foreign currency primarily euro adversely affected changes exchange rates objective contracts neutralize impact foreign currency exchange rate movements companys operating results instruments designated hedges change fair value included income currently january 31 2004 company approximately 317 million notional amount foreign exchange forward contracts sell euros original maturity three months fair value contracts january 31 2004 approximately 02 million included interest income expense net consolidated statements operations impact aggregate contractual obligations january 31 2004 expected liquidity cash flow future periods follows 1 includes 5 years 4200 million aggregate principal amount companys zyps mature may 15 2023 zyps convertible contingent upon occurrence certain events shares companys common stock conversion price 1797 per share ability holders convert zyps common stock subject certain conditions including among others closing price common stock exceeding 120 conversion price certain periods specified events company right redeem zyps cash time may 15 2008 principal amount holders series put options pursuant may require company repurchase portion zyps may 15 2008 2013 2018 upon occurrence certain events zyps holders may require company repurchase zyps par event common stock ceases publicly traded certain instances upon change control company upon occurrence change control instead paying repurchase price cash company may certain circumstances pay repurchase price common stock 2 purchase obligations include agreements purchase goods services enforceable legally binding company specify significant terms including fixed minimum quantities purchased fixed minimum variable price provisions approximate timing transaction purchase obligations exclude agreements cancelable without penalty 1997 subsidiary cti quantum industrial holdings ltd organized two new companies make investments including investments high technology ventures participant committed total 375 million capital new companies use suitable investment opportunities identified quantum industrial holdings ltd member quantum group funds managed soros fund management llc affiliated management companies january 31 2004 company invested approximately 264 million related ventures addition company committed approximately 174 million various funds ventures companies may called option investee company licenses certain technology knowhow related rights use manufacture marketing products pays royalties third parties typically ranging 6 net sales related products licenses agreements entered connection research development financing including projects partially funded office chief scientist ministry industry trade state israel ocs funding organization reimburses portion companys research development expenditures approved project budgets certain companys subsidiaries accrue royalties ocs sale products incorporating technology developed projects varying amounts based upon revenues attributed various components products royalties due ocs respect research development projects required paid ocs received total royalties amounts received company approved project budgets plus interest certain circumstances january 31 2004 subsidiaries received approximately 538 million cumulative grants ocs recorded approximately 217 million cumulative royalties ocs effect new accounting pronouncements august 2001 financial accounting standards board fasb issued statement financial accounting standards sfas 143 accounting asset retirement obligations sfas 143 establishes accounting standards recognition measurement liability asset retirement obligation associated asset retirement cost sfas 143 applies legal obligations associated retirement tangible longlived asset result acquisition construction development andor normal operation longlived asset statement effective fiscal years beginning june 15 2002 adoption sfas 143 material effect companys consolidated financial statements april 2003 fasb issued sfas 149 amendment statement 133 derivative instruments hedging activities sfas 149 amends clarifies accounting derivative instruments including certain derivative instruments embedded contracts hedging activities sfas 133 accounting derivative instruments hedging activities sfas 149 generally effective derivative instruments including derivative instruments embedded certain contracts entered modified june 30 2003 hedging relationships designated june 30 2003 adoption sfas 149 material effect companys consolidated financial statements may 2003 fasb issued sfas 150 accounting certain financial instruments characteristics liabilities equity sfas 150 establishes standards classification measurement certain financial instruments characteristics liabilities equity sfas 150 effective financial instruments entered modified may 31 2003 adoption sfas 150 material effect companys consolidated financial statements forwardlooking statements time company makes forwardlooking statements forwardlooking statements include financial projections statements plans objectives future operations statements future economic performance statements assumptions relating thereto forwardlooking statements often identified future conditional words plans expects intends believes seeks estimates anticipates variations words similar expressions company may include forwardlooking statements periodic reports securities exchange commission forms 10k 10q 8k annual report shareholders proxy statements press releases written materials statements made employees analysts investors representatives media others nature forwardlooking statements subject uncertainties general specific risks exist predictions forecasts projections forwardlooking statements achieved actual results may differ materially due variety factors including without limitation discussed certain trends uncertainties elsewhere report investors others carefully consider uncertainties events whether statements described forwardlooking statements made company intended apply time made unless explicitly stated contrary moreover whether stated connection forwardlooking statement company undertakes obligation correct update forwardlooking statement company later become aware likely achieved company particular instance update correct forwardlooking statement investors others conclude company make additional updates corrections thereafter item 7aitem 7 managements discussion analysis financial condition results operations critical accounting policies critical accounting policies important portrayal companys financial position results operations require managements difficult subjective complex judgments although companys critical accounting policies require management make difficult subjective complex judgments estimates following policies estimates company deems critical preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates company recognizes revenues accordance provisions statement position 972 software revenue recognition related interpretations companys systems generally bundled hardware software solution shipped together revenue generally recognized time shipment sales systems require significant customization performed company following criteria met 1 persuasive evidence arrangement exists 2 delivery occurred acceptance determinable 3 fee fixed determinable 4 collectibility probable amounts received customers pursuant terms specified contracts revenue yet recognized recorded advance payments customers postcontract customer support pcs services sold separately part multiple element arrangement case related pcs element determined based upon vendorspecific objective evidence fair value portion total fee allocated pcs services generally recognized revenue ratably term pcs arrangement revenues certain development contracts recognized percentageofcompletion method basis physical completion date using actual costs incurred total expected costs contract revisions estimates costs profits reflected accounting period facts require revision become known time loss contract known entire amount estimated loss accrued amounts received customers excess revenues earned percentageofcompletion method recorded advance payments customers cost sales include material costs subcontractor costs personnelrelated costs operations service departments depreciation amortization equipment used operations service departments amortization capitalized software development costs royalties license fee costs travel costs overhead allocation research development costs include subcontractor costs personnelrelated costs travel depreciation amortization research development equipment overhead allocation well costs associated research development activities selling general administrative costs include personnelrelated costs sales commissions bad debt expense travel depreciation amortization marketing promotional materials professional fees insurance costs facility costs well costs associated sales marketing finance administrative departments accounts receivable generally diversified due large number commercial government entities comprising companys customer base dispersion across many geographical regions january 31 2005 single customer balance comprised 10 overall accounts receivable balance company required estimate collectibility accounts receivable accounting period record reserve bad debts considerable amount judgment required assessing realization receivables including current creditworthiness customer current historical collection history related aging past due balances company evaluates specific accounts becomes aware information indicating customer may able meet financial obligations due deterioration financial condition lower credit ratings bankruptcy factors affecting ability render payment reserve requirements based facts available reevaluated adjusted additional information received companys policy account recoveries previously reserved doubtful accounts upon receipt cash evidence recoverability items specifically reserved prior receipt cash year ended january 31 2005 company recorded expenses approximately 71 million increased allowance doubtful accounts company recorded recoveries approximately 194 million year ended january 31 2005 reduced allowance doubtful accounts recoveries recorded period cash received customers items previously reserved doubtful collection software development costs capitalized upon establishment technological feasibility amortized estimated useful life software date four years less amortization begins period related product available general release customers year ended january 31 2005 company capitalized approximately 42 million software development costs amortized approximately 143 million costs addition year ended january 31 2005 company recorded writedowns approximately 50 million capitalized software development costs estimated net realizable value primarily result companys transition newer product line well duplicative technology arose result verints acquisitions period results operations historical results consolidated results operations dollars percentage sales three years period ended january 31 2005 follows detailed description companys business segments well additional financial data found note 19 notes consolidated financial statements following summary sales income loss operations segment dollars percentage sales segment total three years period ended january 31 2005 introduction explained greater detail certain trends uncertainties companys two business units serving telecommunications markets operating within industry experiencing challenging capital spending environment although evidence recent improvement business units achieved year revenue operating income net income growth year ended january 31 2005 verint services security business intelligence markets achieved record revenue operating income net income year ended january 31 2005 based part increased sales due heightened awareness surrounding homeland defense security related initiatives united states abroad well increased business intelligence sales overall year ended january 31 2005 company experienced year sales growth approximately 253 substantial majority sales generated activities serving telecommunications industry company generated operating net income year ended january 31 2005 year ended january 31 2005 company recorded recoveries approximately 194 million reduced allowance doubtful accounts increased companys operating net income recoveries recorded result cash collected approximately 20 customers items previously reserved doubtful collection period telecommunications industry experienced severe capital spending recession recoveries company attributes factors including improved environment telecommunications industry whole companys wireless carrier customers particular recorded period cash received addition company recorded expenses approximately 71 million year ended january 31 2005 increased allowance doubtful accounts thereby reducing companys operating net income year ended january 31 2005 company recorded writedowns approximately 41 million fixed assets estimated net realizable value primarily result obsolescence fixed assets writedowns reduced property equipment net decreased operating net income addition year ended january 31 2005 company recorded writedowns approximately 50 million capitalized software development costs estimated net realizable value primarily result companys transition newer product line well duplicative technology arose result verints acquisitions period writedowns reduced assets decreased operating net income addition year ended january 31 2005 company incurred approximately 09 million transaction costs result companys offer exchange zero yield puttable securities zyps existing zyps new zyps new zyps costs included interest income net consolidated statements operations also year ended january 31 2005 company incurred charge approximately 31 million purchased inprocess research development result verints purchase ectels government surveillance business year ended january 31 2005 compared year ended january 31 2004 sales fiscal year ended january 31 2005 fiscal 2004 increased approximately 1936 million 25 compared fiscal year ended january 31 2004 fiscal 2003 increase attributable increase sales companys three primary business units cns sales increased approximately 1131 million due primarily increased business europe americas security business intelligence recording sales increased approximately 571 million service enabling signaling software sales increased approximately 251 million consolidated basis service revenues represented approximately 27 30 sales fiscal 2004 fiscal 2003 respectively sales international customers represented approximately 69 66 sales fiscal 2004 fiscal 2003 respectively cost sales cost sales fiscal 2004 increased approximately 532 million 16 compared fiscal 2003 increase cost sales primarily attributable increased materials overhead costs net overhead absorption approximately 359 million due primarily increased sales increased personnelrelated costs approximately 180 million writedowns approximately 36 million capitalized software development costs estimated net realizable value primarily result companys transition newer product line increases partially offset increased recoveries doubtful debts increased approximately 15 million fiscal 2003 approximately 58 million fiscal 2004 increase approximately 43 million gross margins increased approximately 603 fiscal 2004 approximately 572 fiscal 2003 research development net research development expenses fiscal 2004 increased approximately 202 million 9 compared fiscal 2003 however net research development expenses percentage sales decreased approximately 247 fiscal 2004 approximately 283 fiscal 2003 increase dollar amount net research development expenses primarily attributable increased subcontractor costs approximately 120 million increased personnelrelated costs approximately 87 million partially offset net decrease various costs approximately 05 million selling general administrative selling general administrative expenses fiscal 2004 increased approximately 361 million 14 compared fiscal 2003 however selling general administrative expenses percentage sales decreased approximately 303 fiscal 2004 approximately 332 fiscal 2003 increase dollar amount selling general administrative expenses primarily attributable increased personnelrelated costs employee agent sales commissions professional fees travel costs approximately 207 million 144 million 40 million 32 million respectively net increase various costs approximately 21 million increases partially offset decreased bad debt expense approximately 54 million increased recoveries doubtful debts increased approximately 107 million fiscal 2003 approximately 136 million fiscal 2004 increase approximately 29 million inprocess research development acquisitionrelated charges fiscal 2004 company incurred approximately 46 million inprocess research development acquisitionrelated charges resulting verints purchase ectels government surveillance business follows approximately 31 million purchased inprocess research development charged expense acquisition ii approximately 15 million writedown certain capitalized software development costs net realizable value date acquisition due impairment caused existence duplicative technology workforce reduction restructuring impairment charges credits year ended january 31 2002 company committed began implementing restructuring program better align cost structure business environment improve efficiency operations via reductions workforce restructuring operations writeoff impaired assets connection restructuring company changed organizational structure product offerings resulting impairment certain assets connection actions fiscal 2003 fiscal 2004 company incurred net charges credits operations approximately 21 million 01 million respectively fiscal 2003 net credit approximately 21 million comprised charge approximately 45 million severance related costs credit approximately 80 million reversal previously taken charge elimination excess facilities related leasehold improvements primarily result sublet portion excess facilities charge approximately 14 million writeoff certain property equipment fiscal 2004 net charge approximately 01 million comprised charge approximately 06 million severance related costs credit approximately 07 million reversal previously taken charge elimination excess facilities related leasehold improvements primarily result sublet portion excess facilities charge approximately 02 million writeoff certain property equipment company expects pay approximately 01 million severance related obligations july 31 2005 approximately 215 million facilities related obligations various dates january 2011 income loss operations income loss operations fiscal 2004 increased approximately 773 million compared fiscal 2003 percentage sales approximately 49 fiscal 2004 compared approximately 40 fiscal 2003 changes resulted primarily factors described business segment basis income loss operations cns fiscal 2004 increased approximately 615 million compared fiscal 2003 percentage sales approximately 32 fiscal 2004 compared approximately 77 fiscal 2003 income operations verint fiscal 2004 increased approximately 02 million compared fiscal 2003 percentage sales decreased approximately 70 fiscal 2004 approximately 89 fiscal 2003 income operations ulticom fiscal 2004 increased approximately 177 million compared fiscal 2003 percentage sales increased approximately 324 fiscal 2004 approximately 74 fiscal 2003 interest income net interest income net fiscal 2004 decreased approximately 27 million compared fiscal 2003 principal reasons decrease gain recorded result companys repurchases 150 convertible senior debentures due december 2005 debentures approximately 99 million ii decrease foreign currency gains approximately 22 million iii approximately 09 million transaction costs incurred fiscal 2004 result companys offer exchange existing zyps new zyps vi decreases approximately 11 million net items offset increased interest dividend income approximately 65 million due primarily rise interest rates ii decreased interest expense approximately 30 million due primarily companys repurchases debentures debt reduction iii change net gainslosses sale writedown investments approximately 19 million income tax provision income taxes fiscal 2004 increased approximately 50 million 61 compared fiscal 2003 due primarily increased pretax income accompanied shifts underlying mix pretax income entity tax jurisdiction companys effective tax rate approximately 16 fiscal 2004 compared approximately 96 fiscal 2003 companys overall rate tax reduced significantly existence net operating loss carryforwards federal income tax purposes united states well tax benefits associated qualified activities certain israeli subsidiaries entitled favorable income tax rates program israeli government approved enterprise investments country minority interest equity earnings losses affiliates minority interest equity earnings losses affiliates increased approximately 69 million result increased minority interest expense approximately 56 million primarily attributable overall increased earnings majorityowned subsidiaries change equity earnings losses affiliates approximately 13 million net income loss net income loss increased approximately 627 million fiscal 2004 compared fiscal 2003 percentage sales approximately 60 fiscal 2004 compared approximately 07 fiscal 2003 changes resulted primarily factors described year ended january 31 2004 compared year ended january 31 2003 sales fiscal 2003 increased approximately 300 million 4 compared fiscal year ended january 31 2003 fiscal 2002 increase primarily attributable increase security business intelligence recording sales approximately 350 million primarily result increased security surveillance sales increased service enabling signaling software sales approximately 91 million increases partially offset decrease cns sales approximately 134 million decrease cns sales due primarily decreased business asia pacific americas partially offset increased business europe consolidated basis service revenues represented approximately 30 26 sales fiscal 2003 fiscal 2002 respectively sales international customers represented approximately 66 65 sales fiscal 2003 fiscal 2002 respectively cost sales cost sales fiscal 2003 decreased approximately 106 million 3 compared fiscal 2002 decrease cost sales primarily attributable decreased personnelrelated travel costs approximately 181 million 49 million respectively primarily result workforce reduction cost reduction efforts net decrease various costs approximately 01 million partially offset increased royalty expense approximately 125 million primarily result prior period credit realized upon settlement ocs gross margins increased approximately 572 fiscal 2003 approximately 541 fiscal 2002 research development net research development expenses fiscal 2003 decreased approximately 161 million 7 compared fiscal 2002 decrease primarily attributable decreased personnelrelated costs approximately 172 million primarily result workforce reduction cost reduction efforts reduction research development projects selling general administrative selling general administrative expenses fiscal 2003 decreased approximately 268 million 10 compared fiscal 2002 percentage sales decreased approximately 332 fiscal 2003 approximately 382 fiscal 2002 decrease dollar amount selling general administrative expenses primarily attributable lower bad debt expense approximately 422 million partially offset increased personnelrelated costs approximately 136 million due primarily overall increase sales marketing staff increased headcount verint increased sales commissions net increase various costs approximately 18 million workforce reduction restructuring impairment charges credits year ended january 31 2002 company committed began implementing restructuring program better align cost structure business environment improve efficiency operations via reductions workforce restructuring operations writeoff impaired assets connection restructuring company changed organizational structure product offerings resulting impairment certain assets connection actions fiscal 2002 fiscal 2003 company incurred charges credits operations approximately 667 million 21 million respectively fiscal 2002 charge approximately 667 million comprised approximately 268 million severance related costs approximately 194 million elimination excess facilities related leasehold improvements approximately 205 million writeoff certain property equipment including reduction value certain unimproved land israel company acquired view future construction facilities israeli operations fiscal 2003 net credit approximately 21 million comprised charge approximately 45 million severance related costs credit approximately 80 million reversal previously taken charge elimination excess facilities related leasehold improvements primarily result sublet portion excess facilities charge approximately 14 million writeoff certain property equipment company expects pay approximately 31 million severance related obligations year ended january 31 2005 approximately 264 million facilities related obligations various dates january 2011 loss operations loss operations fiscal 2003 decreased approximately 1524 million 83 compared fiscal 2002 percentage sales approximately 40 fiscal 2003 compared approximately 248 fiscal 2002 changes resulted primarily factors described business segment basis loss operations cns fiscal 2003 decreased approximately 1386 million 77 compared fiscal 2002 percentage sales approximately 77 fiscal 2003 compared approximately 331 fiscal 2002 result decrease workforce reduction restructuring impairment charges credits approximately 662 million decrease costs expenses approximately 858 million primarily result workforce reduction cost reduction efforts partially offset decreased sales approximately 134 million income operations verint fiscal 2003 increased approximately 71 million 71 compared fiscal 2002 percentage sales increased approximately 89 fiscal 2003 approximately 64 fiscal 2002 income loss operations ulticom fiscal 2003 increased approximately 112 million compared fiscal 2002 percentage sales increased approximately 74 fiscal 2003 approximately 286 fiscal 2002 interest income expense net interest income expense net fiscal 2003 decreased approximately 199 million compared fiscal 2002 principal reasons decrease gain recorded result companys repurchases 150 convertible senior debentures due december 2005 debentures approximately 292 million ii decrease foreign currency gains approximately 228 million iii decreased interest dividend income approximately 127 million due primarily decline interest rates partially offset increase invested assets iv decrease approximately 02 million net items offset decrease net losses sale writedown investments approximately 404 million ii decreased interest expense approximately 46 million due primarily companys repurchases debentures debt reduction income tax provision income taxes increased fiscal 2002 fiscal 2003 approximately 49 million 149 due primarily shifts underlying mix pretax income entity tax jurisdiction companys overall rate tax reduced significantly existence net operating loss carryforwards federal income tax purposes united states well tax benefits associated qualified activities certain israeli subsidiaries entitled favorable income tax rates program israeli government approved enterprise investments country minority interest equity earnings losses affiliates minority interest equity earnings losses affiliates increased approximately 34 million result increased minority interest expense approximately 57 million primarily attributable overall increased earnings majorityowned subsidiaries partially offset change equity earnings losses affiliates approximately 23 million net loss net loss decreased approximately 1241 million fiscal 2003 compared fiscal 2002 percentage sales approximately 07 fiscal 2003 compared approximately 176 fiscal 2002 changes resulted primarily factors described liquidity capital resources companys working capital january 31 2005 2004 approximately 21398 million 21413 million respectively january 31 2005 2004 company total cash equivalents bank time deposits shortterm investments approximately 22496 million 21985 million respectively operations fiscal 2004 fiscal 2003 fiscal 2002 adjustment noncash items provided used cash approximately 1506 million 803 million 341 million respectively years changes operating assets liabilities provided used cash approximately 336 million 483 million 1309 million respectively resulted net cash provided operating activities approximately 1170 million 1286 million 968 million fiscal 2004 fiscal 2003 fiscal 2002 respectively investing activities fiscal 2004 fiscal 2003 fiscal 2002 used cash approximately 579 million 5008 million 4366 million respectively amounts include net maturities sales purchases bank time deposits investments approximately 381 million 4518 million 3580 million respectively ii purchases property equipment approximately 462 million 354 million 341 million respectively iii capitalization software development costs approximately 42 million 78 million 134 million respectively iv net assets acquired result acquisitions approximately 456 million 59 million 311 million fiscal 2004 fiscal 2003 fiscal 2002 respectively financing activities fiscal 2004 fiscal 2003 fiscal 2002 provided used cash approximately 391 million 3102 million 918 million respectively amounts include net proceeds issuance companys existing zyps approximately 4128 million fiscal 2003 ii partial repurchase companys debentures approximately 369 million 2533 million 1698 million respectively iii proceeds issuance common stock connection exercise stock options employee stock purchase plan approximately 455 million 613 million 124 million respectively iv net proceeds issuance common stock subsidiaries connection stock sales exercise stock options employee stock purchase plans approximately 322 million 1290 million 687 million respectively v repayment bank loan 420 million fiscal 2003 vi net approximately 17 million 24 million 31 million fiscal 2004 fiscal 2003 fiscal 2002 respectively may 2003 company issued 420000000 aggregate principal amount existing zyps net proceeds approximately 4128 million january 26 2005 company completed offer holders outstanding existing zyps exchange existing zyps new zyps 420000000 worth existing zyps outstanding prior exchange offer approximately 417700000 aggregate principal amount representing approximately 995 original issue existing zyps validly tendered exchange equal principal amount new zyps connection offer company incurred transaction costs consisting primarily professional fees amounting approximately 903000 included interest income net consolidated statements operations existing zyps new zyps conversion price 1797 per share ability holders convert either existing zyps new zyps common stock subject certain conditions including fiscal quarter closing price per share period least twenty days thirty consecutive tradingday period ending last trading day preceding fiscal quarter 120 conversion price per share effect thirtieth day ii may 15 2018 five businessday period following ten consecutive tradingday period daily average trading price existing zyps new zyps ten tradingday period less 105 average conversion value existing zyps new zyps period iii period following date credit rating assigned existing zyps new zyps standard poors rating services lower b upon withdrawal suspension existing zyps new zyps rating companys request iv company calls existing zyps new zyps redemption v upon specified corporate transactions existing zyps new zyps mature may 15 2023 addition company right redeem existing zyps cash time may 15 2008 principal amount holders series put options pursuant may require company repurchase par portion existing zyps may 15 2008 2013 2018 upon occurrence certain events existing zyps holders may require company repurchase existing zyps par event common stock ceases publicly traded certain instances upon change control company new zyps substantially similar terms existing zyps except new zyps net share settlement feature ii allow company redeem new zyps time may 15 2009 rather may 15 2008 provided existing zyps iii allow holders new zyps require company repurchase new zyps cash may 15 2008 2009 2013 2018 net share settlement feature new zyps provides upon conversion company would pay holder cash equal lesser conversion value principal amount new zyps converted currently 417700000 would issue holder remainder conversion value excess principal amount shares companys common stock new conversion method offer followed september 30 2004 conclusion emerging issues task force eitf financial accounting standards board fasb eitf issue 048 effect contingently convertible debt diluted earnings per share eitf 048 requiring contingently convertible debt included diluted earnings per share computations dilutive notes converted common shares time issuance converted method regardless whether market price triggers contingent features met eitf 048 effective reporting periods ending december 15 2004 recent accounting changes would required company include shares common stock underlying existing zyps diluted earnings per share computations pursuant exchange offer company offered existing zyps holders new zyps convertible new conversion method eitf 048 company required include shares issuable upon conversion new zyps issued exchange offer diluted shares outstanding unless market price companys common stock exceeds conversion price would include number shares would issuable based upon inthemoney value conversion rights new zyps therefore new zyps dilutive calculating diluted earnings per share companys common stock trading 1797 extent number shares company would required issue satisfy conversion right new zyps 417700000 year ended january 31 2005 resulted approximately 1610000 additional share dilution calculating diluted earnings per share existing zyps immediately dilutive calculating diluted earnings per share extent full number shares underlying existing zyps january 31 2005 128516 shares deemed outstanding purpose calculating diluted earnings per share whether existing zyps may converted pursuant terms therefore decreases companys diluted earnings per share adoption eitf 048 effect reported diluted earnings loss per share periods presented fourth quarter fiscal 2004 closing price per share least 20 trading days 30 consecutive tradingday period ending january 31 2005 120 conversion price per share existing zyps new zyps conversion privilege existing zyps new zyps triggered existing zyps new zyps convertible cash andor companys common stock option holders first fiscal quarter 2005 fiscal 2004 2003 2002 company acquired open market purchases approximately 375 million 2661 million 2092 million face amount debentures respectively approximately 369 million 2533 million 1698 million cash respectively resulting pretax gains net debt issuance costs approximately 03 million 102 million 394 million respectively included interest income net consolidated statements operations january 31 2005 company outstanding debentures approximately 873 million included current liabilities section consolidated balance sheets january 2002 verint took bank loan amount 420 million loan matured february 2003 bore interest libor plus 055 guaranteed cti february 2003 verint repaid bank loan may 2002 verint issued 4500000 shares common stock initial public offering proceeds offering based offering price 1600 per share totaled approximately 654 million net offering expenses company recorded gain approximately 481 million year ended january 31 2003 recorded increase stockholders equity result issuance june 2003 verint completed public offering 5750000 shares common stock price 2300 per share shares offered included 149731 shares issued smartsight networks incs smartsight former shareholders connection acquisition proceeds offering approximately 1222 million net offering expenses company recorded gain approximately 629 million recorded increase stockholders equity result issuance january 31 2005 companys ownership interest verint approximately 589 february 2004 starhome bv starhome subsidiary cti received equity financing unaffiliated investor group approximately 145 million net expenses company recorded gain approximately 118 million recorded increase stockholders equity result issuance upon completion transaction companys ownership interest starhome approximately 695 interest unchanged january 31 2005 addition year ended january 31 2005 starhome received commitment additional 50 million equity financing unaffiliated investor group funds currently held escrow september 2004 verint subsidiary acquired outstanding stock rp sicherheitssysteme gmbh rp security company business developing selling mobile digital video security solutions transportation applications purchase price consisted approximately 90 million cash 90144 shares verints common stock addition shareholders rp security entitled receive earnout payments three years based verints worldwide sales profitability backlog mobile video products transportation market period shares issued part purchase price accounted value approximately 30 million 3303 per share connection acquisition verint incurred transaction costs consisting primarily professional fees amounting approximately 05 million march 2004 verint acquired certain assets assumed certain liabilities government surveillance business ectel ltd ectel provided verint additional communications interception capabilities mass collection analysis voice data communications purchase price approximately 350 million cash verint incurred transaction costs consisting primarily professional fees amounting approximately 11 million connection acquisition may 2003 verint acquired issued outstanding shares smartsight canadian corporation develops ipbased video edge devices software wireless video transmission purchase price consisted approximately 71 million cash 149731 shares verint common stock valued approximately 31 million 2046 per share february 2002 verint acquired digital video recording business lanex llc lanex business provides digital video recording solutions security surveillance applications primarily north american banks purchase price consisted approximately 95 million cash 22 million noninterest bearing note guaranteed cti convertible whole part shares verints common stock conversion price 1606 per share note matured converted shares verint common stock february 1 2004 june 2002 company acquired odigo inc odigo privatelyheld provider instant messaging presence management solutions service providers purchase price approximately 201 million cash prior acquisition company strategic partner odigo holding equity position previously acquired approximately 3 million ability ctis israeli subsidiaries pay dividends governed israeli law provides dividends may paid israeli corporation earnings defined accordance israeli companies law 1999 provided reasonable concern payment cause subsidiary fail meet current expected liabilities come due event devaluation israeli currency dollar amount dollars available payment cash dividends prior years earnings decrease accordingly cash dividends paid israeli corporation united states resident corporate parents subject convention avoidance double taxation israel united states terms convention dividends subject taxation israel united states case israel dividends income derived respect period israeli company entitled reduced tax rate applicable approved enterprise generally subject withholding israeli income tax source rate 15 israeli company also subject additional israeli taxes respect dividends generally equal tax benefits previously granted respect underlying income virtue approved enterprise status companys liquidity capital resources currently anticipated materially affected restrictions pertaining ability foreign subsidiaries pay dividends withholding taxes associated dividend payments company regularly examines opportunities strategic acquisitions companies lines business anticipates may time issue additional debt andor equity securities either direct consideration acquisitions raise additional funds used whole part payment acquired securities assets issuance securities could expected dilutive impact companys shareholders assurance whether acquired business would contribute positive operating results commensurate associated investment company believes existing working capital together funds generated operations sufficient provide planned operations foreseeable future consolidated individual business segment basis certain trends uncertainties company derives majority revenue telecommunications industry experienced challenging capital spending environment although capital spending environment improved recently companys revenues increased recent quarters company experienced significant revenue declines historical peak revenue levels capital spending technology purchasing telecommunications service providers tsp continue improve declines revenue may stagnate decrease companys operating results may adversely affected although company currently good near term visibility reasons risk factors outlined continues difficult company accurately forecast future revenues operating results companys business particularly dependent strength telecommunications industry telecommunications industry including company negatively affected among factors high costs large debt positions incurred tsps expand capacity enable provision future services corresponding risks associated development marketing adoption services discussed including cost acquisitions licenses provide broadband services reductions tsps actual projected revenues deterioration actual projected operating results accordingly tsps including companys customers significantly reduced actual planned expenditures expand replace equipment delayed reduced deployment services number tsps including certain customers company also indicated existence conditions excess capacity certain markets certain tsps also delayed planned introduction new services broadband mobile telephone services would supported certain companys products certain companys customers also implemented changes procurement practices procedures including limitations purchases anticipation estimated future capacity requirements management use networks reduced companys sales also made difficult company project future sales continuation andor exacerbation negative trends adverse effect companys future results recently announcements several mergers telecommunications industry extent companys customer base consolidates company may increased dependence smaller number customers may able exert increased pressure companys prices contractual terms general consolidation also may result loss existing potential customers company experienced declines revenue traditional products sold tsps compared prior years company executing strategy capitalize growth opportunities new emerging products offset declines certain new products met initial success unclear whether widely adopted companys customers tsps general increases revenue new products also may exceed declines company may experience revenue sale traditional products revenue sales traditional products declines faster revenue new products increases companys revenue operating results adversely affected addition loss revenue weakness telecommunications industry affected continue affect companys business increasing risks credit business failures suppliers customers distributors customer requirements vendor financing longer payment terms delays defaults customer distributor payments price reductions instituted competitors retain acquire market share companys current plan operations predicated part recovery capital expenditures customers absence improvement company would experience deterioration operating results may determine modify plan future operations accordingly may include among things reductions workforce company intends continue make significant investments business examine opportunities growth activities may involve significant expenditures obligations cannot readily curtailed reduced anticipated demand associated products materialize delayed impact decisions future financial results cannot predicted assurance companys commitment growth may increase vulnerability downturns markets technology changes shifts competitive conditions company examines opportunities growth merger acquisitions company make acquisitions may discover potential risks liabilities newly acquired business due diligence process inherit acquired companies past financial statements associated risks may enter industry limited experience also company may able successfully incorporate personnel operations customers companies companys business addition company may fail achieve anticipated synergies combined businesses including marketing product integration distribution product development synergies integration process may strain companys existing financial managerial controls reporting systems procedures may result diversion management financial resources companys core business objectives addition acquisition merger may require company utilize cash reserves incur debt issue equity securities may result dilution existing stockholders company may negatively impacted assumption liabilities merged acquired company due rapidly changing market conditions company may find value acquired technologies related intangible assets goodwill recorded companys financial statements impaired resulting charges operations company may also fail retain acquired merged companies key employees customers company also may able identify future suitable merger acquisition candidates even company identify suitable candidates may able make transactions commercially acceptable terms company made future may continue make strategic investments companies investments made future investments likely made immature businesses unproven track records technologies investments high degree risk possibility company may lose total amount investments company may able identify suitable investment candidates even company may able make investments acceptable terms addition even company makes investments may gain strategic benefits investments currently company accounts employee stock options accordance accounting principles board apb opinion 25 related interpretations provide compensation expense relative employee stock options measured based intrinsic value stock options result options priced fair market value underlying stock date grant currently companys practice company incurs compensation expense december 2004 financial accounting standards board fasb issued sfas 123 revised 2004 sharebased payment sfas 123r revises sfas 123 supersedes apb opinion 25 sfas 123r requires sharebased payments employees including grants employee stock options valued fair value date grant expensed applicable vesting period pro forma disclosure income statement effects sharebased payments longer alternative sfas 123r effective reporting periods beginning june 15 2005 company august 1 2005 effective date beginning effective date company must expense options granted effective date applicable vesting period ii expense nonvested portions existing option grants going forward remaining vesting period compensation expense nonvested portions existing option grants effective date recorded based fair value awards previously calculated developing pro forma disclosures accordance provisions sfas 123 sfas 123r company required adopt fair valuebased method measuring compensation expense related employee stock options awards lead substantial additional compensation expense although would affect companys cash flows material negative impact companys future reported results operations beginning effective date company currently anticipates expense may 12 million per quarter quarters ending october 31 2005 january 31 2006 may 2003 company issued 420000000 aggregate principal amount zero yield puttable securities zyps existing zyps january 26 2005 company completed offer holders outstanding existing zyps exchange existing zyps new zyps new zyps 420000000 worth existing zyps outstanding prior exchange offer approximately 417700000 aggregate principal amount representing approximately 995 original issue existing zyps validly tendered exchange equal principal amount new zyps existing zyps new zyps conversion price 1797 per share ability holders convert either existing zyps new zyps common stock subject certain conditions including fiscal quarter closing price per share period least twenty days thirty consecutive tradingday period ending last trading day preceding fiscal quarter 120 conversion price per share effect thirtieth day ii may 15 2018 five businessday period following ten consecutive tradingday period daily average trading price existing zyps new zyps ten tradingday period less 105 average conversion value existing zyps new zyps period iii period following date credit rating assigned existing zyps new zyps standard poors rating services lower b upon withdrawal suspension existing zyps new zyps rating companys request iv company calls existing zyps new zyps redemption v upon specified corporate transactions existing zyps new zyps mature may 15 2023 addition company right redeem existing zyps cash time may 15 2008 principal amount holders series put options pursuant may require company repurchase par portion existing zyps may 15 2008 2013 2018 upon occurrence certain events existing zyps holders may require company repurchase existing zyps par event common stock ceases publicly traded certain instances upon change control company cannot ensure however sufficient funds available time payment required existing zyps company able arrange financing make required cash payments new zyps substantially similar terms existing zyps except new zyps net share settlement feature ii allow company redeem new zyps time may 15 2009 rather may 15 2008 provided existing zyps iii allow holders new zyps require company repurchase new zyps cash may 15 2008 2009 2013 2018 company cannot ensure however sufficient funds available time payment required new zyps company able arrange financing make required cash payments net share settlement feature new zyps provides upon conversion company would pay holder cash equal lesser conversion value principal amount new zyps converted currently 417700000 would issue holder remainder conversion value excess principal amount shares companys common stock new conversion method offer followed september 30 2004 conclusion emerging issues task force eitf financial accounting standards boards fasb eitf issue 048 effect contingently convertible debt diluted earnings per share eitf 048 requiring contingently convertible debt included diluted earnings per share computations dilutive notes converted common shares time issuance converted method regardless whether market price triggers contingent features met eitf 048 effective reporting periods ending december 15 2004 recent accounting changes would required company include shares common stock underlying existing zyps diluted earnings per share computations pursuant exchange offer company offered existing zyps holders new zyps convertible new conversion method eitf 048 company required include shares issuable upon conversion new zyps issued exchange offer diluted shares outstanding unless market price companys common stock exceeds conversion price would include number shares would issuable based upon inthemoney value conversion rights new zyps therefore new zyps dilutive calculating diluted earnings per share companys common stock trading 1797 extent number shares company would required issue satisfy conversion right new zyps 417700000 year ended january 31 2005 resulted approximately 1610000 additional share dilution calculating diluted earnings per share existing zyps immediately dilutive calculating diluted earnings per share extent full number shares underlying existing zyps january 31 2005 128516 shares deemed outstanding purpose calculating diluted earnings per share whether existing zyps may converted pursuant terms therefore decreases companys diluted earnings per share adoption eitf 048 effect reported diluted earnings loss per share periods presented fourth quarter fiscal year 2004 closing price per share least 20 trading days 30 consecutive tradingday period ending january 31 2005 120 conversion price per share existing zyps new zyps conversion privilege existing zyps new zyps triggered existing zyps new zyps convertible cash andor companys common stock option holders first fiscal quarter 2005 companys products involve sophisticated hardware software technology performs critical functions highly demanding standards companys current future products develop operational problems company may incur fees penalties connection problems could material adverse effect company offers complex products may contain undetected defects errors particularly first introduced new versions released company may discover defects errors product released used customer significant costs may incurred correct undetected defects errors companys products defects errors could result future lost sales defects errors companys products also may result product liability claims could cause adverse publicity impair market acceptance telecommunications industry subject rapid technological change introduction new technologies telecommunications market including delay adoption new technologies new alternatives delivery services expected continue profound effect competitive conditions market success market participants including company addition companys products call answering experienced declines usage resulting among factors introduction new technologies adoption increased use existing technologies may include enhanced areas coverage mobile telephones caller id type services companys continued success depend ability correctly anticipate technological trends industries react quickly effectively trends enhance existing products introduce new products timely costeffective basis result life cycle companys products difficult estimate companys new product offerings may enter market timely manner acceptance new product offerings may properly integrate existing platforms failure offerings accepted market could material adverse effect companys business results operations financial condition companys sales operating results may adversely affected event customers delay purchases existing products await companys new product offerings changing industry market conditions may dictate strategic decisions restructure business units discontinue others discontinuing business unit product line may result company recording accrued liabilities special charges costs associated reduction workforce strategic decisions could result changes determinations regarding products useful life recoverability carrying basis certain assets company made continues make significant investments areas sales marketing research development companys research development activities may delayed behind schedule include ongoing significant investment development additional features functionality existing new product offerings success initiatives dependent upon among things emergence market types products acceptance existing new customers companys business may adversely affected failure correctly anticipate emergence market demand certain products services changes evolution market opportunities sufficient market emerge new enhanced product offerings developed company late introducing new product offerings company successful marketing products companys continued growth could adversely affected investment products may lost company relies limited number suppliers manufacturers specific components may able find alternate manufacturers meet requirements existing alternative sources may available favorable terms conditions thus shortage supply components company may experience interruption product supply addition loss thirdparty software licensing could materially adversely affect companys business financial condition results operations telecommunications industry continues undergo significant change result deregulation privatization worldwide reducing restrictions competition industry worldwide enhanced services industry already highly competitive company expects competition intensify company believes existing competitors continue present substantial competition companies many considerably greater financial marketing sales resources company may enter enhanced services markets moreover company enters new markets result research development efforts acquisitions likely encounter new competitors companys competitors may able develop quickly adapt faster new emerging technologies changes customer requirements devote greater resources development promotion sale products companys competitors relation longer operating histories larger customer bases longer standing relationships customers greater name recognition significantly greater financial technical marketing customer service public relations distribution resources new competitors continue emerge continues consolidation among existing competitors may reduce companys market share addition companys customers may future decide develop internally solutions instead purchasing company increased competition could force company lower prices take actions differentiate products companys recent growth strained managerial operational resources companys continued growth may strain resources could hurt business results operations assurance companys managers able manage growth effectively manage future growth companys management must continue improve companys operational financial systems procedures controls expand train retain manage employee base companys systems procedures controls inadequate support operations companys expansion could slow come halt could lose opportunity gain significant market share inability manage growth effectively could materially harm companys business results operations financial condition companys business subject evolving corporate governance public disclosure regulations increased costs risk noncompliance could adverse effect companys stock price companys common stock publicly traded nasdaq stock market company subject rules regulations promulgated number governmental selfregulated organizations including sec nasdaq public company accounting oversight board monitors accounting practices public companies many regulations recently enacted continue evolve making compliance difficult uncertain addition companys efforts comply new regulations resulted likely continue result increased general administrative expenses diversion management time attention revenuegenerating activities compliance activities particular section 404 sarbanesoxley act 2002 related regulations require company include management assessment internal controls financial reporting auditor attestation assessment annual report companys fiscal year ending january 31 2005 company able assert management certifications filed annual report form 10k companys internal control financial reporting effective january 31 2005 material weaknesses identified company must continue monitor assess internal control financial reporting company cannot provide assurances material weaknesses discovered future companys management identifies one material weaknesses internal control financial reporting remain unremediated company unable assert internal control financial reporting effective company unable assert internal control financial reporting effective given reporting period companys auditors unable attest managements report fairly stated unable express opinion effectiveness internal controls company could lose investor confidence accuracy completeness companys financial reports would adverse effect companys stock price effort regarding section 404 required continues require commitment significant financial managerial resources changes existing accounting taxation rules practices new accounting pronouncements taxation rules new interpretations existing accounting principles could significant adverse effect companys results operations may affect companys reported financial results market verints digital security business intelligence products past affected weakness general economic conditions delays reductions customers information technology spending uncertainties relating government expenditure programs verints business generated government contracts may materially adversely affected verints reputation relationship government agencies impaired ii verint suspended otherwise prohibited contracting domestic foreign government significant law enforcement agency iii levels government expenditures authorizations law enforcement security related programs decrease remain constant shift programs areas verint provide products services iv verint prevented entering new government contracts extending existing government contracts based violations suspected violations laws regulations including related procurement v verint granted security clearances required sell products domestic foreign governments security clearances revoked vi change government procurement procedures vii change political climate adversely affects verints existing prospective relationships competitive conditions sector also affected increasing use certain potential customers internal development resources rather outside vendors provide certain technical solutions addition verints markets include increasing number competitors including companies significantly larger resources verint addition number established government contractors particularly developers integrators technology products taken steps redirect marketing strategies product plans reaction cutbacks traditional areas focus resulting increase number competitors range products offered response particular requests proposals market actionable intelligence solutions verints security business intelligence products still emerging verints growth dependent among things size pace markets products develop markets products decrease remain constant grow slower verint anticipates verint able maintain growth continued growth demand verints products uncertain among reasons existing customers potential customers may achieve return investment products ii experience technical difficulty utilizing products iii use alternative solutions achieve security intelligence business objectives addition verints business intelligence products sold primarily contact centers slower anticipated growth contraction number contact centers material adverse effect verints ability maintain growth global market analytical solutions security business applications intensely competitive number breadth competing companies products manner products sold example verint often competes customer contracts competitive bidding process subjects risks associated frequent need bid programs advance completion design may result unforeseen technological difficulties cost overruns ii substantial time effort including design development marketing activities required prepare bids proposals contracts may awarded verint subsidiary verint technology inc verint technology markets sells supports communications interception solutions various us government agencies required national industrial security program maintain facility security clearances insulated foreign ownership control influence company verint technology department defense entered proxy agreement verint among requirements appointed three us citizens holding requisite security clearances exercise prerogatives ownership verint technology including without limitation oversight verint technologys security arrangements holders proxies vote verint technology stock proxy agreement may terminated verint technologys facility security clearances may revoked event breach proxy agreement determined department defense termination national interest verint technologys facility security clearance revoked sales us government agencies adversely affected may adversely affect sales international government agencies addition concerns security verint personnel products may material adverse affect verints business financial condition results operations including negative impact sales us international government agencies many verints government contracts contain provisions give governments party contracts rights remedies typically found private commercial contracts including provisions enabling governments terminate cancel existing contracts convenience ii case us government suspend verint business foreign government prevent verint selling products certain countries iii audit object verints contractrelated costs expenses including allocated indirect costs iv change specific terms conditions verints contracts including changes would reduce value contracts addition many jurisdictions laws regulations deem government contracts jurisdictions include types provisions even contract contain government terminates contract verint convenience verint may recover incurred committed costs expenses profit work completed prior termination government terminates contract default verint may recover amounts addition may liable costs incurred government procuring undelivered items services another source agency within government may share information regarding verints termination government agencies result verints ongoing prospective relationships government agencies could impaired verint must comply domestic foreign laws regulations relating formation administration performance government contracts laws regulations affect verint business government agencies various countries may impose added costs business example united states verint subject federal acquisition regulations comprehensively regulate formation administration performance federal government contracts truth negotiations act requires certification disclosure cost pricing data connection contract negotiations verint subject similar regulations foreign countries well government review investigation uncovers improper illegal activities verint may subject civil criminal penalties administrative sanctions including termination contracts forfeiture profits suspension payments fines suspension debarment business government agencies could materially adversely affect business financial condition results operations addition government may reform procurement practices adopt new contracting rules regulations could costly satisfy could impair verints ability obtain new contracts verints products often used customers compile analyze highly sensitive confidential information data including information data used intelligence gathering law enforcement activities verint may come contact information data performs support maintenance functions customers verint internal policies procedures training employees connection performing functions even perception potential contact may pose security risk verints employees improperly handled sensitive confidential information data customer could harm reputation could inhibit market acceptance products communications industry continues evolve governments may increasingly regulate products monitor record voice video data transmissions public communications networks solutions verint offers example products verint sells united states law enforcement agencies interface variety wireline wireless internet protocol networks must comply technical standards established federal communications commission pursuant communications assistance law enforcement act products sells europe must comply technical standards established european telecommunications standard institute adoption new laws governing use verints products changes made existing laws could cause decline use products could result increased expenses verint particularly required modify redesign products accommodate new changing laws company historically derived significant portion sales operating profit contracts large system installations major customers company continues emphasize large capacity systems product development marketing strategies contracts large installations typically involve lengthy complex bidding selection process ability company obtain particular contracts inherently difficult predict timing scope opportunities pricing margins associated eventual contract award difficult forecast may vary substantially transaction companys future operating results may accordingly exhibit higher degree volatility operating results companies industries adopted different strategies also may volatile company experienced prior periods degree dependence company large system orders investment required enable company perform orders without assurance continuing order flow customers predictability gross margins future orders increase risk associated business significant proportion companys sales large system installations occur late stages quarter delay cancellation factor resulting postponement cancellation sales may cause company miss financial projections may discernible end financial reporting period companys gross margins also may adversely affected increases material labor costs obsolescence charges price competition changes distribution channels mix products sold period evaluation purchase system customers may defer scale proposed orders companys products among reasons changes budgets purchasing priorities ii reduced need upgrade existing systems iii deferrals anticipation enhancements new products iv introduction products companys competitors v lower prices offered companys competitors geopolitical economic military conditions could directly affect companys operations outbreak diseases severe acute respiratory syndrome sars curtailed may future curtail travel certain countries restrictions travel regions account additional incidents diseases sars could material adverse effect companys business results operations financial condition continued threat terrorism heightened security military action response threat future acts terrorism may cause disruptions companys business extent disruptions result delays cancellations customer orders manufacture shipment companys products companys business operating results financial condition could materially adversely affected recently us military involvement overseas operations including example war iraq armed conflicts throughout world could material adverse effect companys business results operations financial condition company highly automated business disruption failure systems event catastrophic event major earthquake tsunami natural disaster cyberattack terrorist attack could cause delays completing sales providing services catastrophic event results destruction disruption companys critical business systems could severely affect ability conduct normal business operations result financial condition operating results could adversely affected hackers others past created number computer viruses otherwise initiated denial service attacks computer networks systems companys information technology infrastructure regularly subject various attacks intrusion efforts differing seriousness sophistication hackers successful confidential information including passwords financial information personal information may improperly obtained company may subject lawsuits liability even company held liable security breach could harm companys reputation even perception security risks whether valid could inhibit market acceptance companys products could harm companys business financial condition operating results company diligently maintains information technology infrastructure continuously implements protections viruses electronic breakins disruptions intrusions defensive measures fail similar defensive measures companys customers fail companys business could materially adversely affected since establishment state israel 1948 number armed conflicts taken place israel arab neighbors past may future lead security economic problems israel current future conflicts political economic andor military conditions israel middle east region directly affect companys operations israel october 2000 recently terrorist violence israel increased significantly primarily west bank gaza strip israel experienced terrorist incidents within borders assurance recent relative calm renewed discussions palestinian representatives continue company could materially adversely affected hostilities involving israel interruption curtailment trade israel trading partners significant downturn economic financial condition israel addition sale products manufactured israel may materially adversely affected certain countries restrictive laws policies practices directed toward israel companies operations israel continuation exacerbation violence israel outbreak violent conflicts involving israel may impede companys ability sell products otherwise adversely affect company addition many companys israeli employees israel required perform annual compulsory military service israel subject called active duty time emergency circumstances absence employees may adverse effect upon companys operations companys costs operations times affected changes cost operations israel resulting changes value israeli shekel relative united states dollar recently weakening dollar relative shekel increased costs companys israeli operations stated united states dollars companys operations times also affected difficulties attracting retaining qualified scientific engineering technical personnel israel availability personnel times severely limited changes factors time significant difficult predict could future material adverse effect companys results operations companys historical operating results reflect substantial benefits received programs sponsored israeli government support research development well tax moratoriums favorable tax rates associated investments approved projects approved enterprises israel programs tax benefits ceased others may continued future availability benefits company may negatively affected number factors including budgetary constraints resulting adverse economic conditions government policies companys ability satisfy eligibility criteria israeli government reduced benefits available programs recent years israeli government authorities indicated government may reduce eliminate benefits future company regularly participated conditional grant program administered office chief scientist ministry industry trade state israel ocs received significant benefits reimbursement 50 qualified research development expenditures certain companys subsidiaries currently pay royalties 3 5 6 certain circumstances associated product revenues including service related revenues government israel consideration benefits received program royalty payments currently required made government reimbursed amounts received company linked us dollar plus amounts received projects approved ocs january 1 1999 interest amount rate equal 12month libor rate effect january 1 year approval obtained january 31 2005 subsidiaries company received approximately 577 million cumulative grants ocs recorded approximately 267 million cumulative royalties ocs year ended january 31 2003 one companys subsidiaries finalized arrangement ocs whereby subsidiary agreed pay lump sum royalty amount past amounts received ocs addition subsidiary began receive lower amounts ocs historically received pay royalty amounts grants amount reimbursement received company program reduced significantly company expect receive significant reimbursement program future addition permission government israel required company manufacture outside israel products resulting research development activities funded programs order obtain permission company required increase royalties applicable funding agencies andor repay certain amounts received reimbursement research development costs transfer outside israel intellectual property rights resulting research development activities funded ocs programs permitted continued reduction benefits received company program termination eligibility receive benefits future could adversely affect companys operating results companys overall effective tax rate benefits tax moratorium provided government israel approved enterprises undertaken country companys effective tax rate may increase future due among factors increased proportion taxable income associated activities higher tax jurisdictions full utilization net operating loss carryforwards relative ages companys eligible investments israel tax moratorium income companys approved enterprise investments made prior 1997 four years whereas subsequent approved enterprise projects eligible moratorium two years reduced tax rates apply case certain periods thereafter eligible tax benefits company must continue meet conditions including making specified investments fixed assets financing percentage investments share capital company fails meet conditions future tax benefits would canceled company could required refund tax benefits already received israeli authorities indicated additional limitations tax benefits associated approved enterprise projects may imposed certain categories taxpayers would include company changes law government policies regarding programs result termination adverse modification company become unable participate take advantage programs cost companys operations israel would increase could material adverse effect companys results operations financial condition ability companys israeli subsidiaries pay dividends governed israeli law provides dividends may paid israeli corporation earnings defined accordance israeli companies law 1999 provided reasonable concern payment cause subsidiary fail meet current expected liabilities come due event devaluation israeli currency dollar amount dollars available payment cash dividends prior years earnings decrease accordingly cash dividends paid israeli corporation united states resident corporate parents subject convention avoidance double taxation israel united states terms convention dividends subject taxation israel united states case israel dividends income derived respect period israeli company entitled reduced tax rate applicable approved enterprise generally subject withholding israeli income tax source rate 15 israeli company also subject additional israeli taxes respect dividends generally equal tax benefits previously granted respect underlying income virtue approved enterprise status companys success dependent recruiting retaining key management highly skilled technical managerial sales marketing personnel market highly skilled personnel remains competitive companys ability attract retain employees also may affected cost control actions past may future include reductions companys workforce associated reorganization operations company currently derives significant portion total sales customers outside united states international transactions involve particular risks including political decisions affecting tariffs trade conditions rapid unforeseen changes economic conditions individual countries turbulence foreign currency credit markets increased costs resulting lack proximity customer company required obtain export licenses authorizations applicable governmental authorities certain countries within conducts business failure receive required license authorization would hinder companys ability sell products could adversely affect companys business results operations financial condition addition legal uncertainties regarding liability compliance local laws regulations local taxes labor laws employee benefits currency restrictions difficulty accounts receivable collection longer collection periods requirements may negative impact companys operating results also companys foreign subsidiaries hold significant amount cash repatriation cash united states subject withholding tax would reduce total amount cash company would receive cash repatriated united states volatility international currency exchange rates may significant impact companys operating results company anticipates continue receive contracts denominated foreign currencies particularly euro result unpredictable timing purchase orders payments contracts factors often practicable company effectively hedge entire risk significant changes currency rates contract period although recently company significantly increased amount foreign currency exposure hedged company may experience adverse consequences hedging exchange rate risks associated contracts denominated foreign currencies companys operating results negatively impacted certain periods positively impacted periods may continue affected material extent impact currency fluctuations operating results may also affected cost hedging activities company undertake company generally requires employees independent contractors consultants execute noncompetition confidentiality agreements companys intellectual property proprietary rights could infringed misappropriated could result expensive protracted litigation company relies combination patent copyright trade secret trademark law protect technology despite companys efforts protect intellectual property proprietary rights unauthorized parties may attempt copy otherwise obtain use products technology effectively policing unauthorized use companys products timeconsuming costly assurance steps taken company prevent misappropriation technology particularly foreign countries many instances local laws legal systems offer level protection united states others claim companys products infringe intellectual property rights company may forced seek expensive licenses reengineer products engage expensive timeconsuming litigation stop marketing products company attempts avoid infringing known proprietary rights third parties product development efforts company however regularly conduct comprehensive patent searches determine whether technology used products infringes patents held third parties many issued patents well patent applications fields company engaged patent applications united states publicly disclosed published issued applications may filed relate companys software products company discover products violated potentially violated thirdparty proprietary rights might able continue offering products without obtaining licenses products without substantial reengineering products reengineering effort may successful company cannot certain whether licenses would available even licenses available company cannot certain licenses would offered company commercially reasonable terms company occasionally files patent applications cannot assured patents issued basis applications patents issued sufficiently broad protect technology addition company cannot assured patents issued challenged invalidated circumvented substantial litigation regarding intellectual property rights exists technology related industries company expects products may increasingly subject thirdparty infringement claims number competitors industry segments grows functionality software products different industry segments overlaps addition company agreed indemnify certain customers certain situations determined products infringe proprietary rights third parties thirdparty infringement claims could time consuming defend result costly litigation divert managements attention resources cause product service delays require company enter royalty licensing agreements royalty licensing arrangements required may available terms acceptable company successful claim infringement company failure inability license infringed similar technology could material adverse effect business financial condition results operations company holds large proportion net assets cash equivalents shortterm investments including variety public private debt equity instruments made significant venture capital investments directly private investment funds investments subject company risks inherent capital markets generally performance businesses direct control given relatively high proportion companys liquid assets relative overall size results operations materially affected results companys capital management investment activities risks associated activities declines public equity markets caused may expected continue cause company experience realized unrealized investment losses severe decline public trading prices equity securities past particularly technology telecommunications sectors corresponding decline values privatelyheld companies venture capital funds company invested may continue adverse impact companys financial results addition although interest rates risen recently low interest rates past may future adverse impact companys results operations company issues stock options key component overall compensation growing pressure public companies shareholders generally various organizations reduce rate companies including company issue stock options employees may make difficult obtain stockholder approval equity compensation plans required addition fasb adopted changes generally accepted accounting principles gaap require company adopt different method determining compensation expense employee stock options employee stock purchase plans beginning third quarter fiscal 2005 result cti certain subsidiaries terminated employee stock purchase plans addition company believes expensing stock options increase shareholder pressure limit future option grants could make difficult company grant stock options employees future result company may lose top employees nonpublic startup companies may generally find difficult attract retain motivate employees either could materially adversely affect companys business results operations financial condition companys operating results fluctuated past may future trading price companys shares affected factors disclosed herein well prevailing economic financial trends conditions public securities markets share prices companies technologyrelated industries company tend exhibit high degree volatility times unrelated operating performance company announcement financial results fall short results anticipated public markets could immediate significant negative effect trading price companys shares given period shortfalls may result events beyond companys immediate control unpredictable since significant proportion companys sales fiscal quarter tend occur latter stages quarter may discernible end financial reporting period factors may contribute volatility trading value shares regardless companys longterm prospects trading price companys shares may also affected developments including reported financial results fluctuations trading prices shares publiclyheld companies telecommunications equipment industry general companys business segments particular may direct relationship companys business prospects company declared paid cash dividends common stock currently expect pay cash dividends near future consequently economic return shareholder may derived appreciation price companys stock result dividend payments company may issue additional equity securities would lead dilution issued outstanding common stock company used may continue use common stock securities convertible common stock acquire technology products product rights businesses reduce retire existing indebtedness among purposes issuance additional equity securities convertible equity securities purposes would result dilution existing shareholders equity interests company addition companys board directors authority cause company issue without vote action companys shareholders 2500000 shares preferred stock one series ability fix rights preferences privileges restrictions series preferred stock could contain dividend rights conversion rights voting rights terms redemption prices liquidation preferences rights superior rights holders common stock companys board directors present intention issuing preferred series reserves right future company also authorized issue without shareholder approval common stock certain circumstances issuance either preferred common stock could effect making difficult person acquire could discourage person seeking acquire control company occurs investors could lose opportunity receive premium sale shares change control transaction offbalance sheet arrangements aggregate contractual obligations part ongoing business participate transactions generate relationships unconsolidated entities financial partnerships entities often referred structured finance special purpose entities spes would established purpose facilitating offbalance sheet arrangements contractually narrow limited purposes january 31 2005 involved unconsolidated spe transactions company obtained bank guaranties primarily performance certain obligations contracts customers well guarantee certain payment obligations guaranties aggregated approximately 339 million january 31 2005 generally released companys performance specified contract milestones scheduled completed various dates primarily 2008 company exposed market risk changes foreign currency exchange rates may time use foreign currency exchange contracts derivative instruments reduce exposure risk eventual net cash inflows outflows resulting sale products foreign currency primarily euro adversely affected changes exchange rates objective contracts neutralize impact foreign currency exchange rate movements companys operating results instruments designated hedges change fair value included income currently january 31 2005 company approximately 326 million notional amount foreign exchange forward contracts sell euros original maturity six months fair value contracts january 31 2005 approximately 66000 included interest income net consolidated statements operations impact aggregate contractual obligations january 31 2005 expected liquidity cash flow future periods follows 1 includes 5 years approximately 4177 million approximately 23 million respectively aggregate principal amount new zyps existing zyps mature may 15 2023 see liquidity capital resources description new zyps existing zyps including series put options giving holders right require company repurchase portion new zyps existing zyps prior may 2023 company right redeem new zyps existing zyps prior may 2023 new zyps net share settlement feature provides upon conversion company would pay holder cash equal lesser conversion value principal amount new zyps converted currently 4177 million would issue holder remainder conversion value excess principal amount shares companys common stock 2 purchase obligations include agreements purchase goods services enforceable legally binding company specify significant terms including fixed minimum quantities purchased fixed minimum variable price provisions approximate timing transaction purchase obligations exclude agreements cancelable without penalty 1997 subsidiary cti quantum industrial holdings ltd organized two new companies make investments including investments high technology ventures participant committed total 375 million capital new companies use suitable investment opportunities identified quantum industrial holdings ltd member quantum group funds managed soros fund management llc affiliated management companies january 31 2005 company invested approximately 265 million related ventures addition company committed approximately 98 million various funds ventures companies may called option investee company licenses certain technology knowhow related rights use manufacture marketing products pays royalties third parties typically ranging 6 net sales related products licenses agreements entered connection research development financing including projects partially funded ocs funding organization reimburses portion companys research development expenditures approved project budgets certain companys subsidiaries accrue royalties ocs sale products incorporating technology developed projects varying amounts based upon revenues attributed various components products royalties due ocs respect research development projects required paid ocs received total royalties amounts received company approved project budgets plus interest certain circumstances january 31 2005 subsidiaries received approximately 577 million cumulative grants ocs recorded approximately 267 million cumulative royalties ocs effect new accounting pronouncements refer liquidity capital resources description eitf 048 impact companys diluted earnings per share calculation new zyps existing zyps year ended january 31 2005 adoption eitf 048 resulted approximately 1739000 comprised approximately 1610000 new zyps approximately 129000 existing zyps additional share dilution calculating diluted earnings per share adoption eitf 048 effect reported diluted earnings loss per share periods presented december 2004 fasb issued statement financial accounting standard sfas 123 revised 2004 sharebased payment sfas no123r revises sfas 123 supersedes apb 25 sfas 123r requires sharebased payments employees including grants employee stock options valued fair value date grant expensed applicable vesting period pro forma disclosure income statement effects sharebased payments longer alternative sfas 123r effective reporting periods beginning june 15 2005 company august 1 2005 effective date beginning effective date company must expense options granted effective date applicable vesting period ii expense nonvested portions existing option grants going forward remaining vesting period compensation expense nonvested portions existing option grants effective date recorded based fair value awards previously calculated developing pro forma disclosures accordance provisions sfas 123 sfas 123r company required adopt fair valuebased method measuring compensation expense related employee stock options awards lead substantial additional compensation expense although affect companys cash flows material negative impact companys reported results operations november 2004 fasb issued sfas 151 inventory costs amendment arb 43 chapter 4 sfas 151 clarifies accounting abnormal amounts idle facility expense freight handling costs wasted material spoilage requiring items recognized currentperiod charges regardless whether meet arb 43 chapter 4 criterion abnormal addition sfas 151 requires allocation fixed production overheads costs conversion based normal capacity production facilities sfas 151 effective inventory costs incurred fiscal years beginning june 15 2005 adoption sfas 151 expected material effect companys consolidated financial statements december 2004 fasb issued sfas 153 exchanges nonmonetary assets amendment apb opinion 29 sfas 153 amends apb 29 eliminate exception nonmonetary exchanges similar productive assets replaces general exception exchanges nonmonetary assets commercial substance nonmonetary exchange commercial substance future cash flows entity expected change significantly result exchange sfas 153 effective reporting periods beginning june 15 2005 adoption sfas 153 expected material effect companys consolidated financial statements march 2004 eitf fasb reached consensus eitf issue 031 meaning otherthantemporary impairment application certain investments provides additional guidance assessing impairment losses investments additionally eitf 031 includes new disclosure requirements investments deemed temporarily impaired september 2004 fasb delayed accounting provisions eitf 031 however disclosure requirements remain effective annual periods ending june 15 2004 company evaluate impact eitf 031 final guidance issued however adoption eitf 031 current form expected material effect companys consolidated financial statements forwardlooking statements time company makes forwardlooking statements forwardlooking statements include financial projections statements plans objectives future operations statements future economic performance statements assumptions relating thereto forwardlooking statements often identified future conditional words plans expects intends believes seeks estimates anticipates variations words similar expressions company may include forwardlooking statements periodic reports securities exchange commission forms 10k 10q 8k annual report shareholders proxy statements press releases written materials statements made employees analysts investors representatives media others nature forwardlooking statements subject uncertainties general specific risks exist predictions forecasts projections forwardlooking statements achieved actual results may differ materially due variety factors including without limitation discussed certain trends uncertainties elsewhere report investors others carefully consider uncertainties events whether statements described forwardlooking statements made company intended apply time made unless explicitly stated contrary moreover whether stated connection forwardlooking statement company makes commitment revise update forwardlooking statements order reflect events circumstances date statement made company particular instance update correct forwardlooking statement investors others conclude company make additional updates corrections thereafter item 7aitem 7 management’s discussion analysis financial condition results operations following discussion analysis financial condition results operations read together section entitled “explanatory note” immediately preceding item 1 annual report item 1 “business” item 6 “selected financial data” consolidated financial statements related notes included item 15 annual report discussion analysis contains forwardlooking statements based current expectations relating future events future financial performance involve risks uncertainties see “forwardlooking statements” page ii annual report actual results may differ materially anticipated forwardlooking statements result many factors including set forth “cautionary note regarding financial performance subsequent fiscal periods” item 1a “risk factors” elsewhere annual report unless otherwise stated financial information presented discussion analysis relates fiscal years ended january 31 2009 2008 2007 2006 financial data dates fiscal years derived consolidated financial statements included item 15 annual report consolidated financial statements fiscal years reflect effect adjustments prior periods referred prior period adjustments discussed “prior period adjustments” note 3 consolidated financial statements included item 15 annual report percentages amounts within section may recalculate precisely due rounding differences certain financial information presented herein july 31 2010 latest available balance sheet date cti intends file soon practicable annual report form 10k fiscal year ended january 31 2010 quarterly reports form 10q may required become current periodic reporting obligations federal securities laws soon practicable investors cautioned past results january 31 2009 indicative performance subsequent fiscal period see “cautionary note regarding performance subsequent fiscal periods” discussion analysis includes following sections • overview summarizes structure management consolidated revenue performance business segments periods covered annual report significant events impacted overall business segments periods key developments trends challenges uncertainties business segments • results operations provides comparative discussion analysis consolidated results operations management views analyzes business segments discussion analysis results operations segments case fiscal year ended january 31 2009 compared fiscal year ended january 31 2008 fiscal year ended january 31 2008 compared fiscal year ended january 31 2007 fiscal year ended january 31 2007 compared fiscal year ended january 31 2006 addition discuss trends events uncertainties management currently believes reasonably likely material effect future operational results • liquidity capital resources provides overview recent liquidity developments liquidity capital resources including cash equivalents cash flows liquidity investments indebtedness investments securities portfolio restructuring initiatives guarantees liens restrictions access subsidiary cash investment verint systems’ preferred stock liquidation preference starhome bv • significant subsequent events discusses certain significant events occurred subsequent january 31 2009 significant impact results operations capital resources future liquidity needs • offbalance sheet arrangements discloses certain material offbalance sheet arrangements • contractual obligations discusses longterm debt longterm shortterm contractual obligations company january 31 2009 • critical accounting estimates judgments discusses accounting policies require significant management judgment assumptions estimates • recent accounting pronouncements describes accounting standards may required implement future • prior period adjustments discusses adjustments recorded correct consolidated historical financial information prior february 1 2005 primarily result investigations evaluations overview structure management cti subsidiaries cti holding company conducts business subsidiaries principally comverse inc verint systems ulticom inc starhome bv cti’s reportable segments comverse segment comprised comverse inc whollyowned subsidiary cti subsidiaries verint segment comprised verint systems subsidiaries august 31 2010 cti held 535 outstanding shares verint systems’ common stock 100 outstanding shares series convertible perpetual preferred stock par value 0001 per share verint systems preferred stock preferred stock currently confer cti voting rights currently convertible verint systems’ common stock preferred stock voting rights become convertible shares verint systems’ common stock upon approval issuance underlying shares verint systems’ stockholders special meeting verint systems’ stockholders scheduled held october 5 2010 obtain approval cti intends vote shares verint systems’ common stock favor approval assured preferred stock convertible august 31 2010 cti would held approximately 641 verint systems’ outstanding shares common stock date previously disclosed cti commenced initiatives improve cash position including potential sale 28 million shares verint systems’ common stock registered offering cti pursues sale contemplated registered offering completed issuance shares verint systems’ common stock underlying preferred stock approved verint systems’ stockholders accordingly cti expects continue hold majority interest verint systems following completion registered offering common stock verint systems publicly traded verint systems files separate periodic current reports sec available web site wwwverintcom sec’s web site wwwsecgov ulticom segment comprised ulticom inc subsidiaries august 31 2010 cti held 664 ulticom inc’s outstanding shares common stock common stock ulticom inc publicly traded ulticom inc files separate periodic current reports sec available web site wwwulticomcom sec’s web site wwwsecgov segment comprised starhome bv subsidiaries miscellaneous operations cti’s holding company operations august 31 2010 cti held 641 starhome bv privatelyheld company addition cti expects receive shares representing 25 starhome bv’s outstanding share capital previously owned mr alexander accordance terms settlement agreement shareholder derivative actions detailed discussion settlement agreement see item 3 “legal proceedingsproceedings related cti’s special committee investigationssettlement agreements” cti’s management directly responsible daytoday operations comverse inc reports cti’s board directors cti views majorityowned subsidiaries operations separate independent comverse inc accordingly cti’s majorityowned subsidiaries separate management responsible daytoday operations certain cti officers serve members boards directors cti’s majorityowned subsidiaries currently constitute majority boards member cti’s board directors currently serves board directors cti’s majorityowned subsidiaries except mr dahan cti’s director president chief executive officer serves chairman board directors verint systems ulticom inc starhome bv cti’s consolidated balance sheets reflect cash equivalents held majorityowned subsidiaries indebtedness incurred subsidiaries cti view majorityowned subsidiaries’ cash equivalents readily accessible guarantee indebtedness cti may receive cash majorityowned subsidiary primarily dividends extent paid subsidiary’s shareholders including minority shareholders example april 2009 ulticom inc paid special cash dividend 1996 million shareholders including cti 643 million paid ulticom inc’s minority shareholders verint systems however precluded paying cash dividends cti credit facility starhome bv may pay cash dividends without approval certain minority shareholders investment agreements cti’s management evaluates financial results segments based evaluations may allocate resources considered best interests cti segment although segment separate independent cti may take action support achievement business goals segment example may 2007 cti invested preferred stock verint systems aggregate purchase price 2930 million finance part verint’s acquisition witness financial highlights consolidated total revenue consolidated total revenue fiscal years covered annual report grew 116 billion fiscal year ended january 31 2006 172 billion fiscal year ended january 31 2008 declined slightly 168 billion fiscal year ended january 31 2009 increase consolidated total revenue three fiscal years period ended january 31 2008 primarily attributable increase revenue experienced comverse verint segments fiscal years principally result acquisitions lesser extent continuing growth sales thenexisting products services referred organic growth decline consolidated total revenue fiscal year ended january 31 2009 primarily attributable 157 decrease comverse’s revenue partially offset 253 increase verint’s revenue fiscal years covered annual report experienced change relative contributions comverse verint segments consolidated total revenue verint’s contribution increasing yearoveryear large part due acquisition witness comverse’s revenue percentage consolidated total revenue declined 687 fiscal year ended january 31 2006 547 fiscal year ended january 31 2009 conversely verint’s revenue percentage consolidated total revenue increased 241 fiscal year ended january 31 2006 399 fiscal year ended january 31 2009 trend continued fiscal year ended january 31 2010 segment performance evaluate business assessing performance segments cti’s chief executive officer chief operating decision maker use segment performance defined primary basis assessing financial results segments allocation resources segment performance define accordance statement financial accounting standards sfas 131 disclosures segments enterprise related information necessarily comparable similarly titled captions companies segment performance defined management represents operating results segment without impact significant expenditures incurred segment connection investigations evaluations efforts become current periodic reporting obligations federal securities laws certain noncash charges certain insignificant charges segment performance defined management loss income operations adjusted following stockbased compensation expense ii amortization acquisitionrelated intangibles iii compliancerelated professional fees defined “significant eventscapital resourcesprofessional fees” iv compliancerelated compensation expenses v impairment charges vi litigation settlements related costs vii acquisitionrelated charges viii restructuring integration charges ix certain insignificant charges compliancerelated professional fees compliancerelated compensation expenses relate fees expenses incurred connection investigations evaluations b identification measurement recording prior period adjustments c efforts become current periodic reporting obligations federal securities laws additional information apply segment performance evaluate operating results segments fiscal years ended january 31 2009 2008 2007 2006 see notes 1 23 consolidated financial statements included item 15 annual report evaluating segment’s performance management uses segment revenue consists revenue generated segment including intercompany revenue certain segment performance adjustments relate expenses included calculation loss income operations time certain segment performance adjustments may presented adjustments revenue calculating comverse’s segment performance fiscal years ended january 31 2009 2008 2007 2006 presentation segment revenue gives effect segment revenue adjustment reflecting elimination negative impact revenue attributable patent litigation settlement addition calculating verint’s segment performance fiscal years ended january 31 2009 2008 presentation segment revenue gives effect segment revenue adjustments related acquisitions represent 1 impact fair value adjustments required us gaap relating acquired customer support contracts would otherwise recognized revenue standalone basis 2 certain sales concession adjustments relating accounts receivable balances existed prior acquisition date case respect acquisition witness may 2007 detailed presentation revenue segment performance adjustments made fiscal years 2009 2008 2007 2006 see “results operations” note 23 consolidated financial statements included item 15 annual report following table presents fiscal years ended january 31 2009 2008 2007 2006 segment revenue segment performance segment performance margin reflecting segment performance percentage segment revenue segments comverse segment revenue comverse experienced increases segment revenue fiscal years ended january 31 2007 2008 followed decline fiscal year ended january 31 2009 increases segment revenue fiscal years ended january 31 2007 2008 attributable organic growth representing 50 648 increase segment revenue fiscal years respectively remaining increases segment revenue attributable acquisitions primarily kenan netcentrex comverse’s organic revenue growth coincided growth telecommunications service provider customers’ subscriber base capital spending budgets segment revenue fiscal year ended january 31 2007 increased 223 compared prior year largely result inclusion results operations kenan entire fiscal year compared inclusion results operations prior fiscal year date acquisition december 2005 lesser extent inclusion results operations netcentrex date acquisition may 2006 fiscal year ended january 31 2009 comverse experienced significant decrease segment revenue compared prior fiscal year mainly due decline global economy result decline global economy many comverse’s customers experienced significant declines revenues profitability customers required reduce excessive debt levels response challenges many comverse’s customers implemented cost cutting measures including closely monitoring operating expenses capital investment budgets resulted reduced demand comverse’s products services solutions longer customer purchasing decisions pricing pressures along challenging macroeconomic conditions rate growth subscriber base comverse’s telecommunication service provider customers began moderate capital spending customers began contract reflecting relative maturation wireless industry particularly relates voicebased services voicemail increased competition respect certain comverse’s product lines lowcost providers comverse’s segment revenue continued decline fiscal year ended january 31 2010 segment performance comverse experienced decrease segment performance segment performance margin fiscal year ended january 31 2007 compared prior fiscal year decrease primarily attributable lower margins higher operating expenses due slower planned integration process kenan netcentrex acquisitions partially offset increase segment revenue fiscal year ended january 31 2008 comverse experienced increase segment performance compared prior fiscal year increase primarily attributable growth segment revenue exceeding increase segment expenses fiscal year ended january 31 2009 comverse experienced significant decrease segment performance compared fiscal year ended january 31 2008 decrease primarily attributable rapid decline segment revenue partially offset lower cost revenue personnelrelated costs comverse continues experience pricing pressures contracting margins due intense competition lowcost competitors shift relative mix business higher margin licensing revenue lower margin professional services required implement provide maintenance comverse’s increasingly complex projects comverse’s margins continued contract fiscal year ended january 31 2010 comverse continues focus efforts reducing operating costs including delivery cost structure increase margins enhance competitive market position part efforts comverse commenced plan restructure operations view toward aligning operating costs expenses anticipated revenue comverse intends commence first phase restructuring plan expected reduce annualized operating costs least 450 million october 2010 implement second phase measures expected result similar reduction annualized operating costs upon implementation next 12 18 months verint segment revenue verint experienced growth segment revenue fiscal years covered annual report growth segment revenue fiscal years ended january 31 2007 2008 primarily attributable increases sales verint’s products services increases revenue attributable acquisitions including significant increase following verint’s acquisition witness may 2007 verint’s segment revenue growth fiscal year ended january 31 2009 primarily attributable inclusion results operations witness entire fiscal year compared inclusion results operations prior fiscal year date acquisition may 2007 lesser extent verint’s organic growth verint’s segment revenue continued grow fiscal year ended january 31 2010 prior fiscal year segment performance verint experienced growth segment performance fiscal years covered annual report continued increase segment performance primarily attributable increases segment revenue partially offset increases segment expenses addition verint’s segment performance margin increased fiscal years presented exhibited significant expansion acquisition witness may 2007 increased software license portion verint’s product mix turn increased verint’s gross margins provided verint recurring maintenance revenue verint’s segment performance continued increase fiscal year ended january 31 2010 additional information respect verint’s results operations fiscal year ended january 31 2010 may found annual report form 10k fiscal year filed may 19 2010 ulticom segment revenue fiscal year ended january 31 2007 ulticom experienced increase segment revenue compared prior fiscal year increase primarily attributable higher volume sales deployments products customers fiscal years ended january 31 2008 2009 ulticom experienced declines segment revenue compared preceding fiscal year declines primarily attributable reduced demand ulticom’s products due declines capital spending companies operating telecommunications industry pricing pressures industry consolidation trend continued fiscal year ended january 31 2010 segment performance fiscal years ended january 31 2007 2008 ulticom experienced decline segment performance compared preceding fiscal year decline fiscal year ended january 31 2007 primarily attributable increases operating expenses exceeding segment revenue growth decline fiscal year ended january 31 2008 primarily attributable decrease segment revenue due pricing pressures industry consolidation combined increased costs related investment sales marketing activities fiscal year ended january 31 2009 ulticom experienced modest increase segment performance compared prior fiscal year increase primarily attributable decline expenses offsetting decline segment revenue ulticom’s segment performance continued increase fiscal year ended january 31 2010 additional information respect ulticom’s results operations fiscal year ended january 31 2010 may found annual report form 10k fiscal year filed april 20 2010 segment revenue segment revenue primarily generated starhome segment revenue increased fiscal years ended january 31 2007 2008 fiscal year ended january 31 2007 increase primarily attributable services rendered connection deployment starhome’s new family roaming products fiscal year ended january 31 2008 segment revenue increased due starhome’s revenue growth attributable increased revenue products services segment revenue declined fiscal year ended january 31 2009 compared prior fiscal year primarily due divestiture insignificant subsidiary segment revenue continued decline fiscal year ended january 31 2010 segment performance fiscal year ended january 31 2007 segment performance loss decreased compared prior fiscal year decrease segment performance loss primarily attributable improvement starhome’s performance result amortization deferred revenue associated sales arrangements entered prior fiscal years fiscal year ended january 31 2008 segment performance loss increased compared prior fiscal year increase primarily attributable increase cti’s expenses related personnelrelated costs professional fees partially offset increased segment revenue generated starhome fiscal year ended january 31 2009 segment performance loss decreased compared prior fiscal year decrease primarily attributable declines operating expenses cti starhome insignificant subsidiaries offsetting decline segment revenue significant events acquisitions part corporate strategy cti continuously evaluates opportunities support growth comverse majorityowned subsidiaries including acquisitions consistent strategy cti subsidiaries completed several significant acquisitions since january 31 2005 • december 2005 comverse acquired kenan approximately 2446 million cash 64 million acquisition costs expand presence communication service provider billing market • may 2006 comverse acquired netcentrex approximately 1718 million cash 16 million acquisition costs broaden presence voip communications service provider market • may 2007 verint completed acquisition witness approximately 10703 million 148 million acquisition costs expand business enterprise workforceoptimization market cti supported acquisition investing 2930 million verint’s preferred stock balance funded verint’s incurrence indebtedness available cash verint witness addition subsidiaries acquired several smaller companies specifically comverse acquired netonomy inc netonomy september 2006 verint acquired opus group llc opus september 2005 certain assets multivision holdings limited multivision january 2006 cm insight limited cm insight february 2006 mercom systems inc mercom july 2006 viewlinks euclipse ltd viewlinks february 2007 iontas limited iontas february 2010 detailed discussion see notes 7 27 consolidated financial statements included item 15 annual report acquisitions part strategy improve acquiring segment’s market position broaden product offerings technology acquire personnel expertise important areas segment’s business verint’s acquisition witness enabled verint segment increase segment revenue segment performance increasing market share important customer service workforce optimization market comverse’s acquisition kenan provided comverse ability increase segment’s prepaidpostpaid billing product offerings netcentrex acquisition intended broaden comverse’s positioning voip service provider market however fiscal year ended january 31 2008 netcentrex reporting unit comverse segment experienced decrease results compared prior performance addition netcentrex experienced significant reduction orders key customer second quarter fiscal year ended january 31 2009 factors adversely affected projected future cash flows estimated fair value netcentrex reporting unit result recorded noncash pretax goodwill impairment charges approximately 214 million 1351 million fiscal years ended january 31 2009 2008 respectively connection testing goodwill also tested longlived assets netcentrex result recorded noncash pretax impairment charges 270 million 100 million fiscal years ended january 31 2009 2008 respectively charges reflect impairment substantially reporting unit’s goodwill intangible assets detailed discussion impairments see “results operations” “critical accounting estimates judgmentsrecoverability goodwill” “critical accounting estimates judgmentsimpairment longlived assets” indebtedness principal indebtedness incurred four fiscal years covered annual report relates verint entering 6750 million secured financing arrangement comprised sevenyear 6500 million term loan facility sixyear 250 million revolving credit facility connection acquisition witness may 2007 subsequently 250 million revolving credit facility reduced 150 million following bankruptcy lehman brothers one lenders termination commitment credit facility verint made optional prepayment 400 million july 2007 made mandatory “excess cash flow” payments term loan 41 million 221 million may 2009 may 2010 respectively november 2008 verint borrowed 150 million revolving credit facility july 31 2010 january 31 2009 verint 5832 million 6100 million borrowings outstanding term loan respectively 150 million outstanding revolving credit facility dates credit facility prohibits verint systems paying cash dividends stockholders including cti july 2010 verint entered amendment credit facility change method calculation applicable interest rate margin based verint’s consolidated leverage ratio time ii add 150 libor floor iii increase aggregate amount incremental revolving commitment term loan increases permitted credit facility 500 million 2000 million iv make certain changes negative covenants including providing covenant relief respect permitted consolidated leverage ratio v increase revolving credit facility 750 million addition july 2010 verint terminated interest rate swap agreement connection termination paid approximately 217 million counterparty additional discussion see “significant subsequent events” january 31 2009 cti 4195 million aggregate principal amount convertible debt obligations outstanding included 4174 million aggregate principal amount new convertible debt obligations terms applicable indenture cti obligation offer purchase cash outstanding new convertible debt obligations may 15 2009 purchase price equal principal amount securities may 15 2009 cti completed tender offer purchased using available cash 4173 million aggregate principal amount new convertible debt obligations believe investors tendered new convertible debt obligations securities bear interest cti’s stock price significantly lower conversion price per share new convertible debt obligations investigations evaluations cti subsidiaries operate ordinary business conditions four fiscal years covered annual report discussed fully section entitled “explanatory note” immediately preceding item 1 annual report investigations began march 2006 cti’s board directors reconstituted following commencement special committee’s phase investigation ten current 11 directors joined board directors following commencement investigation april 2006 employment cti’s chairman chief executive officer chief financial officer senior general counsel terminated due allegations fraud cti managed times interim executive officers cti’s current president chief executive officer chief financial officer appointed april 2007 may 2009 respectively exception termination employment former chief financial officer verint senior managements verint ulticom however change fiscal periods covered annual report senior management cti verint ulticom required focus considerable time attention matters related investigations evaluations including multiyear process completing respective consolidated financial statements becoming current periodic reporting obligations development implementation remedial measures related material weaknesses internal control financial reporting sec civil actions cti verint systems ulticom inc arising sec’s investigations respective historical stock option grant practices certain unrelated accounting matters actions settled case cti shareholder class action shareholder derivative actions proceedings related investigations march 16 2009 cti disclosed audit committee conducting investigation comverse alleged improper payments potentially violation foreign corrupt practices act referred fcpa laws united states countries matter also investigated sec audit committee providing information cooperating fully sec doj respect findings internal investigation alleged improper payments existing prior arrangements comverse’s sales agents addition march 2010 sec initiated administrative proceedings pursuant section 12j exchange act cti verint systems suspend revoke registration respective common stock arising inability cti previous inability verint systems timely file respective periodic reports may 28 2010 verint systems entered agreement principle sec’s division enforcement settle section 12j administrative proceeding agreement subject approval sec june 18 2010 verint systems satisfied requirements agreement july 28 2010 sec issued order dismissing section 12j administrative proceeding july 22 2010 administrative law judge section 12j administrative proceeding cti issued initial decision revoke registration cti’s common stock initial decision become effective sec issues final order would indicate date sanctions would take effect august 17 2010 sec issued order granting petition cti review administrative law judge’s initial decision revoke registration cti’s common stock setting forth briefing schedule final briefs due november 1 2010 following adverse determination sec issued cti would ability file sec motion reconsideration final order motion stay final order pending judicial review appeal final order court appeals although sec granted review administrative law judge’s initial decision revoke registration cti’s common stock cti cannot time predict outcome review appeal therefrom inability cti verint systems ulticom inc become current respective periodic reporting obligations federal securities laws fiscal years covered annual report limited information able provide public investors interested parties including customers certain lenders furthermore inability become current limited ability use equity incentives attract retain motivate employees required generally restrict exercise options resale equity securities employees compliance federal securities laws inability become current restricted ability raise capital issuance equity debt securities use equity securities acquisitions complementary companies businesses engage strategic transactions inability become current also rendered cti verint systems ulticom inc unable comply listing standards nasdaq resulting company’s common stock delisted nasdaq ulticom inc verint systems became current periodic reporting obligations federal securities laws common stock relisted nasdaq november 25 2009 july 6 2010 respectively management believes factors may adverse impact business relationships performance fiscal periods covered annual report thereafter becomes current periodic reporting obligations federal securities laws cti intends apply relisting common stock nasdaq another national stock exchange soon practicable material weaknesses result investigations evaluations performance additional procedures designed ensure reliability financial reporting among findings identified material weaknesses internal control financial reporting response material weaknesses management oversight audit committee dedicated significant resources including engagement external consultants primarily ensure consolidated financial statements fairly present material respects financial information also improve internal control environment remediation identified material weaknesses commenced implementation certain remedial measures prior january 31 2009 address specific material weaknesses internal control financial reporting implementation continued since date detailed discussion see item 9a “controls procedures” litigation settlements december 2009 cti entered agreements settle consolidated shareholder class action federal state consolidated shareholder derivative actions agreement settle consolidated shareholder class action approved court action pending june 23 2010 agreement settle federal state derivative actions approved courts actions pending july 1 2010 september 23 2010 respectively part settlement consolidated shareholder class action cti agreed make payments class action settlement fund aggregate amount 1650 million less credit respect portion settlement funds would payable class member elected participate bound settlement referred optout credit pursuant terms settlement cti paid 10 million consideration december 2009 179 million july 2010 representing agreed 215 million payment less holdback 36 million respect anticipated optout credit holdback required paid cti optout credit less addition cti obligated pay balance 1425 million less amount optout credit exceeds holdback described fiscal year ending january 31 2012 amount payable fiscal year ending january 31 2012 aggregate 1125 million payable cash cti’s election shares cti’s common stock provided shares listed national securities exchange part settlement consolidated shareholder derivative actions cti also agreed pay legal fees expenses plaintiffs 94 million payment due october 23 2010 september 2010 cti received insurance proceeds 165 million directors’ officers’ insurance policies connection settlements shareholder derivative actions consolidated shareholder class action expect fund cash payments make settlements using cash hand insufficient proceeds sale investments including ars new borrowings cash generated asset divestitures proceeds issuance equity debt securities connection settlements recorded accrual 1744 million fiscal year ended january 31 2007 actions instituted cti first quarter fiscal year september 2010 class member elected participate bound settlement shareholders class action filed action cti intend vigorously defend action detailed discussion see item 3 “legal proceedingsproceedings related cti’s special committee investigationssettlement agreements” restructuring initiatives continually review business manage costs align resources market demand conjunction various acquisitions fiscal year ended january 31 2008 comverse implemented restructuring plan realign operational activities included closure certain facilities elimination associated staff positions also fiscal year ended january 31 2008 verint implemented certain restructuring initiatives intended reduce overall cost structure predominantly north america conjunction witness acquisition took action reduce fixed costs eliminate redundancies strengthen operational focus better position respond market pressures unfavorable market conditions fiscal year ended january 31 2009 comverse implemented additional restructuring plan realign sales force product development staff response shifts customer expectations regarding delivery relationship management also fiscal year ended january 31 2009 verint implemented cost reduction plans included elimination positions result reduced demand consulting services europe global cost reduction plan reduce operating costs response uncertainty global economic environment although restructuring initiatives expected positive impact operating cash flows long term also led lead charges detailed discussion see note 12 consolidated financial statements included item 15 annual report subsequent january 31 2009 additional restructuring initiative implemented comverse detailed discussion see “significant subsequent events2009 restructuring initiative” note 27 consolidated financial statements included item 15 annual report capital resources capital resources declined four fiscal years covered annual report thereafter following discussion provides overview significant events impacted capital resources reflected consolidated financial statements included item 15 annual report acquisitions february 1 2005 january 31 2009 cti subsidiaries expended approximately 10036 million cash incurred 6500 million indebtedness acquire complementary companies businesses including kenan netcentrex witness professional fees completion consolidated financial statements efforts become current periodic reporting obligations federal securities laws required us incur significant costs relating external professional fees including legal forensic accounting fees related investigations evaluations ii external professional fees services connection completion prior period adjustments preparation audits financial statements related income tax compliance iii external professional fees incurred connection remediation efforts improve internal control financial reporting refer costs collectively compliancerelated professional fees approximately 780 million 880 million 452 million fiscal years ended january 31 2009 2008 2007 respectively anticipate become current periodic reporting obligations fees decline significantly auction rate securities held auction rate securities ars part investment portfolio recent fiscal years made efforts mitigate exposure securities reducing holdings ars aggregate principal amount 6904 million january 31 2007 2365 million january 31 2009 due declines liquidity ars credit quality certain issuers ars recorded otherthantemporary impairment charges respect holdings ars result reflecting impact impairment charges january 31 2009 carrying amount 2365 million aggregate principal amount ars 1203 million november 2008 accepted offer ubs ag ubs providing rights related 516 million aggregate principal amount ars held account ubs referred ubs put terms ubs put right obligation sell eligible ars par value ubs time period june 30 2010 july 2 2012 additionally ubs right discretion time july 2 2012 purchase ars us par value defined price equal principal amount ars plus accrued unpaid dividends interest ubs purchased approximately 416 million aggregate principal amount ars cti prior june 30 2010 pursuant purchase right terms settlement agreement consolidated shareholder class action amended cti required exercise ubs put june 30 2010 apply proceeds exercise toward amounts payable settlement effective june 30 2010 cti exercised ubs put balance ars subject ubs put fiscal year ended january 31 2010 sold certain ars may reduce holdings securities discussion ars see “liquidity capital resourcesinvestments securities portfolio” “critical accounting estimates judgmentsvaluation otherthantemporary impairments” financial condition subsequent january 31 2009 consolidated capital resources july 31 2010 january 31 2009 consolidated cash equivalents shortterm investments bank time deposits approximately 5630 million 13 billion respectively subsequent fiscal years covered annual report july 31 2010 experienced net cash outflows decline capital resources due lower expected operating cash flows comverse segment certain significant disbursements discussion cash disbursements see “significant subsequent events impacting consolidated capital resources” capital resources cti comverse subsequent january 31 2009 cti comverse continued incur operating net losses experienced declines cash flows cash equivalents working capital increase accumulated deficit july 31 2010 cti comverse cash equivalents shortterm investments bank time deposits approximately 3261 million compared approximately 9132 million january 31 2009 cash equivalents shortterm investments bank time deposits cti comverse july 31 2010 excludes 1335 million aggregate principal amount ars recorded value date approximately 693 million includes restricted cash aggregated 627 million 206 million july 31 2010 january 31 2009 respectively addition cash equivalents shortterm investments bank time deposits july 31 2010 include cash proceeds 809 million received cti sales redemptions ars february 1 2009 july 31 2010 proceeds 516 million received cti sale 516 million aggregate principal amount ars held ubs part settlement agreement consolidated shareholder class action cti granted security interest benefit plaintiff class account cti holds ars 516 million aggregate principal amount ars held account ubs proceeds sales thereof consequently cti’s ability use proceeds future sales ars restricted amounts payable settlement agreement paid full addition terms settlement agreement consolidated shareholder class action cti receives net cash proceeds sale certain ars held aggregate amount excess 500 million cti required use 500 million proceeds prepay settlement amounts referred cti receives net cash proceeds sale ars aggregate amount excess 1000 million cti required use additional 500 million proceeds prepay settlement amounts referred july 31 2010 cti received cash proceeds 288 million sales redemptions ars provisions settlement agreement apply future payment obligations cti include amounts payable settle consolidated shareholder class action shareholder derivative actions part settlement consolidated shareholder class action cti obligated pay 1425 million fiscal year ending january 31 2012 amount aggregate 1125 million payable cash cti’s election shares cti’s common stock subject certain conditions including cti current periodic reporting obligations federal securities laws common stock listed national securities exchange fifteenth trading day preceding applicable payment dates may 15 2011 november 15 2011 addition part settlement consolidated shareholder derivative actions cti agreed pay legal fees expenses plaintiffs 94 million payment due october 23 2010 september 2010 cti received insurance proceeds 165 million directors’ officers’ insurance policies connection settlements shareholder derivative actions consolidated shareholder class action information see “significant subsequent eventssettlement shareholder class derivative actions” item 3 “legal proceedingsproceedings related cti’s special committee investigationssettlement agreements” july 31 2010 aggregate assets cti comverse estimated excess 10 billion include among others cash equivalents shortterm investments bank time deposits ownership interests verint ulticom notwithstanding substantial assets forecast cash equivalents shortterm investments bank time deposits cti comverse expected approximately 1000 million end fiscal quarter ending april 30 2011 including estimated restricted cash approximately 600 million absence successful consummation one initiatives currently implemented evaluated described management’s forecast fiscal year ending january 31 2012 reflects potential shortfall approximately 500 million cash required support working capital needs business cti comverse quarter anticipate shortfall materially increase remainder fiscal year ending january 31 2012 forecast based upon number assumptions management believes reasonable discussion assumptions see “liquidity capital resources recent developmentsfinancial condition cti comverse” however one assumptions prove incorrect one risks uncertainties described item 1a “risk factors” materialize shortfall unrestricted cash required support working capital needs may vary materially amount forecasted response events cti commenced initiatives improve cash position including plan restructure operations comverse segment expected implemented two phases view toward aligning operating costs expenses anticipated revenue comverse also evaluating initiatives improve focus core business maintain ability face intense competitive pressures markets including strategic options potential wind netcentrex business furthermore part initiatives september 16 2010 comverse ltd indirect whollyowned subsidiary cti entered agreement sale certain land ra’anana israel third party purchase price approximately 285 million approximately 271 million proceeds received balance held escrow cover extent necessary applicable taxes levies addition cti evaluating secured financing alternatives pursuing sale certain assets including potential sale 28 million shares verint systems’ common stock effective july 15 2010 cti made demand 28 million shares verint systems’ common stock registered registration statement form s1 permit sale thereof public offering august 24 2010 verint systems filed registration statement sec cti engaged goldman sachs financial advisor goldman sachs assisting cti among things exploring strategic capital raising alternatives contrary expectations cti’s initiatives increase liquidity capital resources fail satisfy working capital needs business operations could materially adversely affected event cti may need seek new borrowings asset sales issuance equity securities disadvantageous terms detailed discussion see “liquidity capital resourcesrecent developments” significant subsequent events impacting consolidated capital resources following discussion provides overview certain events occurred subsequent january 31 2009 impacted expected impact consolidated capital resources repayment indebtedness subsequent january 31 2009 cti verint repaid certain indebtedness may 2009 cti repurchased 4173 million aggregate principal amount new convertible debt obligations face value accordance terms applicable indenture may 2009 may 2010 verint made mandatory “excess cash flow” payments 41 million 221 million aggregate principal amount outstanding term loan respectively professional fees february 1 2009 july 31 2010 paid compliancerelated professional fees approximately 2800 million approximately 1850 million 900 million 50 million paid cti comverse verint ulticom respectively subsidiary dividend april 2009 ulticom inc paid special cash dividend 1996 million shareholders including cti ulticom inc’s minority shareholders paid 643 million additional 02 million payable holders deferred stock units awarded ulticom inc’s equity incentive plan upon issuance common stock subject awards 2009 restructuring initiative fiscal year ended january 31 2010 comverse’s management approved restructuring plan close certain facilities eliminate associated staff positions plan implemented around comverse’s core competencies innovations enhance quality product offerings better align customers’ needs improve delivery service capabilities aggregate cost plan 138 million severancerelated costs 133 million paid fiscal year ended january 31 2010 facilitiesrelated costs 05 million expected paid january 31 2012 litigation settlements part settlement consolidated shareholder class action cti paid plaintiff class 10 million 179 million december 2009 july 2010 respectively detailed discussion relating amounts payable settlements consolidated shareholder class action shareholder derivative actions see item 3 “legal proceedingsproceedings related cti’s special committee investigationssettlement agreements” september 2010 cti received insurance proceeds 165 million directors’ officers’ insurance policies connection settlements shareholder derivative actions consolidated shareholder class action business acquisition february 4 2010 verint paid 179 million acquire iontas privately held provider desktop analytics solutions additional milestonebased contingent payments 38 million tied certain performance targets achieved next two years ars february 1 2009 july 31 2010 ars recorded value 669 million redeemed proceeds 809 million amounts included 516 million aggregate principal amount ars subject ubs put 416 million aggregate principal amount ars purchased ubs cti pursuant purchase right prior june 30 2010 100 million aggregate principal amount ars purchased ubs upon exercise cti ubs put effective june 30 2010 part settlement consolidated shareholder class action cti granted security interest benefit plaintiff class account cti holds ars 516 million aggregate principal amount ars held account ubs proceeds sales thereof consequently cti’s ability use proceeds future sales ars restricted amounts payable settlement paid full additional discussion see “significant subsequent events” amendments verint’s credit facility termination interest rate swap agreement july 2010 verint amended credit facility among things change method calculation applicable interest rate margin based verint’s consolidated leverage ratio time ii add 150 libor floor iii increase aggregate amount incremental revolving commitment term loan increases permitted credit facility 500 million 2000 million iv make certain changes negative covenants including providing covenant relief respect permitted consolidated leverage ratio also july 2010 verint amended credit facility increase revolving credit commitments thereunder 150 million 750 million addition july 2010 verint terminated interest rate swap agreement entered may 2007 connection entry credit facility effect fixed interest exposure respect 4500 million term loans thereunder 518 interest rate terminate swap prior may 2011 maturity verint paid approximately 217 million august 2010 counterparty representing approximate present value expected remaining quarterly settlement payments otherwise due verint thereafter sale land september 16 2010 comverse ltd indirect whollyowned subsidiary cti entered agreement sale certain land ra’anana israel third party purchase price approximately 285 million approximately 271 million proceeds received balance held escrow cover extent necessary applicable taxes levies sale consummated following bid process considered multiple offers land sale pursued part initiatives undertaken management improve cash position segment business highlights trends comverse segment business overview comverse leading provider softwarebased products systems related services provide prepaid postpaid converged billing active customer management wireless wireline cable network operators referred business support systems bss delivering value proposition designed ensure timely efficient service monetization enable realtime offers made end users based relevant customer profile information ii enable wireless wireline networkbased valueadded services vas comprised four categories voice messaging mobile internet mobile advertising include voicemail call completion visual voicemail ringback tones short messaging service sms text messaging texting multimedia picture video messaging mobile internet access mobile advertising internet protocol ip communications comverse’s products services designed generate carrier voice data network traffic revenue customer loyalty monetize network operators’ services improve operational efficiency 450 wireless wireline network communication service provider customers 125 countries including majority world’s 100 largest wireless network operators key trends challenges uncertainties four fiscal years covered annual report comverse segment materially affected following trends challenges shift mix revenue comverse experienced growth segment revenue fiscal year ended january 31 2008 primarily due increase revenue vas product line organically due acquisitions reaching peak fiscal year ended january 31 2008 sales comverse’s vas products began decline result commencement global economic decline resulting reduction spending telecommunication service providers ii proliferation alternative messaging applications sms text messaging part attractive substitute voicemail usage iii maturation wireless industry particularly relates voicebased services voicemail resulting decreasing rate growth subscriber base comverse’s telecommunication service provider customers capital spending budgets iv increased competition certain product areas lowcost service providers particularly emerging markets trend continued respect sales comverse’s vas products fiscal year ended january 31 2010 despite changing nature market continue view comverse’s vas products key driver business seek ways increase revenue existing products develop new innovative products comverse leading provider voicemail products although growth demand products moderated greatly believe well positioned maintain potentially grow market share respect upgrades installations next generation voicemail products leverage platform crosssell products existing customer base four fiscal years covered annual report comverse experienced growth revenue comverse’s bss customer solutions maintenance primarily due kenan acquisition lesser extent due organic growth believe comverse’s bss product line potential become key driver growth going forward basis comverse established provision prepaid billing products services acquisition kenan december 2005 became significant provider postpaid billing products services comverse provider converged prepaidpostpaid product offerings although significant growth product offering occur fiscal year ended january 31 2010 fiscal year spending communication service providers declined believe product offerings provide comverse significant opportunities growth fiscal years covered annual report shift mix revenue professional service revenue gradually increasing periods licensing revenue reaching peak fiscal year ended january 31 2008 declining thereafter shift resulted increases professional services required implement provide maintenance comverse’s increasingly complex projects negative impact comverse’s margins challenges global economy global economic decline commenced fiscal year ended january 31 2008 downturn global economy fiscal year ended january 31 2009 materially adversely affected telecommunications industry many comverse’s customers experienced significant declines revenues profitability customers required reduce excessive debt levels response challenges many comverse’s customers implemented cost cutting measures including closely monitoring operating expenses reducing capital investment budgets resulted reduced demand comverse’s products services solutions longer lead times customer purchasing decisions adverse pricing pressures due part decline global economy comverse experienced declines revenue increased operating losses trend continued fiscal year ended january 31 2010 changes telecommunications industry increased competition telecommunications industry operate undergone continues undergo significant changes intensified fiscal year ended january 31 2006 present changes adverse comverse include emergence new lowcost competitors emerging markets ii proliferation alternative messaging applications sms text messaging part attractive substitute voicemail usage iii maturation wireless services industry particularly relates voicebased services voicemail iv relative commoditization voice sms text message services v increased dependence growth emerging markets lower average revenue per user vi changes regulatory environment believe changes reduced demand comverse products services increased pricing pressures turn impacted revenue time global wireless subscriptions traffic continued grow emerging wireless segments data services internet browsing advertising experienced rapid adoption trends support demand several products although comverse believes products services superior lowcost competitors emerging markets competition caused comverse evaluate cost structure view toward reducing costs providing products services improving margins challenges relating investigations evaluations discussed comverse operate ordinary business conditions four fiscal years covered annual report result investigations evaluations period comverse experienced significant changes senior management senior management required expend significant resources connection investigations evaluations including various legal proceedings increased efforts enable cti become current periodic reporting obligations federal securities laws addition cti’s inability become current periodic reporting obligations federal securities laws period covered annual report limited information comverse able provide public interested parties including customers furthermore inability become current limited ability use equity incentives attract retain motivate comverse’s employees although subject quantification management believes factors adverse impact comverse’s business relationships reputation believe adversely affected performance significant acquisitions historically growth acquisitions important element comverse’s corporate strategy four fiscal years covered annual report comverse made two material acquisitions december 2005 comverse acquired kenan provider softwarebased billing solutions acquisition kenan intended expand comverse’s product offering billing market enable offer converged prepaidpostpaid billing product converged prepaidpostpaid billing product offering gains market acceptance management believes could become significant driver revenue growth may 2006 comverse acquired netcentrex broaden technology product offering presence voip communications service provider market fiscal years ended january 31 2008 2009 netcentrex reporting unit experienced decrease results compared prior performance significant reduction orders key customer factors adversely affected projected future cash flows estimated fair value netcentrex reporting unit result recorded noncash pretax impairment charges reflecting impairment substantially reporting unit’s goodwill intangible assets part initiatives improve focus core business maintain ability face intense competitive pressures markets comverse evaluating strategic options potential wind netcentrex business comverse’s strategy several elements comverse’s strategy including • expand comverse’s presence market share bss market believe comverse’s bss products offer customers several advantages competitors’ solutions including faster time market lower total cost ownership intend focus expanding comverse’s position market especially engagements large established communication service providers • maintain expand comverse’s market leadership established voicebased services intend sustain comverse’s strong market leadership position voicebased services voicemail call completion part promotion advanced offerings visual voicemail call management • expand comverse’s presence market share certain mobile data mobile internet product categories believe growth mobile data internet applications continue foreseeable future presenting opportunities growth comverse’s messaging mobile internet products • improve margins competitive position reducing delivery cost comverse intends continue seek improvement margins primarily productizing software enable significantly reduce product delivery support costs • grow acquisitions addition organic growth companies comverse’s markets continue consolidate comverse intends evaluate acquisition opportunities means add business scale technology enhance market leadership complement geographic presence expand adjacent markets goingforward value drivers believe prolonged period investigations evaluations efforts become current periodic reporting obligations adverse impact upon comverse’s business results operations cash flows financial conditions believe multiyear restatement process behind us become current periodic reporting obligations comverse’s business financial performance may improve primarily due ability management manage business operations execute strategies ordinary conditions anticipated significant decline professional fees addition cti becomes current customers potential customers may greater confidence levels comverse business verint segment business overview verint global leader actionable intelligence solutions valueadded services verint’s solutions enable organizations sizes make timely effective decisions improve enterprise performance enhance safety 10000 organizations 150 countries including 80 fortune 100 use verint’s actionable intelligence solutions capture distill analyze complex underused information sources voice video unstructured text enterprise market verint’s workforce optimization solutions help organizations enhance customer service operations contact centers branches backoffice environments increase customer satisfaction reduce operating costs identify revenue opportunities improve profitability security intelligence market verint’s video intelligence public safety communications intelligence investigative communications intelligence solutions vital government commercial organizations efforts protect people property neutralize terrorism crime verint supports customers around globe directly extensive network selling support partners shift verint’s business fiscal year ended january 31 2005 verint’s security solutions represented approximately 75 revenue verint’s business intelligence solutions represented remainder revenue since time verint’s revenue mix shifted significantly primarily result acquisition witness may 2007 also result following additional changes verint’s business capital structure • verint’s workforce optimization solutions comprised verint’s legacy business intelligence solutions business witness’ entire business became continues largest business measured revenue assets fiscal year ended january 31 2009 revenue workforce optimization solutions represented approximately 53 verint’s revenue compared 25 verint’s revenue fiscal year ended january 31 2006 • acquisition witness increased software portion verint’s product mix increased gross margins provided recurring maintenance revenue • verint’s customer base increased 10000 organizations • verint incurred approximately 6500 million indebtedness finance portion witness acquisition • verint issued 293000 shares preferred stock cti aggregate purchase price 2930 million finance portion witness acquisition verint’s business verint serves two markets three product lines verint’s workforce optimization product line serves enterprise workforce optimization market video intelligence communications intelligence product lines serve security intelligence market verint leading provider enterprise workforce optimization software services verint’s solutions enable organizations extract analyze valuable information customer interactions related operational data order make effective proactive decisions optimizing performance customer service operations improving customer experience enhancing compliance key business technology trends driving solutions include growing interest unified workforce optimization suite sophisticated customer interaction analytics adoption workforce optimization solutions outside contact centers ongoing upgrade traditional timedivision multiplexing tdm voice systems voip telephony infrastructure fiscal years ended january 31 2009 2008 2007 2006 revenue workforce optimization solutions represented approximately 53 49 34 25 verint’s total revenue respectively verint leading provider networked ip video solutions designed optimize security enhance operations verint’s video intelligence solutions portfolio includes ip video management software services edge devices capturing digitizing transmitting video different types wired wireless networks video analytics networked dvrs key business technology trends video intelligence solutions include increased demand advanced security solutions due ongoing terrorism security threats around world transition relatively passive analog cctv video systems sophisticated networkbased ip video solutions fiscal years ended january 31 2009 2008 2007 2006 revenue video intelligence solutions represented approximately 19 28 33 37 verint’s total revenue respectively verint also leading provider communications intelligence investigative solutions help law enforcement national security intelligence civilian government agencies effectively detect investigate neutralize criminal terrorist threats verint’s solutions designed handle massive amounts unstructured structured information different sources quickly make sense complex scenarios generate evidence intelligence key business technology trends segment include demand innovative communications intelligence investigative solutions due terrorism criminal activities security threats expanding range communication information media increasing complexity communications networks growing network traffic legal compliance requirements fiscal years ended january 31 2009 2008 2007 2006 revenue communications intelligence investigative solutions represented approximately 28 23 33 38 verint’s total revenue respectively verint’s strategy several elements verint’s strategy including • continue drive development actionable intelligence solutions unstructured data verint pioneer development solutions help businesses governmental organizations derive intelligence unstructured data verint intends continue drive adoption actionable intelligence solutions delivering solutions workforce optimization security intelligence markets designed provide high return investment • maintain market leadership innovation customer centricity verint believes compete successfully must continue introduce solutions better enable customers derive actionable intelligence unstructured data order verint intends continue make significant investments research development protect intellectual property patents means maintain regular dialog customer base order understand business objectives requirements • continue expand verint’s market presence oem partner relationships verint expanded relationships oems channel partners verint believes relationships broaden market coverage intends continue expanding existing relationships creating new ones • augment verint’s organic growth acquisitions verint examines acquisition opportunities regularly means add technology increase geographic presence enhance market leadership expand adjacent markets historically verint engaged acquisitions purposes expects continue future strategic opportunities arise key trends developments verint’s business verint believes many factors affect ability sustain increase revenue profitability including • decreased information technology spending decline global economy information technology spending decreased market verint’s products services adversely affected customers delaying reducing eliminating spending information technology verint believes adversely affected results • market acceptance actionable intelligence unstructured data particularly analytics verint early stage market value certain aspects products solutions still process market acceptance verint believes future growth depends part continued increasing acceptance value data analytics across product offerings • verint’s debt instruments may constrain investment growth verint subject various restrictive covenants credit facility well leverage ratio financial covenant result verint’s credit facility limits ability incur additional debt make certain investments business limitations may impede verint’s ability execute upon business strategy subsequent fiscal years covered annual report verint systems became current periodic reporting obligations federal securities laws shares common stock relisted nasdaq july 6 2010 ulticom segment ulticom segment designs develops markets licenses supports network signaling solutions products sold primarily direct sales network equipment manufacturers application developers service providers include ulticom’s products within systems services ulticom believes key drivers financial results • product price volume • cost support new existing customer deployments products • investments product enhancements expansion new markets • interest income earned cash equivalents shortterm investments second half fiscal year ended january 31 2009 ulticom’s financial results adversely affected ongoing slowdown infrastructure spending communication service providers declines technology expenditures revenue fiscal year ended january 31 2009 dropped 10 compared levels fiscal year ended january 31 2008 result ulticom taken action lower costs operate effectively lower sales levels fiscal years ended january 31 2009 2008 2007 ulticom’s financial results also negatively impacted substantial expenses related investigation restatement corporate development activities well employee retention workforce reduction payments subsequent fiscal years covered annual report ulticom inc became current periodic reporting obligations federal securities laws ii shares common stock relisted nasdaq november 25 2009 iii paid special cash dividend aggregate 1996 million shareholders april 20 2009 iv effected oneforfour reverse stock split november 17 2009 v response lower revenue levels implemented measures reduce costs operate effectively principally consisted reductions numbers personnel substantially areas operations largest occurred september 2009 ulticom continues focus key elements strategy expand role premium provider signaling solutions telecommunications industry elements include ulticom leveraging strengths maintain expand market share wireless broadband services communication infrastructure markets specifically ulticom currently focusing developing following strengths business • comprehensive product portfolio signaling component system solutions • highvalue customer base established emerging equipment manufacturers service providers • increasing operational efficiency continuous process innovation talent management segment fiscal years ended january 31 2009 2008 2007 2006 segment revenue 416 million 477 million 392 million 284 million respectively primarily generated starhome fiscal year ended january 31 2007 increase segment revenue primarily attributable services rendered connection deployment starhome’s new suite roaming products fiscal year ended january 31 2008 segment revenue growth attributable increased revenue starhome’s products services segment revenue declined fiscal year ended january 31 2009 compared prior fiscal year primarily due divestiture insignificant subsidiary results operations following discussion provides analysis condensed consolidated results operations segments fiscal years presented fiscal year ended january 31 2009 compared fiscal year ended january 31 2008 condensed consolidated results total revenue total revenue 16774 million fiscal year ended january 31 2009 decrease 461 million 27 compared fiscal year ended january 31 2008 decrease primarily attributable decline revenue comverse segment 1707 million compared prior year mainly attributable commencement global economic decline resulting reduction spending telecommunication service providers ii proliferation alternative messaging applications sms text messaging part attractive substitute voicemail usage iii maturation wireless industry particularly relates voicebased services voicemail resulting decreasing rate growth subscriber base comverse’s telecommunication service provider customers capital spending budgets iv increased competition certain product areas lowcost service providers particularly emerging markets decrease revenue partially offset increase revenue 1350 million verint segment primarily attributable inclusion results operations witness entire fiscal year ended january 31 2009 compared inclusion witness’ results operations prior year date acquisition verint may 2007 lesser extent verint’s organic growth loss operations loss operations 2099 million fiscal year ended january 31 2009 decrease 2119 million 502 compared fiscal year ended january 31 2008 decrease primarily attributable 967 million decrease charges impairment goodwill intangible assets related netcentrex reporting unit comverse segment recorded impairment charges goodwill intangible assets 484 million fiscal year ended january 31 2009 compared 1451 million fiscal year ended january 31 2008 ii 486 million decrease aggregate product service costs partially offset 461 million decrease total revenue principally attributable comverse iii 277 million decrease personnelrelated costs 77 million decrease stockbased compensation expense recorded within selling general administrative research development fiscal year ended january 31 2009 primarily attributable comverse iv 144 million decrease employee sales commissions recorded within selling general administrative expenses primarily attributable decline comverse’s revenue v 144 million decrease integration costs inprocess research development related verint’s acquisition witness verint recorded 110 million integration costs 67 million writeoff acquired inprocess research development fiscal year ended january 31 2008 compared 33 million integration costs corresponding writeoff acquired inprocess research development fiscal year ended january 31 2009 vi 130 million decrease legal fees associated intellectual property litigation assumed verint acquisition witness net settlement recovery vii 100 million decrease compliancerelated professional fees primarily attributable comverse interest income interest income 341 million fiscal year ended january 31 2009 decrease 424 million 554 compared fiscal year ended january 31 2008 decrease primarily attributable lower average cash investment balances lower yields ars due declines index rates underlying variable interest rates fiscal year ended january 31 2009 compared fiscal year ended january 31 2008 interest expense interest expense 386 million fiscal year ended january 31 2009 increase 11 million 28 compared fiscal year ended january 31 2008 increase primarily attributable increase outstanding borrowings verint’s credit facility partially offset impact lower interest rates aggregate borrowings fiscal year ended january 31 2009 expense net expense 889 million fiscal year ended january 31 2009 increase 361 million 683 compared fiscal year ended january 31 2008 increase primarily attributable 386 million increase impairment charge associated ars recorded impairment charges 865 million fiscal year ended january 31 2009 compared 479 million recorded fiscal year ended january 31 2008 ii 218 million increase related recognition net foreign currency transaction losses 49 million fiscal year ended january 31 2009 compared net foreign currency transaction gains 169 million fiscal year ended january 31 2008 iii 208 million increase due net realized losses investments derivatives 102 million fiscal year ended january 31 2009 compared net realized gains investments derivatives 106 million fiscal year ended january 31 2008 increases offset decrease unrealized loss 277 million verint’s interest rate swap unrealized gain 136 million ubs put entered november 2008 income tax provision income tax provision 497 million fiscal year ended january 31 2009 compared 211 million fiscal year ended january 31 2008 effective tax rate continuing operations 164 fiscal year ended january 31 2009 compared 49 fiscal year ended january 31 2008 negative effective tax rate years ended january 31 2009 2008 resulted recording income tax expense consolidated pretax loss primarily attributable recording valuation allowance deferred tax assets recording income tax provision jurisdictions taxable income excluding impact valuation allowances effective tax rate fiscal years ended january 31 2009 2008 would 187 165 respectively lower us statutory tax rate fiscal year ended january 31 2009 significant differences impacting effective tax rate valuation allowance included impact nondeductible goodwill impairment charges well withholding taxes although consolidated pretax loss still subject taxation due relative mix income losses generated multiple taxing jurisdictions tax rates different us statutory rate minority interest equity earnings unconsolidated affiliates net tax minority interest equity earnings unconsolidated affiliates net tax 325 million fiscal year ended january 31 2009 decrease 510 million compared fiscal year ended january 31 2008 change attributable decrease verint’s net loss fiscal year ended january 31 2009 compared january 31 2008 net loss net loss 3204 million fiscal year ended january 31 2009 decrease 528 million loss 141 compared fiscal year ended january 31 2008 due primarily reasons discussed segment results comverse revenue management analyzes comverse’s revenue generated customer solutions ii maintenance revenue generated customer solutions consists primarily licensing comverse’s bss vas customer solutions related professional services training professional services primarily include installation customization consulting services revenue customer solutions 5577 million fiscal year ended january 31 2009 decrease 1561 million 219 compared fiscal year ended january 31 2008 decrease attributable lower revenue vas bss 1515 million 46 million respectively principally attributable commencement global economic decline resulting reduction spending telecommunication service providers ii proliferation alternative messaging applications sms text messaging part attractive substitute voicemail usage iii maturation wireless industry particularly relates voicebased services voicemail resulting decreasing rate growth subscriber base comverse’s telecommunication service provider customers capital spending budgets iv increased competition certain product areas lowcost service providers particularly emerging markets maintenance revenue consists primarily postcontract customer support pcs including technical software support services unspecified software updates upgrades customers whenandifavailable basis maintenance revenue 3600 million fiscal year ended january 31 2009 decrease 146 million 39 compared fiscal year ended january 31 2008 decrease primarily attributable lower pricing maintenance services related comverse’s voicerelated products maintenance revenue typically less susceptible changes market conditions generally represents stable revenue stream recurring renewals contracts comverse’s existing customer base revenue geographic region revenue americas europe middle east africa emea asia pacific represented approximately 28 57 15 comverse’s revenue respectively fiscal year ended january 31 2009 compared approximately 37 51 12 comverse’s revenue respectively fiscal year ended january 31 2008 presentation revenue geographic region based location customers changes presented attributable identifiable trend foreign currency impact revenue functional currency financial reporting purposes us dollar majority comverse’s revenue fiscal year ended january 31 2009 derived transactions denominated us dollars revenue derived transactions denominated various foreign currencies primarily euro fluctuations us dollar relative foreign currencies comverse conducted business fiscal year ended january 31 2009 compared fiscal year ended january 31 2008 favorably impacted revenue 78 million intercompany revenue intercompany revenue generated sales affiliates primarily starhome intercompany revenue 29 million fiscal year ended january 31 2009 decrease 19 million compared fiscal year ended january 31 2008 foreign currency impact costs significant portion comverse’s expenses principally personnelrelated costs incurred new israeli shekels nis whereas functional currency financial reporting purposes us dollar significant strengthening nis us dollar considerably increase us dollar value comverse’s expenses israel cost revenue cost revenue consists primarily hardware software material costs compensation related expenses personnel involved customization comverse’s products customer delivery maintenance professional services installation costs training royalties license fees depreciation equipment used operations amortization capitalized software costs certain purchased intangible assets related overhead costs cost revenue 5034 million fiscal year ended january 31 2009 decrease 733 million 127 compared fiscal year ended january 31 2008 decrease primarily attributable 526 million decrease material costs overhead result lower revenue ii 184 million decrease personnelrelated costs principally due reduction employee workforce related restructuring initiatives implemented fiscal years ended january 31 2009 2008 fluctuations foreign currency exchange rates unfavorable impact personnelrelated costs approximately 85 million fiscal year ended january 31 2009 decreases offset 53 million increase costs associated use contractors lieu company employees part effort reduce personnelrelated costs selling general administrative selling general administrative expenses consist primarily compensation related expenses personnel professional services sales marketing expenses facility costs unallocated overhead expenses selling general administrative expenses 2853 million fiscal year ended january 31 2009 decrease 615 million 177 compared fiscal year ended january 31 2008 decrease primarily attributable 193 million decrease agent employee sales commissions principally due lower revenue fiscal year ended january 31 2009 compared fiscal year ended january 31 2008 ii 185 million decrease personnelrelated costs result certain restructuring initiatives commenced fiscal quarter ended july 31 2007 increased reductions continuing fiscal year ended january 31 2009 primarily relating consolidation facilities elimination associated staff positions effort streamline comverse’s operational activities fluctuations foreign currency exchange rates unfavorable impact personnelrelated costs approximately 75 million fiscal year ended january 31 2009 iii 113 million decline stockbased compensation expense primarily due absence significant equity grants fiscal periods ended subsequent january 31 2006 stockbased compensation expense recognized awards’ multiyear vesting period ranging three four years iv 108 million decrease compliancerelated professional fees due substantial completion special committee’s investigations january 2008 partially offset professional fees incurred connection revenue recognition evaluation v 40 million decrease bad debt expense primarily due decrease revenue vi 45 million decrease costs including travel entertainment communications costs result cost reduction initiatives resulting overall decrease revenue comverse fiscal year ended january 31 2009 compared fiscal year ended january 31 2008 decreases offset increase professional fees compliancerelated professional fees 89 million due primarily legal expenses related patent litigation audit fees research development net research development expenses primarily consist personnelrelated costs involved product development net reimbursement government programs research development expenses also include thirdparty development programming costs amortization purchased software code services content used research development activities research development expenses 2307 million fiscal year ended january 31 2009 decrease 302 million 116 compared fiscal year ended january 31 2008 decrease primarily attributable 185 million decrease personnelrelated costs resulting restructuring initiatives prior years involving workforce reductions reduced research development activities fluctuations foreign currency exchange rates unfavorable impact personnelrelated costs approximately 111 million fiscal year ended january 31 2009 ii 41 million decrease primarily due reduction general administrative expenses relating research development iii 34 million decrease contractor costs 17 million decline travel entertainment fiscal year ended january 31 2009 compared fiscal year ended january 31 2008 expenses related vas products accounted 1680 million research development expenses net fiscal year ended january 31 2009 research development expenses incurred connection variety different research development projects 578 million related developing messaging browsing products assure efficient communications help maximize call completion messaging traffic 497 million related voice mobile internet products enable operators quick launch costeffective innovative massmarket voicerelated services 200 million related developing netcentrex ip communication products provide ipbased voice video messaging solutions addition 340 million spent shared software applications referred components allow vas products systems offered variety sizes configurations well within many different environments expenses related bss products accounted 595 million research development expenses net fiscal year ended january 31 2009 amount spent primarily related enhancement comverse one operating expenses operating expenses 572 million fiscal year ended january 31 2009 decrease 1053 million 648 compared fiscal year ended january 31 2008 decrease primarily attributable 1137 million decrease charges impairment goodwill related netcentrex reporting unit comverse recorded goodwill impairment charge 214 million fiscal year ended january 31 2009 compared 1351 million fiscal year ended january 31 2008 ii 86 million decrease restructuring charges comverse recorded 88 million restructuring charges fiscal year ended january 31 2009 compared 174 million fiscal year ended january 31 2008 decrease partially offset 170 million increase impairment intangible assets related netcentrex reporting unit comverse recorded impairment charges intangible assets 270 million fiscal year ended january 31 2009 compared 100 million fiscal year ended january 31 2008 loss operations loss operations 1602 million fiscal year ended january 31 2009 decrease 984 million loss 380 compared fiscal year ended january 31 2008 due primarily reasons described segment performance comverse’s segment performance 205 million loss fiscal year ended january 31 2009 based segment revenue 9252 million representing segment performance loss 22 percentage segment revenue segment performance 398 million fiscal year ended january 31 2008 based segment revenue 10982 million representing segment performance margin 36 percentage segment revenue decrease segment performance margin primarily attributable rapid decline revenue fiscal year ended january 31 2009 partially offset lower product service costs personnelrelated compensation expenses verint revenue verint’s product revenue consists sale hardware software products product revenue 3655 million fiscal year ended january 31 2009 increase 324 million 97 compared fiscal year ended january 31 2008 increase primarily attributable 474 million increase product revenue related verint’s communication intelligence solutions well increase 66 million verint’s workforce optimization solutions increases offset decrease 216 million video intelligence solutions revenue verint’s service support revenue consists primarily revenue installation consulting training services postcontract customer support service support revenue 3041 million fiscal year ended january 31 2009 increase 1027 million 510 compared fiscal year ended january 31 2008 increase primarily related service revenue associated workforce optimization solutions represented 849 million total increase well combined increase 178 million service revenue associated video intelligence communications intelligence solutions increase workforce optimization solutions due primarily inclusion results operations witness entire fiscal year ended january 31 2009 compared inclusion witness’ results operations prior year date acquisition may 2007 coupled increase witness maintenance renewal revenue recognized full value result reduced impact purchase accounting adjustments reflect obligations assumed acquisition verint recorded adjustment reducing support obligations assumed witness acquisition estimated fair value acquisition date result required business combination accounting rules revenue related maintenance contracts amount 52 million 339 million would otherwise recorded witness independent entity recognized fiscal years ended january 31 2009 2008 respectively revenue geographic region revenue americas emea asia pacific represented approximately 52 32 16 verint’s revenue respectively fiscal year ended january 31 2009 compared approximately 52 33 15 respectively fiscal year ended january 31 2008 cost revenue verint’s product costs primarily consist hardware material costs royalties due third parties software components embedded software applications amortization capitalized software development costs charge impairments intangible assets personnelrelated costs associated verint’s global operations contractor consulting expenses facility costs allocated overhead expenses product costs fiscal year ended january 31 2009 also included amortization impairment acquired technology 90 million product costs 1406 million fiscal year ended january 31 2009 increase 110 million 85 compared fiscal year ended january 31 2008 increase due primarily increased product revenue related communication intelligence solutions increase revenue resulted increase hardware material costs well expenses relating resources dedicated delivery customized projects included increase personnelrelated costs 60 million increase consulting contracting costs 32 million increase product costs 08 million product costs related workforce optimization solutions also increased result increase product revenue product costs related video intelligence solutions decreased result decrease product revenue verint’s service costs primarily consist personnelrelated costs contractor costs stockbased compensation expenses facility costs travel expenses relating installation training consulting maintenance services overhead expenses service costs 1175 million fiscal year ended january 31 2009 increase 172 million 171 compared fiscal year ended january 31 2008 increase primarily attributable inclusion results operations witness entire fiscal year ended january 31 2009 compared inclusion witness’ results operations prior year date acquisition may 2007 expenses personnelrelated costs increased 83 million materials costs increased 43 million contractor expenses increased 17 million travel lodging increased 07 million stockbased compensation expenses increased 05 million expenses increased 16 million selling general administrative verint’s selling general administrative expenses consist primarily personnel costs related expenses professional fees sales marketing expenses including travel sales commissions sales referral fees facility costs communication expenses administrative expenses amortization acquired intangible assets selling general administrative expenses 3073 million fiscal year ended january 31 2009 increase 285 million 102 compared fiscal year ended january 31 2008 increase primarily attributable 93 million increase agent commissions due increased revenue ii 74 million increase personnelrelated costs partially due inclusion results operations witness entire fiscal year ended january 31 2009 compared inclusion witness’ results operations date acquisition may 2007 fiscal year ended january 31 2008 partially offset lower expenses due reduction workforce attributable costsaving initiatives absence prior year’s special retention program iii 56 million increase amortization acquisitionrelated intangible assets 20 million increase stockcompensation expense 20 million increase rent utilities expense due inclusion results operations witness entire fiscal year ended january 31 2009 compared inclusion witness’ results operations date acquisition may 2007 fiscal year ended january 31 2008 iv 60 million increase professional fees including 25 million increase compliancerelated professional fees increases partially offset 32 million decline sales commissions due reduction customer orders verint’s workforce optimization video intelligence solutions received fiscal year well expense reductions totaling 07 million research development net verint’s research development expenses primarily consist personnel subcontracting expenses facility costs allocated overhead net certain software development costs capitalized well reimbursements government programs software development costs capitalized upon establishment technological feasibility related products available general release customers research development net 882 million fiscal year ended january 31 2009 increase 06 million 07 compared fiscal year ended january 31 2008 increase primarily attributable 23 million increase contractor consultant fees ii 19 million increase stockbased compensation expense iii 05 million increase expenses primarily attributable inclusion results operations witness entire fiscal year ended january 31 2009 compared inclusion witness’ results operations date acquisition may 2007 increases partially offset absence special bonus program fiscal year ended january 31 2009 totaled 42 million fiscal year ended january 31 2008 operating expenses operating expenses 47 million fiscal year ended january 31 2009 decrease 273 million 854 compared fiscal year ended january 31 2008 decrease primarily attributable 130 million decrease litigation charges resulting recovery 43 million due gain settlement legal matter net legal fees recorded fiscal year ended january 31 2009 compared legal fees 87 million incurred fiscal year ended january 31 2008 ii 67 million writeoff inprocess research development primarily related incomplete research development projects attributable witness acquisition fiscal year ended january 31 2008 corresponding acquisitionrelated charges recorded fiscal year ended january 31 2009 iii 53 million decrease integration restructuring costs primarily related witness acquisition income loss operations income operations 112 million fiscal year ended january 31 2009 improvement 1050 million compared loss operations 938 million fiscal year ended january 31 2008 due primarily reasons described foreign currency effect operating results fiscal year ended january 31 2009 compared fiscal year ended january 31 2008 fluctuations value us dollar relative major currencies used verint’s business adversely affected operating results us dollar weakened euro nis strengthened british pound sterling canadian dollar net impact unfavorable verint’s revenue due primarily weaker british pound sterling net unfavorable impact verint’s operating income due primarily stronger nis caused verint’s local expenses higher foreign exchange rates fiscal year ended january 31 2008 remained constant fiscal year ended january 31 2009 verint’s total revenue would approximately 50 million higher operating expenses product service costs would approximately 20 million lower net favorable constant dollar impact approximately 70 million operating income fiscal year ended january 31 2009 segment performance segment performance 1204 million fiscal year ended january 31 2009 based segment revenue 6754 million resulting segment performance margin 178 percentage segment revenue segment performance 754 million fiscal year ended january 31 2008 segment revenue 5718 million resulting segment performance margin 132 percentage segment revenue increase segment performance margin principally result increases revenue offset part increases costs ulticom revenue ulticom’s product revenue consists primarily sales software licenses interface boards product revenue 379 million fiscal year ended january 31 2009 decrease 52 million 120 compared fiscal year ended january 31 2008 decrease product revenue due primarily effect decline sales volume lower average selling prices boards ulticom believes demand products negatively impacted decline capital spending companies operating communications industry recent years ulticom’s service revenue consists primarily software maintenance fees related previously deployed software licenses ulticom’s products general demonstrate less volatility product revenue service revenue 109 million fiscal year ended january 31 2009 increase 04 million 40 compared fiscal year ended january 31 2008 intercompany revenue intercompany revenue related revenue generated affiliates primarily comverse intercompany revenue 42 million fiscal year ended january 31 2009 decrease 12 million 221 compared fiscal year ended january 31 2008 cost revenue product costs 88 million fiscal year ended january 31 2009 decrease 17 million 160 compared fiscal year ended january 31 2008 decrease due primarily writedowns values inventory excess obsolete boards board components recorded fiscal year ended january 31 2008 corresponding writedowns recorded fiscal year ended january 31 2009 ii reduction workforce fiscal year ended january 31 2009 iii lower materials production costs resulting lower volume sales orders compared fiscal year ended january 31 2008 service costs 57 million fiscal year ended january 31 2009 consistent fiscal year ended january 31 2008 selling general administrative selling general administrative expenses 334 million fiscal year ended january 31 2009 decrease 17 million 48 compared fiscal year ended january 31 2008 decrease due primarily workforce reductions sales marketing administrative staff related travel expenses completion activities associated ulticom’s investigations financial restatement activities early fiscal year ended january 31 2009 decrease partially offset additional expenses recorded fiscal year ended january 31 2009 relating ulticom’s corporate development related activities consisted primarily exploring various strategic options evaluation special cash dividend paid april 2009 ii cash payments compensate holders expired options costs associated employee retention payments workforce reductions research development net research development expenses 163 million fiscal year ended january 31 2009 consistent fiscal year ended january 31 2008 percentage revenue research development expenses increased 30 operating expenses operating expenses 07 million fiscal year ended january 31 2009 increase 03 million compared fiscal year ended january 31 2008 loss operations loss operations 119 million fiscal year ended january 31 2009 increase loss operations 27 million 293 compared fiscal year ended january 31 2008 due primarily reasons described segment performance segment performance changed loss 04 million fiscal year ended january 31 2008 income 03 million fiscal year ended january 31 2009 change attributable fact decline total segment expenses fiscal year ended january 31 2009 offset decline segment revenue fiscal year compared fiscal year ended january 31 2008 segment performance margins remained relatively constant revenue years generated primarily starhome’s product revenue consists sale hardware software products professional services including managed services pcs revenue 413 million fiscal year ended january 31 2009 decrease 57 million 120 compared fiscal year ended january 31 2008 decrease due primarily divestiture insignificant subsidiary cti cost revenue substantially cost revenue fiscal years attributable starhome’s cost revenue primarily consists material costs personnelrelated costs associated customization products providing maintenance professional services cost revenue 121 million fiscal year ended january 31 2009 decrease 21 million 145 compared fiscal year ended january 31 2008 primarily due divestiture insignificant subsidiary selling general administrative selling general administrative expenses include expenses incurred starhome holding company operations insignificant subsidiaries fiscal years ended january 31 2009 2008 selling general administrative expenses attributable starhome 197 million 207 million respectively selling general administrative expenses entire segment 650 million fiscal year ended january 31 2009 decrease 118 million 153 compared fiscal year ended january 31 2008 decrease due primarily 65 million decrease professional fees ii 30 million decrease selling general administrative expenses iii 17 million reduction starhome’s agent commissions research development net research development expenses 103 million fiscal year ended january 31 2009 decrease 18 million 148 compared fiscal year ended january 31 2008 substantially research development expenses years related starhome operating expenses operating expenses 10 million fiscal year ended january 31 2009 corresponding expense recorded fiscal year ended january 31 2008 expense recorded related restructuring activities starhome fiscal year ended january 31 2009 loss operations loss operations 492 million fiscal year ended january 31 2009 decrease loss 106 million 178 compared fiscal year ended january 31 2008 due primarily reasons described fiscal years ended january 31 2009 2008 loss operations attributable starhome 38 million 55 million respectively segment performance segment performance loss 237 million fiscal year ended january 31 2009 decrease loss 80 million 252 compared loss fiscal year ended january 31 2008 decrease primarily attributable reductions selling general administrative expenses cti starhome insignificant subsidiaries fiscal years ended january 31 2009 2008 segment performance included starhome’s loss 09 million 41 million respectively fiscal year ended january 31 2008 compared fiscal year ended january 31 2007 condensed consolidated results total revenue total revenue 17236 million fiscal year ended january 31 2008 increase 2916 million 204 compared fiscal year ended january 31 2007 increase primarily attributable 1658 million increase revenue verint segment principally due inclusion results operations witness date acquisition may 2007 ii 1022 million increase revenue comverse segment customer solutions primarily attributable increased sales comverse’s vas customer solutions iii 181 million increase maintenance revenue comverse segment loss operations loss operations 4218 million fiscal year ended january 31 2008 increase loss 320 million 82 compared fiscal year ended january 31 2007 increase loss primarily attributable 1351 million charge goodwill impairment 100 million charge impairment intangible assets related netcentrex reporting unit comverse segment fiscal year ended january 31 2008 corresponding charge recognized fiscal year ended january 31 2007 ii 1072 million increase personnelrelated costs classified within selling general administrative research development fiscal year ended january 31 2008 685 million attributable verint segment due primarily increase employee headcount due inclusion results operations witness date acquisition verint may 2007 iii 429 million increase compliancerelated professional fees fiscal year ended january 31 2008 compared fiscal year ended january 31 2007 iv 211 million increase restructuring costs primarily result comverse’s plan consolidate facilities eliminate associated staff positions order realign operational activities reduce facility usage v 143 million increase amortization expense classified within selling general administrative research development primarily attributable verint’s amortization acquired intangible assets almost entirely attributable witness acquisition vi 138 million increase rent utility expenses 92 million increase agent employee sales commissions due increased revenue primarily related comverse verint segments vii 110 million integration charge 67 million writeoff inprocess research development fiscal year ended january 31 2008 related witness acquisition viii 87 million legal fees associated intellectual property litigation assumed verint witness acquisition fiscal year ended january 31 2008 corresponding charges recorded prior fiscal year litigation settled fiscal year ended january 31 2009 operating expense increases partially offset 2916 million increase total revenue partially offset related increase cost revenue 1131 million primarily attributable comverse verint segments ii 1744 million litigation accrual recognized fiscal year ended january 31 2007 reflecting settlements consolidated shareholder class action federal state derivative actions instituted cti first quarter fiscal year ended january 31 2007 accordance settlement agreements entered cti approved courts actions pending june 23 2010 july 1 2010 september 23 2010 respectively corresponding charge recorded fiscal year ended january 31 2008 see item 3 “legal proceedingsproceedings related cti’s special committee investigationssettlement agreements” interest income interest income 765 million fiscal year ended january 31 2008 decrease 91 million 106 compared fiscal year ended january 31 2007 decrease primarily attributable lower average cash investment balances interest expense interest expense 375 million fiscal year ended january 31 2008 increase 357 million compared fiscal year ended january 31 2007 increase primarily attributable 344 million interest 6500 million term loan facility entered verint connection acquisition witness may 2007 expense income net expense 528 million fiscal year ended january 31 2008 change 765 million compared income 237 million fiscal year ended january 31 2007 change primarily attributable 479 million impairment charge associated ars recognized fiscal year ended january 31 2008 corresponding impairment charge recognized fiscal year ended january 31 2007 ii 293 million unrealized loss interest rate swap verint entered fiscal year ended january 31 2008 partially mitigate exposure changes variable interest rates applicable borrowings credit facility iii 87 million decrease net realized gains investments derivatives fiscal year ended january 31 2008 compared fiscal year ended january 31 2007 primarily due gains recognized sale cti’s investments equity securities fiscal year ended january 31 2007 increases expenses offset increase net foreign currency transaction gains 156 million fiscal year ended january 31 2008 compared fiscal year ended january 31 2007 income tax provision income tax provision 211 million fiscal year ended january 31 2008 compared 463 million fiscal year ended january 31 2007 effective tax rate continuing operations 49 fiscal year ended january 31 2008 compared 164 fiscal year ended january 31 2007 negative effective tax rate years ended january 31 2008 2007 resulted recording income tax expense consolidated pretax loss primarily attributable recording valuation allowance deferred tax assets recording income tax provision jurisdictions taxable income excluding impact valuation allowances effective tax rate fiscal years ended january 31 2008 2007 would 165 95 respectively lower us statutory tax rate fiscal year ended january 31 2008 significant differences impacting effective tax rate valuation allowance included additional reserves established tax contingencies impact nondeductible goodwill impairment charges basis difference investment subsidiaries nondeductible stockbased compensation expenses although consolidated pretax loss still subject taxation due relative mix income losses generated multiple taxing jurisdictions tax rates different us statutory rate minority interest equity earnings unconsolidated affiliates net tax minority interest equity earnings unconsolidated affiliates net tax 835 million fiscal year ended january 31 2008 increase 702 million compared fiscal year ended january 31 2007 increase primarily result increase verint losses allocated minority interest holders fiscal year ended january 31 2008 net loss net loss 3732 million fiscal year ended january 31 2008 increase loss 594 million 189 compared fiscal year ended january 31 2007 due primarily reasons discussed segment results comverse revenue customer solutions 7137 million fiscal year ended january 31 2008 increase 1022 million 167 compared fiscal year ended january 31 2007 increase attributable growth revenue sales comverse’s vas bss customer solutions 891 million 131 million respectively reflected increased revenue comverse’s vas customer solutions revenue 357 million attributable inclusion results operations netcentrex entire fiscal year ended january 31 2008 compared inclusion results operations date acquisition may 2006 fiscal year ended january 31 2007 maintenance revenue 3747 million fiscal year ended january 31 2008 increase 181 million 51 compared fiscal year ended january 31 2007 reflected increase revenue 40 million attributable inclusion results operations netcentrex entire fiscal year ended january 31 2008 compared inclusion results operations date acquisition may 2006 revenue geographic region revenue americas emea asia pacific represented approximately 37 51 12 comverse’s revenue respectively fiscal year ended january 31 2008 compared approximately 40 46 14 respectively fiscal year ended january 31 2007 changes presented attributable identifiable trend foreign currency impact revenue majority comverse’s revenue fiscal year ended january 31 2008 derived transactions denominated us dollars revenue derived transactions denominated various foreign currencies primarily euro fluctuations us dollar relative foreign currencies comverse conducted business fiscal year ended january 31 2008 compared fiscal year ended january 31 2007 favorably impacted revenue 351 million intercompany revenue intercompany revenue generated sales affiliates primarily starhome intercompany revenue 48 million fiscal year ended january 31 2008 decrease 08 million compared fiscal year ended january 31 2007 cost revenue cost revenue 5767 million fiscal year ended january 31 2008 increase 716 million 142 compared fiscal year ended january 31 2007 increase primarily attributable 708 million increase cost result higher revenue consisting 481 million increase material costs overhead 175 million increase contractor expenses 52 million increase travel entertainment expenses ii 144 million increase reflecting inclusion results operations netcentrex entire fiscal year ended january 31 2008 compared inclusion results operations prior year date acquisition may 2006 iii 87 million increase personnelrelated costs due increase professional services corresponding added complexity vas bss projects increases partially offset 137 million decrease stockbased compensation expense fiscal year ended january 31 2008 compared fiscal year ended january 31 2007 decrease due expense recorded fiscal year ended january 31 2007 result modification made previously granted stock awards allow additional time terminated employees exercise options restricted period resulting cti’s delay filing periodic reports since april 2006 modification absence significant equity grants subsequent january 31 2006 ii 122 million decrease costs associated research development activities result fewer customization projects specified customers fiscal year ended january 31 2008 fluctuations foreign currency exchange rates unfavorable impact personnelrelated costs approximately 94 million overall cost revenue fiscal year ended january 31 2008 selling general administrative selling general administrative expenses 3469 million fiscal year ended january 31 2008 increase 72 million 21 compared fiscal year ended january 31 2007 increase primarily attributable 202 million increase personnelrelated costs due primarily 105 million retention bonuses granted fiscal year ended january 31 2008 certain employees 53 million additional salary costs reflecting inclusion results operations netcentrex entire fiscal year ended january 31 2008 compared inclusion results operations prior year date acquisition may 2006 fluctuations foreign currency exchange rates unfavorable impact personnelrelated costs approximately 65 million fiscal year ended january 31 2008 ii 185 million increase compliancerelated professional fees iii 62 million increase costs including bad debt expense contractor costs commissions primarily due increase revenue iv 62 million increase rent utility expenses due inclusion results operations netcentrex entire fiscal year ended january 31 2008 increase rent expense existing locations increases partially offset 460 million decrease stockbased compensation expense due primarily additional expense recorded fiscal year ended january 31 2007 result modification additionally fiscal year ended january 31 2008 significant stockbased compensation grants awarded contributed decrease expense research development net research development expenses 2609 million fiscal year ended january 31 2008 decrease 121 million 44 compared fiscal year ended january 31 2007 decrease primarily attributable 156 million decrease stockbased compensation expense due additional expense recorded modification fiscal year ended january 31 2007 addition fiscal year ended january 31 2008 significant stockbased compensation grants awarded contributed decrease expense decrease partially offset 51 million increase personnelrelated costs mainly result inclusion results operations netcentrex entire fiscal year ended january 31 2008 compared inclusion results operations prior year date acquisition may 2006 fluctuations foreign currency exchange rates unfavorable impact personnelrelated costs related research development approximately 57 million fiscal year ended january 31 2008 research development expenses related vas products accounted 1804 million research development net fiscal year ended january 31 2008 research development expenses incurred connection variety different vas related research development projects 608 million 553 million 335 million 188 million related developing messaging browsing products voice mobile internet products components netcentrex ip communication products respectively research development expenses related bss products accounted 744 million research development expenses net fiscal year ended january 31 2008 600 million related enhancing comverse one operating expenses operating expenses 1625 million fiscal year ended january 31 2008 fiscal year ended january 31 2008 comverse recorded 1351 million goodwill impairment charges related netcentrex reporting unit addition comverse recorded 100 million charge reflect impairment netcentrex’ intangible assets charges impairment recorded fiscal year ended january 31 2007 fiscal year ended january 31 2008 comverse recorded 174 million restructuring charge related restructuring initiative approved comverse’s management fiscal year resulted closing facilities elimination associated staff positions effort realign operational activities charges restructuring recorded fiscal year ended january 31 2007 loss operations loss operations 2587 fiscal year ended january 31 2008 increase 1077 million compared fiscal year ended january 31 2007 due primarily reasons described segment performance segment performance 398 million fiscal year ended january 31 2008 based segment revenue 10982 million representing segment performance margin 36 percentage segment revenue segment performance 140 million fiscal year ended january 31 2007 based segment revenue 9755 million representing segment performance margin 14 percentage segment revenue increase segment performance margin principally result growth revenue including increase segment revenue inclusion results operations netcentrex entire fiscal year ended january 31 2008 compared inclusion results operations date acquisition may 2006 fiscal year ended january 31 2007 partially offset increase overall segment expenses verint 1 fiscal year ended january 31 2007 segment expense adjustmentsother includes 192 million royalty settlement office chief scientist ministry industry trade state israel ocs exit royalty bearing program revenue product revenue 3331 million fiscal year ended january 31 2008 increase 815 million 324 compared fiscal year ended january 31 2007 increase primarily attributable 70 increase product revenue verint’s workforce optimization solutions due inclusion results operations witness date acquisition may 2007 well 30 increase product revenue video intelligence solutions service support revenue 2014 million fiscal year ended january 31 2008 increase 842 million 719 compared fiscal year ended january 31 2007 increase primarily attributable 80 increase service support revenue related workforce optimization solutions due inclusion results operations witness date acquisition may 2007 well 20 increase service support revenue related workforce optimization communications intelligence solutions revenue geographic region revenue americas emea asia pacific represented approximately 52 33 15 verint’s revenue respectively fiscal year ended january 31 2008 compared approximately 48 31 21 respectively fiscal year ended january 31 2007 cost revenue product costs 1296 million fiscal year ended january 31 2008 decrease 132 million 93 compared fiscal year ended january 31 2007 product costs included amortization impairment acquired technology 80 million fiscal year ended january 31 2008 decrease primarily attributable 215 million decrease charges recorded fiscal year ended january 31 2007 royalty expenses settlement amount ocs connection exiting ocs royalty bearing programs july 2006 corresponding charge recorded fiscal year ended january 31 2008 ii 16 million reduction writedown capitalized software development costs iii 10 million writedown prepaid thirdparty licenses fiscal year ended january 31 2007 corresponding writedown fiscal year ended january 31 2008 decreases partially offset increases hardware software materials costs 56 million result increased revenue personnelrelated costs 28 million result increased employee headcount attributable witness acquisition contractor costs 19 million service costs 1004 million fiscal year ended january 31 2008 increase 518 million 1068 compared fiscal year ended january 31 2007 personnelrelated costs increased 294 million primarily result increase employee headcount attributable witness acquisition partially result verint’s special retention program fiscal year ended january 31 2008 increases costs included increase contractor expenses 64 million increase travel lodging expenses 47 million increase overhead expenses 43 million increase stockcompensation expense 29 million increase expenses 57 million almost attributable witness acquisition increases offset 13 million royalty expense incurred fiscal year ended january 31 2007 result exiting ocs royalty bearing programs july 2006 corresponding expense recorded fiscal year ended january 31 2008 selling general administrative selling general administrative expenses 2788 million fiscal year ended january 31 2008 increase 1281 million 850 compared fiscal year ended january 31 2007 increase primarily attributable 459 million increase personnelrelated costs 117 million increase employee sales commissions primarily result increase employee headcount attributable witness acquisition partially result verint’s special retention program fiscal year ended january 31 2008 ii 478 million increase primarily due witness acquisition including 165 million increase amortization expense attributable amortization intangible assets 83 million increase stockbased compensation expense 63 million increase rent utility expense 36 million increase communications expense 45 million increase travel entertainment expenses 86 million increase expenses iii 226 million increase compliancerelated professional fees fiscal year ended january 31 2008 research development net research development net 876 million fiscal year ended january 31 2008 increase 344 million 648 compared fiscal year ended january 31 2007 increase primarily attributable increase personnelrelated costs 226 million principally result increase employee headcount due witness acquisition partially result employee special retention program fiscal year ended january 31 2008 addition verint experienced increases including 53 million contractor expenses 34 million facility costs overhead costs 21 million depreciation amortization expense 10 million expenses due primarily witness acquisition operating expenses verint took several actions fiscal year ended january 31 2008 reduce fixed costs eliminate redundancies strengthen areas requiring operational focus better position respond market pressures unfavorable economic conditions result actions verint incurred restructuring costs 33 million approximately equal measure result acquiring witness restructuring charges pertaining video intelligence solutions also resulting witness acquisition subsequent integration witness verint businesses verint incurred integration costs 110 million fiscal year ended january 31 2008 majority integration restructuring costs consisted severance personnelrelated costs resulting headcount reductions retention program professional fees costs associated travel lodging verint incur significant restructuring integration costs fiscal year ended january 31 2007 operating expenses fiscal year ended january 31 2008 included 87 million legal fees incurred connection patent infringement litigation matter settled fiscal year ended january 31 2009 67 million acquisitionrelated charges primarily due inprocess research development projects result witness acquisition inprocess research development charges recorded fiscal year ended january 31 2007 loss operations loss operations 938 million fiscal year ended january 31 2008 increase 665 million compared fiscal year ended january 31 2007 increase due primarily reasons described foreign currency effect operating results weakening us dollar relative major foreign currencies verint conducts business primarily british pound sterling euro nis canadian dollar fiscal year ended january 31 2008 compared fiscal year ended january 31 2007 favorable impact revenue unfavorable impact operating expenses operating loss foreign exchange rates remained constant periods verint’s total revenue would approximately 120 million lower operating expenses product service costs would approximately 160 million lower net favorable constant dollar impact approximately 40 million operating loss segment performance segment performance 754 million fiscal year ended january 31 2008 based segment revenue 5718 million resulting segment performance margin 132 percentage segment revenue segment performance 255 million fiscal year ended january 31 2007 based segment revenue 3688 million resulting segment performance margin 69 percentage segment revenue increase segment performance margin principally attributable growth witness acquisition witness acquisition increased segment revenue segment performance significantly resulted significant expansion segment performance margins ulticom revenue product revenue 431 million fiscal year ended january 31 2008 decrease 34 million 74 compared fiscal year ended january 31 2007 change resulted decrease revenue sales boards 88 million primarily attributable effects consolidations mergers certain ulticom’s largest customers resulting reduced order volume decrease partially offset 46 million increase licensing revenue primarily due shifts pricing board sales license revenue result renegotiation contracts certain ulticom’s largest customers service revenue 105 million fiscal year ended january 31 2008 decrease 07 million 67 compared fiscal year ended january 31 2007 decrease primarily attributable lower maintenance prices certain large customers intercompany revenue intercompany revenue related revenue generated affiliates primarily comverse remained relatively consistent year cost revenue product service costs 163 million fiscal year ended january 31 2008 increase 02 million 14 compared fiscal year ended january 31 2007 selling general administrative selling general administrative expenses 351 million fiscal year ended january 31 2008 increase 68 million 239 compared fiscal year ended january 31 2007 increase primarily attributable 49 million increase personnel laborrelated expenses travel facilities expenses fiscal year ended january 31 2008 principally due expansion sales marketing activities sell directly communication service providers increase presence asia pacific region ii 11 million increase costs associated ulticom’s investigations financial restatement activities began fiscal year ended january 31 2007 expanded fiscal year ended january 31 2008 iii 07 million increase attributable corporate development activities fiscal year ended january 31 2008 primarily related ulticom’s exploration various strategic alternatives expenses recorded fiscal year connection employee retention workforce reduction research development net research development expenses 164 million fiscal year ended january 31 2008 increase 12 million 80 compared fiscal year ended january 31 2007 increase primarily attributable employee compensation related expenses overhead costs related enhancements features performance existing products new product introductions partially offset decline stockbased compensation expenses loss income operations loss operations 92 million fiscal year ended january 31 2008 compared income operations 40 million fiscal year ended january 31 2007 due primarily reasons described segment performance segment performance changed loss 04 million fiscal year ended january 31 2008 income 120 million fiscal year ended january 31 2007 segment performance decreased primarily result declines revenue pricing pressures industry consolidation combined increased costs related investment sales marketing activities segment performance margins changed 189 fiscal year ended january 31 2007 07 fiscal year ended january 31 2008 revenue 470 million fiscal year ended january 31 2008 increase 97 million 260 compared fiscal year ended january 31 2007 fiscal years ended january 31 2008 2007 revenue generated starhome 410 million 301 million respectively fiscal year ended january 31 2008 starhome’s revenue growth attributable increased revenue products services cost revenue cost revenue 142 million fiscal year ended january 31 2008 increase 16 million 126 compared fiscal year ended january 31 2007 fiscal years ended january 31 2008 2007 cost revenue attributable starhome 112 million 90 million respectively increase due primarily associated costs increase revenue starhome materials overhead selling general administrative selling general administrative expenses 768 million fiscal year ended january 31 2008 increase 231 million 431 compared fiscal year ended january 31 2007 fiscal years ended january 31 2008 2007 selling general administrative expenses related starhome 207 million 190 million respectively increase selling general administration expenses entire segment due primarily 88 million increase personnelrelated expenses ii 84 million increase professional fees including fees incurred cti connection investigations conducted special committee evaluation conducted cti’s related efforts become current periodic reporting obligations federal securities laws iii increase 27 million contractor costs rent utilities expense research development net research development expenses 120 million fiscal year ended january 31 2008 increase 16 million 151 compared fiscal year ended january 31 2007 fiscal years ended january 31 2008 2007 research development expenses related starhome 109 million 91 million respectively operating expenses fiscal year ended january 31 2007 cti accrued aggregate 1744 million expenses related settlements consolidated shareholder class action shareholder derivative actions part settlement consolidated shareholder class action cti agreed pay consideration class action settlement fund aggregate amount 1650 million part settlement shareholder derivative actions cti agreed pay legal fees expenses plaintiffs 94 million information see item 3 “legal proceedingsproceedings related cti’s special committee investigationssettlement agreements” loss operations loss operations 598 million fiscal year ended january 31 2008 decrease 1556 million loss 722 compared fiscal year ended january 31 2007 due primarily reasons described fiscal years ended january 31 2008 2007 loss operations attributable starhome 55 million 84 million respectively segment performance segment performance loss 317 million fiscal year ended january 31 2008 increase loss 173 million compared fiscal year ended january 31 2007 increase attributable increased expenses cti primarily related personnelrelated costs professional fees exceeding offsetting improvements starhome fiscal years ended january 31 2008 2007 segment performance included starhome’s loss 41 million 59 million respectively fiscal year ended january 31 2007 compared fiscal year ended january 31 2006 condensed consolidated results total revenue total revenue 14320 million fiscal year ended january 31 2007 increase 2769 million 240 compared fiscal year ended january 31 2006 increase primarily attributable comverse segment 1746 million increase revenue compared prior fiscal year mainly due inclusion results operations kenan entire fiscal year ended january 31 2007 compared inclusion kenan’s results operations prior fiscal year date acquisition december 2005 inclusion results operations netcentrex date acquisition may 2006 excluding acquisitionrelated revenue comverse segment experienced slight increase 66 million compared prior fiscal year verint increase revenue 901 million due higher business volume impact acquisitions mercom cm insight fiscal year ended january 31 2007 opus multivision fiscal year ended january 31 2006 loss income operations loss operations 3898 million fiscal year ended january 31 2007 change 4666 million compared income operations 768 million fiscal year ended january 31 2006 change primarily attributable 1744 million litigation charge recognized fiscal year ended january 31 2007 reflecting settlements consolidated shareholder class action federal state derivative actions instituted cti first quarter fiscal year ended january 31 2007 accordance settlement agreements entered cti approved courts actions pending june 23 2010 july 1 2010 september 23 2010 respectively corresponding charge recorded fiscal year ended january 31 2006 see item 3 “legal proceedingsproceedings related cti’s special committee investigationssettlement agreements” ii 1257 million increase personnelrelated costs classified within selling general administrative research development primarily attributable increase employee headcount due inclusion results operations kenan opus multivision entire fiscal year ended january 31 2007 compared inclusion results operations prior year respective dates acquisition inclusion results operations netcentrex mercom cm insight respective dates acquisition iii 1022 million increase stockbased compensation expense classified within selling general administrative research development primarily attributable additional expense recorded fiscal year ended january 31 2007 result adoption fas 123r modification iv 452 million expense attributable compliancerelated professional fees recorded fiscal year ended january 31 2007 corresponding expense recorded fiscal year ended january 31 2006 v 211 million increase agent employee sales commissions primarily attributable increase comverse’s revenue vi 192 million nonrecurring charge recorded royalty expenses settlement amount ocs connection exiting ocs royaltybearing programs fiscal year ended january 31 2007 vii 135 million increase rent utility expenses primarily attributable inclusion results operations kenan entire fiscal year ended january 31 2007 compared inclusion results operations prior fiscal year date acquisition december 2005 inclusion results operations netcentrex date acquisition may 2006 negative factors mitigated 2769 million increase total revenue partially offset related increase costs revenue 2131 million primarily attributable comverse verint segments interest income interest income 856 million fiscal year ended january 31 2007 increase 159 million 228 compared fiscal year ended january 31 2006 increase result management’s investment strategy divest corporate debt securities us government agency securities highyielding ars well increase interest rates year average onemonth libor increased 36 fiscal year ended january 31 2006 52 fiscal year ended january 31 2007 interest expense interest expense 18 million fiscal year ended january 31 2007 decrease 31 million compared fiscal year ended january 31 2006 primarily attributable comverse segment income net income net 237 million fiscal year ended january 31 2007 increase 154 million compared fiscal year ended january 31 2006 increase primarily attributable 113 million increase related recognition net foreign currency transaction gains 13 million fiscal year ended january 31 2007 compared net foreign currency transaction losses 100 million fiscal year ended january 31 2006 addition 24 million increase due income net 20 million fiscal year ended january 31 2007 compared expenses net 04 million fiscal year ended january 31 2006 income tax provision income tax provision 463 million fiscal year ended january 31 2007 compared 613 million fiscal year ended january 31 2006 effective tax rate continuing operations 164 fiscal year ended january 31 2007 compared 409 fiscal year ended january 31 2006 change primarily due pretax loss fiscal year ended january 31 2007 compared pretax income fiscal year ended january 31 2006 significant differences impacting effective tax rate fiscal year ended january 31 2007 included additional reserves established tax contingencies primarily attributable consolidated shareholder class action settlement nondeductible stockbased compensation expenses nonus income subject us tax deemed dividends although consolidated pretax loss still subject taxation due relative mix income losses generated multiple taxing jurisdictions tax rates different us statutory rate minority interest equity earnings unconsolidated affiliates net tax minority interest 133 million fiscal year ended january 31 2007 change 194 million compared fiscal year ended january 31 2006 increase primarily attributable allocation verint loss minority interest holders fiscal year ended january 31 2007 loss net income net loss 3139 fiscal year ended january 31 2007 change 3963 million compared net income 824 million fiscal year ended january 31 2006 due primarily reasons discussed segment results comverse revenue customer solutions 6115 million fiscal year ended january 31 2007 increase 732 million 136 compared fiscal year ended january 31 2006 increase attributable growth revenue comverse’s bss vas customer solutions 485 million 247 million respectively reflected increased revenue comverse’s bss customer solutions revenue 738 million attributable inclusion results operations kenan entire fiscal year ended january 31 2007 compared inclusion results operations prior year date acquisition december 2005 partially offset decrease revenue legacy bss customer solutions reflected increased revenue vas customer solutions revenue 184 million attributable inclusion results operations netcentrex date acquisition may 2006 maintenance revenue 3566 million fiscal year ended january 31 2007 increase 1014 million 397 compared fiscal year ended january 31 2006 reflected increase maintenance revenue 703 million attributable inclusion results operations kenan entire fiscal year ended january 31 2007 compared inclusion results operations prior year date acquisition december 2005 ii 55 million attributable inclusion results operations netcentrex date acquisition may 2006 revenue geographic region revenue americas emea asia pacific represented approximately 40 46 14 respectively comverse’s revenue fiscal year ended january 31 2007 compared approximately 30 61 9 respectively fiscal year ended january 31 2006 changes primarily attributable acquisition kenan december 2005 foreign currency impact revenue majority comverse’s revenue fiscal year ended january 31 2007 derived transactions denominated us dollars revenue derived transactions denominated various foreign currencies primarily euro fluctuations us dollar relative foreign currencies comverse conducted business fiscal year ended january 31 2007 compared fiscal year ended january 31 2006 favorably impacted revenue 137 million intercompany revenue intercompany revenue generated sales affiliates primarily starhome intercompany revenue 56 million fiscal year ended january 31 2007 increase 15 million compared fiscal year ended january 31 2006 cost revenue cost revenue 5050 million fiscal year ended january 31 2007 increase 1566 million 450 compared fiscal year ended january 31 2006 increase primarily attributable 844 million increase cost reflecting inclusion results operations kenan entire fiscal year ended january 31 2007 compared inclusion results operations fiscal year ended january 31 2006 date acquisition december 2005 ii 208 million increase reflecting inclusion results operations netcentrex fiscal year ended january 31 2007 date acquisition may 2006 iii 155 million increase stockbased compensation due additional expense recorded fiscal year ended january 31 2007 result adoption sfas 123r modification iv 144 million increase personnelrelated costs due increase services related vas bss projects v 93 million increase general administrative expense related cost revenue vi 89 million increase costs associated research development activities result customization projects specified customers fiscal year ended january 31 2007 vii 42 million increase travel entertainment expenses viii 40 million increase contractor expenses increases partially offset 78 million decrease material costs overhead primarily due shift product mix resulting lower material costs fluctuations foreign currency exchange rates unfavorable impact personnelrelated costs approximately 23 million overall cost revenue fiscal year ended january 31 2007 selling general administrative selling general administrative expenses 3397 million fiscal year ended january 31 2007 increase 1651 million 945 compared fiscal year ended january 31 2006 increase primarily attributable 603 million increase stockbased compensation expense 480 million related modification 123 million primarily related adoption sfas 123r required recognition expense based measurement equity instruments granted employees fair value ii 425 million increase personnelrelated costs approximately 207 million attributable inclusion results operations kenan entire fiscal year ended january 31 2007 compared inclusion kenan’s results operations prior year date acquisition december 2005 additional personnelrelated costs 122 million attributable inclusion results operations netcentrex date acquisition may 2006 addition increase 96 million personnelrelated costs relating primarily increase employee headcount employee salary increases fluctuations foreign currency exchange rates unfavorable impact personnelrelated costs approximately 21 million fiscal year ended january 31 2007 iii 245 million increase compliancerelated professional fees incurred since beginning special committee investigations march 2006 corresponding fees incurred fiscal year ended january 31 2006 iv 167 million increase agent employee sales commissions due primarily higher revenue fiscal year ended january 31 2007 compared fiscal year ended january 31 2006 v 94 million increase rent utilities primarily result assumption additional facilities connection kenan netcentrex acquisitions vi 77 million increase amortization intangible assets primarily attributable inclusion results operations kenan entire fiscal year ended january 31 2007 compared inclusion kenan’s results operations prior year date acquisition december 2005 inclusion results operations netcentrex date acquisition may 2006 research development net research development expenses 2730 million fiscal year ended january 31 2007 increase 848 million 451 compared fiscal year ended january 31 2006 increase primarily attributable 620 million increase personnelrelated costs 199 million 58 million attributable kenan netcentrex acquisitions respectively well increase 363 million due primarily increase headcount change mix personnel salary increases fluctuation foreign currency exchange rates unfavorable impact comverse’s personnelrelated costs approximately 22 million fiscal year ended january 31 2007 ii 178 million increase stockbased compensation expenses related adoption sfas 123r modification iii 65 million increase contractors primarily result netcentrex kenan acquisitions expenses related vas products accounted 1820 million research development net fiscal year ended january 31 2007 development expenses incurred connection variety different research development projects 650 million 610 million 341 million 109 million related development messaging browsing products voice mobile internet products components netcentrex ip communication products respectively expenses related bss products accounted 792 million research development expenses net fiscal year ended january 31 2007 380 million related developing realtime billing products 327 million kenanrelated products operating expenses income operating expenses nil fiscal year ended january 31 2007 compared operating income 14 million attributable restructuring credit result subleases entered comverse fiscal year ended january 31 2006 loss income operations loss operations 1509 million fiscal year ended january 31 2007 change 2303 million compared income operations 793 million fiscal year ended january 31 2006 due primarily reasons described segment performance segment performance 140 million fiscal year ended january 31 2007 based segment revenue 9755 million representing segment performance margin 14 percentage segment revenue segment performance 872 million fiscal year ended january 31 2006 segment revenue 7976 million representing segment performance margin 109 percentage segment revenue decrease segment performance margin principally result lower margins higher selling general administrative expenses research development expenses percent revenue due slower planned integration process kenan netcentrex acquisitions significant management distraction resulting special committee’s investigations verint revenue product revenue 2516 million fiscal year ended january 31 2007 increase 644 million 344 compared fiscal year ended january 31 2006 approximately 40 increase attributable inclusion results operations mercom multivision dates acquisition july 2006 january 2006 respectively addition approximately 60 increase relates growth revenues verint’s workforce optimization video intelligence communication intelligence solutions service support revenue 1172 million fiscal year ended january 31 2007 increase 257 million 281 compared fiscal year ended january 31 2006 increase almost entirely related verint’s workforce optimization solutions due approximately equal measure inclusion results operations opus cm insight dates acquisitions september 2005 february 2006 respectively increase service revenue related existing workforce optimizations solutions revenue geographic region revenue americas emea asia pacific represented approximately 48 31 21 verint’s revenue respectively fiscal year ended january 31 2007 compared approximately 51 33 16 respectively fiscal year ended january 31 2006 cost revenue product cost 1428 million fiscal year ended january 31 2007 increase 498 million 535 compared fiscal year ended january 31 2006 product cost fiscal year ended january 31 2007 included amortization impairment acquired technology 73 million increase primarily attributable increase 258 million hardware software material costs due increase product revenue nonrecurring 192 million charge recorded royalty expenses settlement amount ocs connection exiting ocs royaltybearing programs fiscal year ended january 31 2007 increase 13 million personnelrelated costs addition fiscal year ended january 31 2007 product costs included aggregate 28 million writeoffs capitalized software development costs intangible assets prepaid thirdparty licenses increases offset 15 million decrease royalty expenses result exiting ocs royaltybearing programs july 2006 reductions totaling 11 million service cost 485 million fiscal year ended january 31 2007 increase 70 million 167 compared fiscal year ended january 31 2006 due increase personnelrelated costs 50 million increase travel expenses 16 million service cost fiscal year ended january 31 2007 included amortization impairment acquired technology 03 million increase primarily attributable cm insight opus mercom acquisitions addition increase 14 million stockbased compensation expense result adoption sfas 123r increases partially offset 08 million reduction royalty expense result exiting ocs royaltybearing program july 2006 selling general administrative selling general administrative expenses 1507 million fiscal year ended january 31 2007 increase 510 million 511 compared fiscal year ended january 31 2006 due primarily increases 164 million personnel related costs ii 33 million employee sales commissions iii 31 million rent utilities expense iv 26 million professional fees v 17 million travel entertainment expenses vi 17 million depreciation vii 17 million contractor costs viii 11 million advertising marketing costs ix 21 million expenses result organic growth acquisitions mercom cm insight multivision opus addition fiscal year ended january 31 2007 verint incurred 37 million compliancerelated professional expenses increase 122 million stockbased compensation expense due adoption sfas 123r fiscal year research development net research development net 532 million fiscal year ended january 31 2007 increase 183 million 524 compared fiscal year ended january 31 2006 increase primarily attributable increases 71 million personnelrelated costs ii 29 million overhead expense iii 23 million expenses case primarily result increases employee headcount investments support development new products enhancements existing products partially due acquisitions mercom multivision addition stockbased compensation expense increased 40 million due adoption sfas 123r fiscal year ended january 31 2007 increases partially offset 19 million decline reimbursements government programs result verint’s transition royaltybearing ocs program nonroyalty ocs program fiscal year ended january 31 2007 operating expenses operating expenses 08 million fiscal year ended january 31 2007 decrease 46 million compared fiscal year ended january 31 2006 decrease primarily attributable 26 million legal charge fiscal year ended january 31 2006 connection customer dispute still pending 29 million charge associated inprocess research development expenses related incomplete projects attributable multivision acquisition fiscal year ended january 31 2006 loss income operations loss operations 273 million fiscal year ended january 31 2007 change 314 million compared operating income 41 million fiscal year ended january 31 2006 change due primarily reasons described foreign currency effect operating results weakening us dollar relative major foreign currencies verint conducts business primarily british pound sterling euro nis canadian dollar fiscal year ended january 31 2007 compared fiscal year ended january 31 2006 favorable impact revenue unfavorable impact operating expenses operating loss foreign exchange rates remained constant periods verint’s total revenue would approximately 30 million lower operating expenses product service costs would approximately 50 million lower net favorable constant dollar impact approximately 20 million operating loss segment performance segment performance 255 million fiscal year ended january 31 2007 based revenue 3688 million resulting segment performance margin 69 percentage segment revenue segment performance 171 million fiscal year ended january 31 2006 based revenue 2788 million resulting segment performance margin 61 percentage segment revenue increase segment performance principally result higher business volume opus cm insight mercom multivision acquisitions ulticom revenue product revenue 465 million fiscal year ended january 31 2007 increase 33 million 77 compared fiscal year ended january 31 2006 increase product revenue due primarily higher volume sales deployments ulticom’s customers signalware products service revenue 112 million fiscal year ended january 31 2007 decrease 03 million 23 compared fiscal year ended january 31 2006 intercompany revenue intercompany revenue related revenue generated affiliates primarily comverse remained relatively unchanged cost revenue product costs 103 million increase 11 million 117 due primarily increase material costs service costs 58 million fiscal year ended january 31 2007 decrease 08 million 119 compared fiscal year ended january 31 2006 primarily related lower personnelrelated costs selling general administrative selling general administrative expenses 283 million fiscal year ended january 31 2007 increase 114 million 672 compared fiscal year ended january 31 2006 increase primarily attributable 41 million increase fees expenses related investigations conducted ulticom’s audit committee ulticom’s historical stock option grant accounting practices ii 32 million increase personnel laborrelated expenses travel facilities expenses reflecting ulticom’s management’s continued investment sales marketing activities iii 18 million increase stockbased compensation expense result adoption sfas 123r iv 05 million increase expenses related corporate development activities fiscal year ended january 31 2007 addition fiscal year ended january 31 2006 ulticom recognized gain 08 million result favorable settlement dispute related termination negotiations regarding acquisition transaction comparable gain recognized fiscal year ended january 21 2007 research development net research development expenses 152 million fiscal year ended january 31 2007 increase 28 million 227 compared fiscal year ended january 31 2006 increase primarily attributable increase product development enhancement resulting 17 million increase personnelrelated overhead costs 09 million additional stockbased compensation expense result adoption sfas 123r income operations income operations 40 million fiscal year ended january 31 2007 decrease 114 million 739 compared fiscal year ended january 31 2006 primarily due reasons described segment performance segment performance 120 million fiscal year ended january 31 2007 decrease 29 million 195 compared segment performance 149 million fiscal year ended january 31 2006 segment performance declined increases selling general administrative expenses research development exceeded revenue growth segment performance margin declined 189 percentage segment revenue fiscal year ended january 31 2007 246 fiscal year ended january 31 2006 revenue 373 million fiscal year ended january 31 2007 increase 92 million 328 compared fiscal year ended january 31 2006 fiscal years ended january 31 2007 2006 revenue attributable starhome 301 million 183 million respectively increases due primarily revenue recognized connection deployment starhome’s new family roaming products related services cost revenue cost revenue 126 million fiscal year ended january 31 2007 increase 21 million 201 compared fiscal year ended january 31 2006 fiscal years ended january 31 2007 2006 cost revenue attributable starhome 90 million 63 million respectively net increase primarily driven increases personnelrelated costs additional costs materials overhead result increase sales starhome selling general administrative selling general administrative expenses 537 million fiscal year ended january 31 2007 increase 247 million 852 compared fiscal year ended january 31 2006 fiscal years ended january 31 2007 2006 selling general administrative expenses attributable starhome 190 million 136 million respectively increase selling general administrative expenses entire segment primarily attributable 189 million increase professional fees including fees incurred cti connection investigations conducted special committee evaluation conducted cti’s related efforts become current periodic reporting obligations federal securities laws ii 41 million increase insurance costs iii 05 million increase stockbased compensation costs personnelrelated costs contractor costs commissions research development net research development expenses 105 million fiscal year ended january 31 2007 increase 16 million 187 compared fiscal year ended january 31 2006 fiscal years ended january 31 2007 2006 research development expenses attributable starhome 91 million 75 million respectively increase primarily attributable increased personnelrelated costs stockbased compensation costs recorded starhome operating expenses income fiscal year ended january 31 2007 cti accrued aggregate 1744 million related settlements consolidated shareholder class action shareholder derivative actions part settlement consolidated shareholder class action cti agreed pay consideration class action settlement fund aggregate amount 1650 million part settlement shareholder derivative actions cti agreed pay legal fees expenses plaintiffs 94 million information see item 3 “legal proceedingsproceedings related cti’s special committee investigationssettlement agreements” loss operations loss operations 2154 million fiscal year ended january 31 2007 increase loss 1937 million compared fiscal year ended january 31 2006 due primarily reasons described fiscal years ended january 31 2007 2006 operating loss 84 million 103 million respectively attributable starhome segment performance segment performance loss 144 million fiscal year ended january 31 2007 decrease 49 million 253 compared fiscal year ended january 31 2006 decrease loss attributable improved performance starhome increased segment revenue 134 million result amortization deferred revenue associated sales arrangements entered prior years fiscal years ended january 31 2007 2006 segment performance included starhome’s loss 59 million 101 million respectively liquidity capital resources overview principal sources liquidity historically consisted cash equivalents cash flows operations including changes working capital borrowings term loans revolving credit facilities proceeds issuance convertible debt obligations sale investments receipt dividends subsidiaries require additional liquidity believe sources would include cash generated operations cash equivalents insufficient proceeds sales investments including ars new borrowings cash generated asset divestitures proceeds issuance equity debt securities fiscal years covered annual report principal uses liquidity fund operating expenses make capital expenditures acquire businesses service debt obligations pay significant professional fees expenses connection investigations evaluations efforts become current periodic reporting obligations federal securities laws addition expended resources made investments improve internal control financial reporting hiring additional experienced finance accounting personnel redesigning processes implementing accounting finance systems performing additional business analytics expect expenses decline significantly subsequent fiscal years become current periodic reporting obligations federal securities laws improve internal controls expand financial reporting analysis capabilities recent developments consolidated financial condition july 31 2010 january 31 2009 consolidated cash equivalents shortterm investments bank time deposits approximately 5630 million 13 billion respectively february 1 2009 july 31 2010 experienced net cash outflows decline capital resources due lower expected operating cash flows comverse segment certain significant disbursements significant cash disbursements included • 4173 million cash disbursement connection repurchase cti convertible debt obligations may 2009 required applicable indenture • approximately 2800 million disbursements accounting tax legal fees related efforts become current periodic reporting obligations federal securities laws lesser extent remediate material weaknesses internal control financial reporting approximately 1850 million 900 million 50 million paid cti comverse verint ulticom respectively • 643 million reduction consolidated cash representing portion 1996 million special cash dividend paid april 2009 ulticom inc minority shareholders • approximately 41 million 221 million mandatory “excess cash payments” made verint term loan may 2009 may 2010 respectively • approximately 210 million consolidated restructuring disbursements fiscal year ended january 31 2010 related restructuring initiatives undertaken prior fiscal year ended january 31 2009 restructuring initiative additional estimated 30 million disbursements six months ended july 31 2010 • approximately 189 million paid settlement agreement shareholder class action • approximately 180 million cash paid lieu stockbased compensation • approximately 179 million paid verint upon completion acquisition iontas february 2010 decline capital resources partially offset proceeds 809 million received cti sales redemptions ars february 1 2009 july 31 2010 cti’s ability use 288 million proceeds restricted settlement agreement consolidated shareholder class action detailed discussion see “financial condition cti comverse” july 2010 verint amended credit facility among things increase revolving credit commitments thereunder 150 million 750 million addition july 2010 verint terminated interest rate swap entered may 2007 connection termination paid august 2010 217 million counterparty also september 2010 comverse ltd indirect whollyowned subsidiary cti entered agreement sale certain land ra’anana israel third party purchase price approximately 285 million approximately 271 million proceeds received balance held escrow cover extent necessary applicable taxes levies comprehensive discussion subsequent events impacted capital resources results operations subsequent periods see “significant subsequent events” financial condition cti comverse subsequent january 31 2009 cti comverse continued incur operating net losses experienced declines cash flows cash equivalents working capital increase accumulated deficit july 31 2010 cti comverse cash equivalents shortterm investments bank time deposits approximately 3261 million compared approximately 9132 million january 31 2009 cash equivalents shortterm investments bank time deposits cti comverse july 31 2010 excludes 1335 million aggregate principal amount ars recorded valued date approximately 693 million includes restricted cash aggregated 627 million 206 million july 31 2010 january 31 2009 respectively addition cash equivalents shortterm investments bank time deposits july 31 2010 include proceeds 809 million received cti sales redemptions ars period february 1 2009 july 31 2010 part settlement agreement consolidated shareholder class action cti granted security interest benefit plaintiff class account cti holds ars 516 million aggregate principal amount ars held account ubs proceeds sales thereof consequently cti’s ability use proceeds future sales ars restricted amounts payable settlement agreement paid full addition terms settlement agreement consolidated shareholder class action cti receives net cash proceeds sale certain ars held aggregate amount excess 500 million cti required use 500 million proceeds prepay settlement amounts referred cti receives net cash proceeds sale ars aggregate amount excess 1000 million cti required use additional 500 million proceeds prepay settlement amounts referred july 31 2010 cti received cash proceeds 288 million sales redemptions ars provisions settlement agreement apply july 31 2010 cti indebtedness consisting approximately 22 million aggregate principal amount outstanding convertible debt obligations due may 15 2023 future payment obligations cti include amounts payable settle consolidated shareholder class action shareholder derivative actions part settlement consolidated shareholder class action cti paid 10 million december 2009 179 million representing agreed 215 million payment less holdback 36 million respect anticipated optout credit holdback required paid cti optout credit less july 2010 addition cti agreed pay 1425 million less amount optout credit exceeds holdback discussed fiscal year ending january 31 2012 amount payable fiscal year ending january 31 2012 aggregate 1125 million payable cash cti’s election shares cti’s common stock subject certain conditions including cti current periodic reporting obligations federal securities laws common stock listed national securities exchange fifteenth trading day preceding applicable payment dates may 15 2011 november 15 2011 addition part settlement consolidated shareholder derivative actions cti agreed pay legal fees expenses plaintiffs 94 million payment due october 23 2010 september 2010 cti received insurance proceeds 165 million directors’ officers’ insurance policies connection settlements shareholder derivative actions consolidated shareholder class action information see “significant subsequent eventssettlement shareholder class derivative actions” item 3 “legal proceedingsproceedings related cti’s special committee investigationssettlement agreements” july 31 2010 aggregate assets cti comverse estimated excess 10 billion include among others cash equivalents shortterm investments bank time deposits ownership interests verint ulticom notwithstanding substantial assets forecast cash equivalents shortterm investments bank time deposits cti comverse expected approximately 1000 million end fiscal quarter ending april 30 2011 including estimated restricted cash approximately 600 million absence successful consummation one initiatives currently implemented evaluated described management’s forecast fiscal year ending january 31 2012 reflects potential shortfall approximately 500 million cash required support working capital needs business cti comverse quarter anticipate shortfall materially increase remainder fiscal year ending january 31 2012 certain assumptions upon forecast based described response events cti commenced initiatives improve cash position including plan restructure operations comverse segment view toward aligning operating costs expenses anticipated revenue comverse intends commence first phase restructuring plan expected reduce annualized operating costs least 450 million october 2010 implement second phase measures expected result similar reduction annualized operating costs upon implementation next 12 18 months comverse also evaluating initiatives improve focus core business maintain ability face intense competitive pressures markets including strategic options potential wind netcentrex business furthermore part initiatives september 16 2010 comverse ltd indirect whollyowned subsidiary cti entered agreement sale certain land ra’anana israel third party purchase price approximately 285 million approximately 271 million proceeds received balance held escrow cover extent necessary applicable taxes levies addition evaluating secured financing alternatives including loans may secured portion assets cti comverse issuance securities pursuing sale certain assets including potential sale 28 million shares verint systems’ common stock effective july 15 2010 cti made demand 28 million shares verint systems’ common stock registered registration statement form s1 permit sale thereof public offering august 24 2010 verint systems filed registration statement sec cti engaged goldman sachs financial advisor goldman sachs assisting cti among things exploring strategic capital raising alternatives management’s forecast described based upon number assumptions including among others improved operating performance comverse segment successful implementation first phase comverse’s restructuring plan restricted cash amounts consistent historical levels slight reductions unrestricted cash levels required support working capital needs business reductions compliancerelated costs sales redemptions substantially cti’s remaining ars proceeds consistent approximate recorded value july 31 2010 cti’s ability use shares common stock satisfy 1125 million 1425 million payment obligations payable fiscal year ending january 31 2012 consolidated shareholder class action settlement maximum amount may paid shares settlement management believes abovenoted assumptions reasonable however one assumptions prove incorrect one risks uncertainties described item 1a “risk factors” materialize shortfall unrestricted cash required support working capital needs may vary materially amount forecasted cti’s ability use shares common stock satisfy 1125 million payment obligations shareholder class action settlement conditioned upon cti becoming current periodic reporting obligations federal securities laws common stock listed national securities exchange fifteenth trading day preceding applicable payment dates may 15 2011 november 15 2011 current ability cti comverse meet obligations fund capital requirements dependent primarily comverse’s future financial performance ability cti comverse successfully complete one initiatives improve cash position currently implemented evaluated discussed item 1a “risk factors” comverse faces certain risks uncertainties business including limited continued effect decline global economy relative maturation wireless industry increased competition resulted negative cash flows operations fiscal years ended january 31 2009 2010 cash flow operations available cash equivalents sufficient meet liquidity needs cti comverse fiscal year ended january 31 2010 expected sufficient meet liquidity needs fiscal year ending january 31 2011 expect cash flow operations available cash equivalents cash generated combination initiatives described sufficient cover projected cash shortfall meet liquidity needs including capital expenditures cti comverse fiscal year ending january 31 2012 contrary expectations initiatives increase liquidity capital resources cti comverse fail satisfy working capital needs business operations could materially adversely affected event cti may need seek new borrowings asset sales issuance equity securities disadvantageous terms financial condition cti’s majorityowned subsidiaries based past performance current expectations believe cash equivalents cash generated operations majorityowned subsidiaries sufficient meet respective anticipated operating costs working capital needs capital expenditures research development spending commitments respect verint required payments principal interest least next 12 months liquidity cti’s majorityowned subsidiaries could negatively impacted decrease demand products service support verint incurred significant professional fees related expenses connection efforts become current periodic reporting obligations federal securities laws continued incur significant professional fees costs first half fiscal year ending january 31 2011 expects incur related expenses second half fiscal year verint’s liquidity could negatively impacted additional fees costs event cti’s majorityowned subsidiaries determines make acquisitions otherwise require additional funds may need raise additional capital could involve issuance equity debt securities assurance subsidiary would able raise additional equity debt private public markets terms favorable sources liquidity following discussion highlights primary sources liquidity cash equivalents changes amounts due operations financing investing activities cash equivalents cash flows liquidity investments fiscal year ended january 31 2009 compared fiscal year ended january 31 2008 1 consists longterm debt investments included “other assets” consolidated balance sheets included item 15 annual report operating cash flows operating cash flows vary significantly year based timing collections accounts receivable receipts deposits workinprocess achievement milestones fiscal year ended january 31 2009 generated 297 million cash operating activities cash generated operating activities primarily attributable increase deferred revenues 634 million decrease accounts receivable 389 million fiscal year ended january 31 2008 net income noncash charges addback 158 million increases partially offset decrease accounts payable accrued expenses 345 million change assets liabilities 316 million increase prepaid expenses current assets 218 million fiscal year ended january 31 2008 investing cash flows fiscal year ended january 31 2009 used 1880 million cash investing activities decrease cash investing activities primarily attributable 1018 million cash used purchases investments net cash receipts sales maturities investments 402 million cash used capital expenditures including capitalization software development costs 248 million reclassified cash equivalents restricted cash bank time deposits primarily attributable requirement maintain 200 million cash balance terms line credit comverse ltd bank investments 3463 million january 31 2009 increase 320 million compared january 31 2008 increase primarily attributable purchases investments net sales maturities investments 985 million net unrealized gains 149 million recorded investments held january 31 2009 increase offset otherthantemporary impairment charge 814 million recognized ars held january 31 2009 financing cash flows fiscal year ended january 31 2009 cash provided financing activities 116 million primarily attributable 150 million proceeds borrowings verint’s revolving credit facility partially offset repayment bank borrowings longterm debt effects exchange rates cash equivalents majority cash equivalents denominated us dollars however due nature global business also hold cash denominated currencies primarily euro nis british pound sterling fiscal year ended january 31 2009 fluctuation foreign currency exchange rates unfavorable impact 136 million cash equivalents primarily due strengthening us dollar relative major foreign currencies held fiscal year liquidity investments principal amount ars investment portfolio 2365 million january 31 2009 fiscal year ended january 31 2009 liquidity portfolio continued decline significantly result illiquid conditions global credit markets absence liquidity support auctions ars historically provided brokerdealers certain cases decline credit quality issuers underlying securities accordingly recorded otherthantemporary impairment charges respect cti’s holdings ars result january 31 2009 carrying amount 2365 million principal amount ars 1203 million additional information see “critical accounting estimates judgmentsvaluation otherthantemporary impairments” part settlement agreement consolidated shareholder class action cti granted security interest benefit plaintiff class account cti holds ars 516 million aggregate principal amount ars held account ubs proceeds sales thereof consequently cti’s ability use proceeds future sales ars restricted amounts payable settlement agreement paid full addition terms settlement agreement consolidated shareholder class action cti receives net cash proceeds sale certain ars held aggregate amount excess 500 million cti required use 500 million proceeds prepay settlement amounts referred cti receives net cash proceeds sale ars aggregate amount excess 1000 million cti required use additional 500 million proceeds prepay settlement amounts settlement agreement january 31 2009 2233 million investments us government corporate agency bonds principal amounts totaling 2226 million investments classified availableforsale considered highly liquid readily convertible cash fiscal year ended january 31 2008 compared fiscal year ended january 31 2007 1 consists longterm debt investments included “other assets” consolidated balance sheets included item 15 annual report operating cash flows fiscal year ended january 31 2008 generated 864 million cash operating activities cash generated operating activities primarily attributable increase deferred revenues 1323 million change assets liabilities 373 million decrease inventories 346 million increase accounts payable accrued expenses 197 million fiscal year ended january 31 2007 increases partially offset net loss noncash charges addback 720 million increase accounts receivables 654 million investing cash flows fiscal year ended january 31 2008 used 3721 million cash investing activities decrease cash investing activities primarily attributable 9583 million cash used acquisitions witness viewlinks net assets acquired net cash earnout payments made previous acquisitions 461 million cash used capital expenditures including capitalization software development costs decreases partially offset cash receipts 6297 million sales maturities investments net purchases investments 3142 million january 31 2008 decrease 6687 million compared january 31 2007 decrease primarily attributable sales maturities investments net purchases investments 6150 million net unrealized loss 58 million recorded investments held january 31 2008 addition recognized otherthantemporary impairment charge 479 million ars january 31 2008 financing cash flows fiscal year ended january 31 2008 cash provided financing activities 5914 million primarily attributable 6500 million proceeds borrowings verint’s term loan obtained connection witness acquisition partially offset repayment bank loans longterm debt 482 million effects exchange rates cash equivalents majority cash equivalents denominated us dollars however due nature global business also hold cash denominated currencies primarily euro nis british pound sterling fiscal year ended january 31 2008 fluctuations foreign currency exchange rates favorable impact 171 million cash equivalents primarily due weakening us dollar relative major foreign currencies held fiscal year liquidity investments principal value ars investment portfolio 2621 million january 31 2008 starting third quarter fiscal year ended january 31 2008 liquidity portfolio started decline result global economic decline result ability liquidate securities diminished significantly reflect reduced liquidity ars reclassified shortterm investments longterm investments additional information see “critical accounting estimates judgmentsvaluation otherthantemporary impairments” fiscal year ended january 31 2007 compared fiscal year ended january 31 2006 1 consists longterm debt investments included “other assets” consolidated balance sheets included item 15 annual report operating cash flows fiscal year ended january 31 2007 generated 314 million cash operating activities cash generated operating activities primarily attributable net income noncash charges addback 692 million increase accounts payable accrued expenses 468 million decrease accounts receivable 228 million fiscal year ended january 31 2006 increases partially offset decrease deferred revenue 526 million increase prepaid expenses current assets 335 million increase inventories 285 million fiscal year ended january 31 2006 investing cash flows fiscal year ended january 31 2007 generated 1709 million cash investing activities increase cash investing activities primarily attributable 4420 million cash receipts sales maturities investments net purchases investments increase offset 2152 million cash used acquisitions netcentrex netonomy mercom cm insight net assets acquired net cash 567 million used capital expenditures including capitalized software development costs investments 9829 million january 31 2007 decrease 4353 million compared january 31 2006 decrease primarily attributable sales maturities investments net purchases investments 4162 million net unrealized loss 191 million recorded investments held january 31 2007 financing cash flows fiscal year ended january 31 2007 cash provided financing activities 93 million primarily attributable 128 million proceeds issuance cti common stock connection exercise stock options employee stock purchase plan offset 34 million repayment bank loans longterm debts indebtedness verint credit facility may 25 2007 verint entered 6500 million term loan 250 million revolving credit facility group banks fund portion acquisition witness january 31 2009 outstanding term loan balance 6100 million original 250 million revolving credit facility reduced 150 million september 2008 connection bankruptcy lehman brothers one lenders related subsequent termination revolving commitment credit agreement june 2009 later increased 750 million july 2010 also july 2010 verint amended credit facility among things change method calculation applicable interest rate margin based consolidated leverage ratio time ii add 150 libor floor iii increase aggregate amount incremental revolving commitment term loan increases permitted credit facility 500 million 2000 million iv make certain changes negative covenants including providing covenant relief respect permitted consolidated leverage ratio unless context otherwise requires references herein verint’s credit facility credit facility amended term loan matures may 25 2014 revolving credit facility matures may 25 2013 verint’s obligations credit facility guaranteed certain domestic subsidiaries including witness secured substantially assets verint subsidiaries credit facility guaranteed cti secured assets july 31 2010 january 31 2009 verint’s outstanding term loan balance credit facility approximately 5832 million 6100 million respectively verint borrowed 150 million revolving credit facility november 2008 loan remained outstanding july 31 2010 accordingly verint 600 million remaining availability thereunder july 31 2010 borrowings revolving credit facility dependent upon certain conditions including absence material adverse effect change verint’s business defined credit agreement commitment fee unused capacity revolving credit facility increased 05 075 per annum credit facility requires mandatory payments term loan net cash proceeds certain asset sales extent net cash proceeds otherwise reinvested assets useful verint’s business annual basis percentage excess cash flow ranges 0 50 depending verint’s consolidated leverage ratio defined credit agreement also requires periodic amortization payments term loan may 2009 may 2010 verint made mandatory “excess cash flow” payments principal amounts outstanding term loan 41 million 221 million respectively february 2010 made amortization payment 06 million verint’s next amortization payment 15 million due may 1 2012 verint expects cash liquidity sufficient fund term loan payments required next 12 months credit agreement contains one financial covenant requires verint meet certain consolidated leverage ratio defined verint’s consolidated net total debt divided consolidated ebitda trailing four quarters ebitda defined credit agreement net incomeloss plus income tax expense interest expense depreciation amortization intangibles losses related hedge agreements extraordinary unusual nonrecurring expenses losses noncash charges expenses incurred taken prior april 30 2008 connection acquisition witness minus interest income extraordinary unusual nonrecurring income gains related hedge agreements noncash income credit agreement quarterly periods ended january 31 april 30 july 31 october 31 2008 consolidated leverage ratio could exceed 5501 quarterly periods ended january 31 april 30 july 31 october 31 2009 consolidated leverage ratio could exceed 4501 quarterly periods ended january 31 april 30 july 31 2010 consolidated leverage ratio could exceed 3501 verint compliance requirements dates july 31 2010 verint’s consolidated leverage ratio 261 versus permitted consolidated leverage ratio 3501 implies verint’s ebitda period ended exceeded requirement covenant least 520 million quarterly periods ending october 31 2010 january 31 april 30 july 31 october 31 2011 consolidated leverage ratio cannot exceed 3501 quarterly periods ending january 31 2012 thereafter consolidated leverage ratio cannot exceed 3001 addition verint subject number restrictive covenants including limitations ability incur indebtedness create liens make fundamental business changes dispose property make restricted payments including dividends make significant investments enter sale leaseback transactions enter new lines business provide negative pledges enter transactions related parties enter speculative hedges although limited exceptions covenants credit agreement also contains number affirmative covenants including requirement verint submit consolidated financial statements lenders within certain periods fiscal year quarter past verint timely delivered financial statements required credit agreement may future fail make deliveries april 2010 verint entered amendment credit agreement extend due date delivery audited consolidated financial statements related documentation fiscal year ended january 31 2010 may 1 2010 june 1 2010 verint systems filed annual report form 10k fiscal year ended january 31 2010 containing requisite financial statements may 19 2010 accordingly delivered audited financial statements lenders compliance terms credit agreement future verint unable comply requirements credit agreement unable obtain amendment waiver requirements event default could occur could cause permit holders debt thereunder declare amounts outstanding immediately due payable event verint may forced sell assets raise additional capital securities offering seek refinance restructure debt case verint may able consummate sale securities offering refinancing restructuring reasonable terms see item 1a “risk factorsrisks related businesses industriesverint incurred significant indebtedness connection acquisition witness makes highly leveraged subjects restrictive covenants could adversely affect operations” prior amendment verint’s credit facility july 2010 applicable interest rate margin loans determined reference corporate ratings twice increased time 25 basis points due verint’s previous failure deliver certain audited financial statements lack corporate ratings resulting continued delay filing periodic reports applicable margin accordingly reduced 50 basis points june 2010 verint delivered required financial statements obtained corporate ratings since entering amendment credit facility july 2010 applicable margin determined reference verint’s consolidated leverage ratio july 31 2010 interest rates term loan revolving credit facility borrowings 525 600 respectively interest rate revolving credit facility borrowings reset 525 august 4 2010 information verint’s credit facility see “significant subsequent events” item 7a “quantitative qualitative disclosures market riskinterest rate risk indebtedness” notes 13 27 consolidated financial statements included item 15 annual report convertible debt obligations may 2003 cti issued 4200 million aggregate principal amount existing convertible debt obligations january 26 2005 cti completed offer holders outstanding existing convertible debt obligations exchange existing convertible debt obligations new convertible debt obligations 4200 million aggregate principal amount existing convertible debt obligations outstanding prior exchange offer approximately 4177 million aggregate principal amount representing approximately 995 original issue existing convertible debt obligations validly tendered exchange equal principal amount new convertible debt obligations january 31 2009 2008 2007 2006 cti 4195 million 4195 million 4196 million 4198 million aggregate principal amount outstanding convertible debt obligations respectively dates included 4174 million 4174 million 4175 million 4176 million aggregate principal amount outstanding new convertible debt obligations respectively fully discussed upon completion tender offer cti may 15 2009 cti purchased cash 4173 million aggregate principal amount new convertible debt obligations convertible debt obligations mature may 15 2023 bear interest convertible debt obligations secured assets guaranteed cti’s subsidiaries 1000 principal amount existing convertible debt obligations convertible option holder upon circumstances described shares cti’s common stock conversion price approximately 179744 per share equal conversion rate 556347 shares per 1000 principal amount existing convertible debt obligations subject adjustment certain events 1000 principal amount new convertible debt obligations convertible option holder upon circumstances described based net share settlement feature cash shares cti common stock conversion price 179744 per share equal conversion rate 556347 shares per 1000 principal amount new convertible debt obligations subject adjustment certain events net share settlement feature new convertible debt obligations provides upon conversion cti would pay holder cash equal lesser conversion value principal amount new convertible debt obligations converted would issue holder remainder conversion value excess principal amount shares cti’s common stock convertible debt obligations convertible quarter closing price per share period least twenty days thirty consecutive tradingday period ending last trading day preceding fiscal quarter 120 conversion price per share effect thirtieth day ii may 15 2018 five businessday period following ten consecutive tradingday period daily average trading price convertible debt obligations ten tradingday period less 105 average conversion value convertible debt obligations period iii period following date credit rating assigned convertible debt obligations standard poor’s rating services lower “b” upon withdrawal suspension convertible debt obligations rating cti’s request iv cti calls convertible debt obligations redemption v upon specified corporate transactions addition cti right redeem new convertible debt obligations existing convertible debt obligations cash time may 15 2009 may 15 2008 respectively principal amount indentures governing convertible debt obligations provide may 15 2008 may 15 2013 may 15 2018 indenture governing new convertible debt obligations may 15 2009 holder convertible debt obligations right principal amount convertible debt obligations portion principal amount thereof repurchased cti cash purchase price 100 principal amount holder’s convertible debt obligations addition indentures governing convertible debt obligations provide following termination trading cti’s common stock national securities exchange established automated overthecounter trading market united states certain instances upon change control holder convertible debt obligations right principal amount convertible debt obligations portion principal amount thereof repurchased cti cash purchase price 100 principal amount holder’s convertible debt obligations effective february 1 2007 cti’s shares delisted nasdaq due delisting terms indentures cti obligation offer purchase cash convertible debt obligations result classified cti’s convertible debt obligations shortterm debt obligations january 31 2007 meet obligations indentures cti commenced tender offer march 2 2007 tender offer expired march 30 2007 de minimis principal amount convertible debt obligations tendered addition terms indentures cti obligation offer purchase cash convertible debt obligations may 15 2008 result continued classify convertible debt obligations shortterm debt obligations january 31 2008 meet obligations indentures cti commenced tender offer april 16 2008 tender offer expired may 15 2008 de minimis principal amount convertible debt obligations tendered terms indenture governing new convertible debt obligations cti obligation offer purchase cash new convertible debt obligations may 15 2009 result continued classify convertible debt obligations shortterm debt obligations january 31 2009 meet obligations indenture cti commenced tender offer april 17 2009 upon completion tender offer may 15 2009 cti purchased cash 4173 million aggregate principal amount new convertible debt obligations following repurchase new convertible debt obligations january 31 2010 cti 22 million aggregate principal amount convertible debt obligations outstanding comverse ltd line credit january 31 2009 comverse ltd whollyowned israeli subsidiary comverse inc 200 million line credit bank used borrowings various performance guarantees customers vendors letters credit execute foreign currency transactions ordinary course business line credit bears interest subject renewal annual basis comverse ltd required maintain cash balances least 200 million bank times regardless amounts borrowed utilized line credit january 31 2009 comverse ltd borrowings line credit utilized entire capacity line credit 200 million guarantees execution foreign currency transactions comverse ltd’s requirement maintain cash balances bank disclosed line credit financial covenant provisions additional information relating comverse’s line credit subsequent fiscal periods see “significant subsequent events” debentures february 1 2005 873 million aggregate principal amount 15 convertible senior debentures outstanding december 1 2005 maturity date paid outstanding debentures investments securities portfolio hold ars supported corporate issuers student loans ars longterm stated maturities prior january 31 2008 classified ars shortterm investments due liquid nature evidenced successful auctions occurring every seven ninety days beginning third quarter fiscal year ended january 31 2008 auctions ars began fail classification although auctions began fail ars except ars fair value 64 million january 31 2009 continued pay interest stated terms january 31 2009 principal associated failed auctions accessible us one following successful auction occurs ii active secondary market develops iii security called iv security matures therefore believe may able access underlying principal amounts par within twelvemonth period accordingly reclassified ars experienced failed auctions shortterm investments longterm assets beginning period failure otherthantemporary impairment certain ars determined probable unable collect contractual principal interest payments addition certain ars could assert intended hold ars recovered previous carrying amount accordingly recorded otherthantemporary impairment charges 865 million 479 million pretax basis fiscal year ended january 31 2009 2008 respectively otherthantemporary impairment charges recognized fiscal years ended january 31 2007 2006 carrying amounts ars january 31 2009 2008 1203 million classified longterm availableforsale investments corresponding principal amount 2365 million 2147 million 1539 million included “shortterm investments” 608 million included “auction rate securities” consolidated balance sheets corresponding principal amount 2621 million respectively january 31 2007 2006 6904 million 4152 million aggregate principal amount ars respectively recorded principal amounts ubs put november 2008 accepted offer ubs providing rights related 516 million aggregate principal amount ars held account ubs terms ubs put right obligation sell eligible ars par value ubs time period june 30 2010 july 2 2012 additionally ubs right discretion time july 2 2012 purchase ars us par value defined price equal principal amount ars plus accrued unpaid dividends interest ubs purchased approximately 416 million aggregate principal amount ars cti prior june 30 2010 pursuant purchase right terms settlement agreement consolidated shareholder class action amended cti required exercise ubs put june 30 2010 apply proceeds exercise toward amounts payable settlement effective june 30 2010 cti exercised ubs put balance ars subject ubs put fourth quarter ended january 31 2009 recorded put right fair value 136 million elected fair value option sfas 159 fair value option financial assets financial liabilitiesincluding amendment fasb statement 115 sfas 159 consequently ubs put carried historical cost assessed impairment january 31 2009 fair value related ars 345 million consideration ubs put corresponding principal amount 516 million restructuring initiatives continually review business manage costs align resources market demand result also conjunction various acquisitions taken several actions reduce fixed costs eliminate redundancies strengthen operational focus better position us respond market pressures unfavorable economic conditions restructuring initiatives positive impact operating cash flows long term also led lead charges january 31 2009 restructuring accruals 115 million information relating restructuring initiatives subsequent periods see “significant subsequent events2009 restructuring initiative” guarantees liens restrictions access subsidiary cash guarantees provide certain customers financial performance guarantees certain cases backed standby letters credit surety bonds majority cash collateralized accounted restricted cash liable amounts guarantees event nonperformance would permit customer exercise guarantee january 31 2009 2008 2007 2006 believe compliance performance obligations contracts financial performance guarantee liabilities arising connection guarantees material adverse effect consolidated results operations financial position cash flows also obtained bank guarantees primarily provide customer assurance relating performance certain obligations required customer agreements guarantee certain payment obligations guarantees aggregated 464 million january 31 2009 generally scheduled released upon performance specified contract milestones scheduled completed various dates primarily 2011 comverse ltd liens december 2009 part operations comverse ltd agreed placement floating liens assets support potential future borrowings banking services provided two israeli banks january 31 2009 comverse ltd borrowings supported liens however liens remained full force effect liens included provisions prohibited comverse ltd selling transferring assets ordinary course business effect restricting comverse ltd’s ability pay dividends extend loans shareholders without obtaining banks’ prior written approval december 2009 liens assets comverse ltd released dividends subsidiaries ability israeli subsidiaries pay dividends governed israeli law provides dividends may paid israeli corporation earnings defined accordance israeli companies law 1999 provided reasonable concern payment cause subsidiary fail meet current expected liabilities come due cash dividends paid israeli corporation united states resident corporate parents subject convention avoidance double taxation israel united states convention terms convention dividends subject taxation israel united states case israel dividends distributed income derived respect israeli company entitled reduced tax rate applicable approved enterprise generally subject withholding israeli income tax source rate 15 addition case dividend distributed tax exempted income derived period company entitled tax exempt income accordance encouragement law company subject tax year dividend distributed corporate tax grossed transferred amounts according corporate tax rate income subject approved enterprise 10 tax addition 15 withholding tax applicable dividends distributed income subject regular corporate income tax rates included benefit tax rate income exempted income encouragement law subject withholding tax 125 terms convention significant portion cash equivalents investments held outside united states various foreign subsidiaries january 31 2009 cash equivalents investments held outside united states distributed united states resident corporate parents form dividends otherwise may subject additional us income taxes subject adjustment foreign tax credits foreign withholding taxes incur substantial withholding taxes repatriate cash certain foreign subsidiaries addition discussed may 2007 verint entered credit facility order partially fund witness acquisition credit facility contains customary affirmative negative covenants credit facilities type including limitations verint’s ability pay cash dividends effect asset distributions also pursuant investment agreements starhome bv precluded paying cash dividends shareholders without approval certain minority shareholders investment verint systems’ preferred stock may 25 2007 connection verint’s acquisition witness cti entered securities purchase agreement verint referred securities purchase agreement whereby cti purchased cash aggregate 293000 shares verint’s series convertible perpetual preferred stock referred preferred stock aggregate purchase price 2930 million proceeds issuance preferred stock used partially finance acquisition preferred stock eliminated consolidation preferred stock currently confer cti voting rights currently convertible verint systems’ common stock preferred stock voting rights become convertible shares verint systems’ common stock upon approval issuance underlying shares verint systems’ stockholders special meeting verint systems’ stockholders scheduled held october 5 2010 obtain approval cti intends vote shares verint systems’ common stock favor approval assured ranking preferred stock issued purchase price 1000 per share ranks senior verint’s common stock liquidation preferred stock initial liquidation preference equal 1000 pershare purchase price event voluntary involuntary liquidation dissolution windingup verint cti entitled receive assets available distribution verint’s stockholders distribution assets holders verint common stock amount equal thencurrent liquidation preference includes accrued unpaid dividends july 31 2010 january 31 2009 cumulative undeclared dividends preferred stock 392 million 206 million respectively result liquidation preference preferred stock 3322 million 3136 million dates respectively dividends cash dividends preferred stock cumulative calculated quarterly specified dividend rate liquidation preference effect time initially specified annual dividend rate 425 per share quarter ended january 31 2008 variable interest rate verint’s term loan decreased 50 basis points initial interest rate accordingly dividend rate preferred stock reset 3875 effective february 1 2008 rate subject temporary increases event issuance underlying common stock approved verint’s stockholders january 31 2011 verint determines prohibited paying cash dividends preferred stock terms credit facility debt instruments may elect make dividend payments shares common stock common stock valued 95 volume weightedaverage price common stock five consecutive trading days ending second trading day immediately prior record date dividend verint’s credit facility contains restrictive covenant limits ability pay dividends preferred stock verint’s ability pay dividends common stock ranks junior preferred stock respect payment dividends limited declared dividend payment regularly scheduled dividend payment date preferred stock date hereof dividends declared paid preferred stock july 31 2010 january 31 2009 cumulative undeclared dividends preferred stock 392 million 206 million respectively voting preferred stock voting rights shares common stock would issuable upon conversion preferred stock approved issuance vote holders majority verint’s common stock special meeting verint systems’ stockholders scheduled held october 5 2010 obtain approval cti intends vote shares verint systems’ common stock favor approval assured following receipt stockholder approval issuance underlying shares common stock share preferred stock entitled number votes equal number shares common stock preferred stock would convertible conversion rate effect date preferred stock issued cti conversion following receipt stockholder approval issuance underlying shares common stock share preferred stock convertible option cti number shares verint’s common stock equal liquidation preference effect divided conversion price effect initially set 3266 may adjusted time liquidation preference equal issue price 1000 per share plus sum accrued unpaid dividends whether declared initial conversion rate set 306185 shares common stock share preferred stock converted convertible july 31 2010 january 31 2009 preferred stock could converted approximately 102 million 96 million shares verint’s common stock respectively subject stockholder approval issuance common stock underlying preferred stock described time verint may force conversion less preferred stock common stock option closing sale price common stock immediately prior conversion equals exceeds conversion price effect 140 conversion may 25 2010 prior may 25 2011 b 135 conversion may 25 2011 special rights upon fundamental change terms preferred stock also provide upon fundamental change defined certificate designation preferred stock cti right require verint repurchase preferred stock 100 liquidation preference effect verint fails repurchase preferred stock required upon fundamental change number directors constituting board directors increased two cti right elect two directors fill vacancies upon repurchase preferred stock subject fundamental change repurchase right cti longer right elect additional directors term office additional director terminate immediately upon repurchase number directors without action reduced two addition event fundamental change conversion rate increased provide additional shares common stock issuable holders preferred stock upon conversion based sliding scale depending acquisition price defined certificate designation preferred stock ranging zero 37 additional shares common stock every share preferred stock converted common stock following fundamental change transfer registration rights cti right sell preferred stock since november 25 2007 either private public transactions pursuant registration rights agreement cti verint entered concurrently securities purchase agreement referred new registration rights agreement commencing 180 days verint regains compliance periodic reporting obligations federal securities laws provided underlying shares verint’s common stock approved issuance common stockholders cti entitled two demands require verint register shares common stock underlying preferred stock resale securities act 1933 amended securities act new registration rights agreement also provides cti unlimited piggyback registration rights certain securities act registrations filed verint behalf verint stockholders cti’s rights new registration rights agreement addition rights previous registration rights agreement cti entered verint shortly verint’s initial public offering 2002 registration rights agreement referred original registration rights agreement covers shares common stock held cti additional shares common stock acquired cti later date original registration rights agreement cti entitled unlimited demand registrations shares registration statement form s3 verint eligible use registration statement form s3 cti also entitled one demand registration statement form s1 effective july 15 2010 cti made demand pursuant original registration rights agreement 28 million shares verint’s common stock registered registration statement form s1 permit sale thereof public offering august 24 2010 verint filed registration statement sec addition similar new registration rights agreement original registration rights agreement also provides cti unlimited piggyback registration rights liquidation preference starhome bv event liquidation merger sale starhome bv first 200 million proceeds would distributed certain minority shareholders thereafter cti would entitled greater 410 million remaining proceeds less certain amounts 11 million payable cti founders starhome ii pro rata share remaining proceeds asconverted basis significant subsequent events subsequent january 31 2009 following events significant impact results operations financial condition capital resources future liquidity needs repurchase convertible debt obligations terms indenture governing new convertible debt obligations cti obligation offer purchase cash new convertible debt obligations may 15 2009 purchase price equal principal amount purchased meet obligations indenture cti commenced tender offer april 17 2009 upon completion tender offer may 15 2009 cti purchased 4173 million aggregate principal amount new convertible debt obligations leaving 22 million aggregate principal amount convertible debt obligations outstanding ulticom’s special cash dividend stock option modification april 2009 ulticom inc paid special cash dividend 1996 million shareholders including cti ulticom inc’s minority shareholders paid 643 million additional 02 million payable holders deferred stock units awarded ulticom inc’s equity incentive plan upon issuance common stock subject awards effective april 21 2009 exercise prices outstanding options purchase 2982104 shares ulticom inc’s common stock reduced connection payment special cash dividend 458 per share reductions option exercise prices result change ulticom’s sharebased payment expense future fiscal periods verint credit facility term loan interest rate swap agreement term loan excess cash flow payments may 2009 verint made 41 million mandatory “excess cash flow” payment applied three immediately following principal payments may 2010 verint made 221 million mandatory “excess cash flow” payment term loan based upon operating results fiscal year ended january 31 2010 124 million applied eight immediately following principal payments 97 million applied pro rata remaining principal payments amendment credit facility july 2010 verint entered amendments credit facility among things changed method calculation applicable interest rate margin based verint’s consolidated leverage ratio consolidated total debt consolidated ebitda defined credit facility time ii added 150 libor floor iii increased aggregate amount incremental revolving commitment term loan increases permitted credit facility 500 million 2000 million iv made certain changes negative covenants including providing covenant relief respect permitted consolidated leverage ratio time v increased revolving credit facility credit facility 150 million 750 million detailed discussion see item 7a “quantitative qualitative disclosures market riskinterest rate risk indebtedness” note 27 consolidated financial statements included item 15 annual report termination interest rate swap agreement july 2010 verint terminated interest rate swap agreement entered may 2007 connection entry credit facility effectively fixed verint’s interest rate exposure respect 4500 million term loans thereunder 518 interest rate terminate interest rate swap agreement prior may 2011 maturity verint paid approximately 217 million august 2010 counterparty representing approximate present value expected remaining quarterly settlement payments otherwise due verint thereafter 2009 restructuring initiative fiscal year ended january 31 2010 comverse’s management approved restructuring plan close certain facilities eliminate associated staff positions plan implemented around comverse’s core competencies innovations enhance quality product offerings better align customers’ needs improve delivery service capabilities aggregate cost plan 138 million severancerelated costs 133 million paid fiscal year ended january 31 2010 facilitiesrelated costs 05 million expected paid january 31 2012 settlement shareholder class derivative actions december 16 2009 december 17 2009 cti entered agreements settle consolidated shareholder class action consolidated shareholder derivative actions respectively agreement settle consolidated shareholder class action amended june 19 2010 pursuant amendment cti agreed waive certain rights terminate settlement exchange deferral timing scheduled payments settlement consideration optout credit respect portion settlement funds would payable class member elected participate bound settlement discussion actions see item 3 “legal proceedings” part settlement consolidated shareholder class action amended cti agreed make payments class action settlement fund aggregate amount 1650 million paid remain payable follows • 10 million paid following signing settlement agreement december 2009 • 179 million paid july 2010 representing agreed 215 million payment less holdback 36 million respect anticipated optout credit holdback required paid cti optout credit less • 300 million payable may 15 2011 • 1125 million less amount optout credit exceeds holdback discussed payable november 15 2011 300 million due may 15 2011 825 million 1125 million due november 15 2011 payable cash cti’s election shares cti’s common stock valued using tenday average closing prices cti’s common stock prior election provided cti becomes current periodic reporting obligations federal securities laws common stock listed national securities exchange fifteenth trading day preceding applicable payment dates shares delivered one time aggregate value least 275 million cti receives net cash proceeds sale certain ars held aggregate amount excess 500 million cti required use 500 million proceeds prepay settlement amounts referred cti receives net cash proceeds sale securities aggregate amount excess 1000 million cti required use additional 500 million proceeds prepay settlement amounts referred cti granted security interest benefit plaintiff class account cti holds ars 516 million aggregate principal amount ars held account ubs proceeds sales thereof restricting cti’s ability use proceeds sales ars amounts payable settlement agreement paid full part settlement shareholder derivative actions cti agreed pay 94 million cover legal fees expenses plaintiffs payment due october 23 2010 september 2010 cti received insurance proceeds 165 million directors’ officers’ insurance policies connection settlements shareholder derivative actions consolidated shareholder class action agreement settle consolidated shareholder class action amended approved court action pending june 23 2010 agreement settle federal state derivative actions approved courts actions pending july 1 2010 september 23 2010 respectively expect fund cash payments make settlements using cash hand insufficient proceeds sale investments including ars new borrowings cash generated asset divestitures proceeds issuance equity debt securities auction rate securities february 1 2009 july 31 2010 recorded additional otherthantemporary pretax charges 73 million certain ars additionally february 1 2009 july 31 2010 1030 million aggregate principal amount ars recorded value 669 million sold redeemed proceeds 809 million amounts included 516 million aggregate principal amount ars subject ubs put 416 million aggregate principal amount ars purchased ubs cti pursuant purchase right prior june 30 2010 100 million aggregate principal amount ars purchased ubs upon exercise cti ubs put effective june 30 2010 part settlement agreement consolidated shareholder class action cti granted security interest benefit plaintiff class account cti holds ars 516 million aggregate principal amount ars held account ubs proceeds sales thereof restricting cti’s ability use proceeds sales ars amounts payable settlement agreement paid full addition terms settlement agreement consolidated shareholder class action cti receives net cash proceeds sale certain ars held aggregate amount excess 500 million cti required use 500 million proceeds prepay settlement amounts referred cti receives net cash proceeds sale ars aggregate amount excess 1000 million cti required use additional 500 million proceeds prepay settlement amounts referred july 31 2010 cti received cash proceeds 288 million sales redemptions ars provisions settlement agreement apply business acquisition february 4 2010 verint acquired outstanding shares iontas privately held provider desktop analytics solutions total consideration 219 million including cash consideration 179 million additional milestonebased contingent payments 38 million tied certain performance targets achieved next two years comverse ltd lines credit december 2009 comverse ltd’s existing line credit renewed increased 250 million corresponding increase cash balances comverse ltd required maintain bank 250 million june 2010 line credit decreased 150 million corresponding decrease cash balances comverse ltd required maintain bank 150 million december 2009 comverse ltd entered additional line credit bank 200 million used borrowings various performance guarantees customers vendors letters credit execute foreign currency transactions ordinary course business line credit bears interest subject renewal annual basis comverse ltd required maintain cash balances least 200 million bank times regardless amounts borrowed utilized line credit june 2010 line credit decreased 150 million corresponding decrease cash balances comverse ltd required maintain bank 150 million sale land september 16 2010 comverse ltd entered agreement sale certain land ra’anana israel third party purchase price approximately 285 million approximately 271 million proceeds received balance held escrow cover extent necessary applicable taxes levies sale consummated following bid process considered multiple offers land sale pursued part initiatives undertaken management improve cash position voting conversion rights verint systems’ preferred stock special meeting verint systems’ stockholders scheduled held october 5 2010 purpose approving issuance shares verint systems’ common stock upon conversion preferred stock cti intends vote shares verint systems’ common stock favor approval assured following approval issuance verint systems’ stockholders meeting verint systems’ preferred stock held cti voting rights become convertible shares verint systems’ common stock offbalance sheet arrangements material offbalance sheet arrangements performance guarantees previously discussed see “liquidity capital resourcesguarantees liens restrictions access subsidiary cash” contractual obligations following table presents contractual obligations january 31 2009 1 purchase obligations include agreements purchase goods services enforceable legally binding us specify significant terms including fixed minimum quantities purchased fixed minimum variable price provisions approximate timing transaction purchase obligations exclude agreements cancelable without penalty 2 consolidated balance sheet january 31 2009 includes 1049 million noncurrent tax reserves uncertain tax positions fin 48 specific timing cash payments relating obligation cannot projected reasonable certainty longterm debt obligations reflected include projected interest payments term debt assuming interest rates 359 364 interest rates effect borrowings verint’s term loan revolving credit facility respectively january 31 2009 actual interest debt variable longterm debt obligations also include projected quarterly settlements verint’s interest rate swap expiration may 2011 using interest rate assumptions underlie estimated fair value swap january 31 2009 july 2010 verint amended credit facility among things change method calculation interest rate terminated interest rate swap entered may 2007 detailed discussion see item 7a “quantitative qualitative disclosures market riskinterest rate risk indebtedness” obtain bank guarantees primarily provide customer assurance relating performance certain obligations required customer agreements guarantee certain payment obligations guarantees aggregated 464 million january 31 2009 generally released upon performance specified contract milestones scheduled completed various dates primarily 2011 amounts included table set forth december 2009 cti entered agreements settle consolidated shareholder derivative actions consolidated shareholder class action pursuant cti agreed make certain payments detailed discussion cti’s payment obligations settlement agreements see “significant subsequent eventssettlement shareholder class derivative actions” amounts payable settlement agreements included table set forth critical accounting estimates judgments accounting estimates judgments discussed section consider critical understand consolidated financial statements financial statements involve significant judgments uncertainties specifically accounting estimates judgments outlined critical materially affect operating results financial condition inasmuch require management make difficult subjective judgments regarding uncertainties many estimates include determinations fair value estimates reflect best judgment current estimates future economic market conditions effects based information available us date accompanying financial statements result accuracy estimates likelihood future changes depend range possible outcomes number underlying variables beyond control see also note 1 consolidated financial statements included item 15 annual report additional information significant accounting estimates judgments underlying financial results disclosed consolidated financial statements effective reporting periods covered annual report july 2009 fasb collected codified vast body literature comprising us gaap addition fasb adopted significant changes accounting provisions relating fair value financial assets liabilities impairment goodwill intangible assets revenue recognition among others please note following discussion critical accounting estimates judgments contains citations us gaap provisions effect january 31 2009 end recent fiscal year covered annual report revenue recognition report revenue consolidated financial statements two categories product revenue including hardware software products ii service revenue including revenue professional services training services postcontract customer support pcs professional services primarily include installation customization consulting services vast majority revenue accounted accordance american institute certified public accountants statement position 972 software revenue recognition related interpretations referred collectively sop 972 emerging issues task force eitf issue 035 applicability aicpa statement position 972 nonsoftware deliverables arrangement containing morethanincidental software eitf 035 software component multiple element arrangements incidental products sold applying provisions sop 972 exercise judgment use estimates determination revenue recognized accounting period arrangements require significant modification customization underlying software recognize revenue persuasive evidence arrangement product shipped services provided customer sales price fixed determinable collectability probable pertinent criteria met required sop 972 majority software license arrangements contain multiple elements including perpetual software licenses hardware pcs training professional services allocate revenue delivered elements arrangement using residual method whereby revenue allocated undelivered elements based vendor specific objective evidence vsoe fair value undelivered elements prescribed sop 972 remaining arrangement fee allocated delivered elements recognized revenue assuming revenue recognition criteria met unable establish vsoe fair value undelivered elements arrangement revenue recognition deferred entire arrangement elements arrangement delivered however undelivered element pcs recognize arrangement fee ratably pcs period timing recognition revenue transactions involves numerous judgments estimates policy determinations significant summarized follows pcs revenue derived primarily providing technical software support services unspecified software updates upgrades customers available basis pcs revenue recognized ratably term pcs period pcs included within multiple element arrangement primarily utilize substantive renewal rate establish vsoe fair value pcs much lesser extent bellshaped curve approach used certain verint segment arrangements depending upon business operating segment geographical region product line using substantive renewal rate method may unable establish vsoe fair value pcs renewal rate deemed nonsubstantive contractuallystated renewal rates stated renewal rate nonsubstantive entire arrangement fee recognized ratably estimated economic life product five eight years beginning upon delivery elements pcs believe estimated economic life product best estimate long customer renew pcs contractually stated renewal rate entire arrangement fee recognized ratably relevant contractual pcs term beginning upon delivery elements pcs defers revenue pcs undelivered element recognizes revenue remaining pcs period provided revenue recognition criteria sop 972 met arrangements include stated renewal rate determining whether actual renewal rate substantive matter judgment group products stratify customers based size install base geographic location customer based historical negotiations contract experience believe customers behave differently perceive different values pcs based two main factors bellshaped curve approach establishing vsoe fair value verint segment performs vsoe fair value compliance test ensure substantial majority 75 actual pcs renewals within narrow range plus minus 15 median pricing evaluate many factors determining estimated economic life products including support period product technological obsolescence average time new product releases upgrade activity customers concluded estimated economic lives key software products range five eight years policy establishing vsoe fair value professional services training based upon analysis separate sales services compared fees charged elements included multiple element arrangement comverse segment yet established vsoe fair value element pcs certain multipleelement arrangements obligated provide training services customers related operation software products training services either provided customer “defined” basis limited specified number days training classes “asrequested” basis unlimited training contractual period comverse segment established vsoe fair value either type training multipleelement arrangements containing asrequested training obligations recognize total arrangement consideration ratably contractual period required “stand ready” perform training provided criteria revenue recognition met multipleelement arrangements containing defined training obligations training services typically provided customer prior completion installation services situations revenue recognition commence completion installation defined training obligations impact timing recognition revenue certain circumstances training provided end installation period commence revenue recognition upon completion training provided criteria revenue recognition met fiscal years ended january 31 2009 2008 2007 comverse segment information multipleelement arrangements determine training fulfilled however fiscal year ended january 31 2006 information respect timing fulfillment training comverse segment limited therefore estimated required revenue deferral multipleelement arrangements due impact unfulfilled defined training obligations based information available comverse segment fiscal years ended january 31 2009 2008 2007 inherent estimates key assumptions related consistency percentage revenue subject deferral average number days provide defined training services completion installation believe methodology key assumptions reasonable part comverse segment’s static stable customer base consistent training terms provided longterm contracts time consistent training practices time arrangements require significant customization product meet particular requirements customer arrangements revenue recognized accordance accounting research bulletin 45 longterm constructiontype contracts relevant guidance contained within sop 811 accounting performance constructiontype certain productiontype contracts sop 811 typically using percentageofcompletion poc method determination whether services entail significant customization requires judgment primarily based alterations features functionality standard release complex unusual interfaces well amount hours necessary complete customization solution relative size contract revenue arrangements recognized poc method based ratio total hours incurred date compared estimated total hours complete contract required make judgments estimate total estimated costs progress completion changes estimates impact timing revenue recognition period use historical experience project plans assessment risks uncertainties inherent arrangement establish estimates uncertainties arrangements include implementation delays performance issues may within control event profitability contract cannot assured completedcontract method revenue recognition applied level profitability assured related revenue costs cannot reasonably estimated revenue recognized extent costs incurred time project’s profitability estimated services completed vsoe fair value pcs exist revenues recognized equal extent costs incurred services completed provided able make reliable cost estimates level profitability assured services completed remaining unrecognized portion arrangement fee recognized ratably remaining pcs period situations able make reliable estimates level profitability assured revenue deferred completion professional services recognized ratably respective pcs period determine based estimates costs exceed sales price entire amount estimated loss accrued period losses become evident management used available information subsequent balance sheet date evaluate reasonableness estimates revenue recognized multiple periods accordance revenue recognition policies material cost including hardware thirdparty software license fees deferred amortized period product revenue recognized costs recognized “deferred cost revenue” consolidated balance sheets however made accounting policy election whereby cost installation service costs expensed incurred except arrangements recognized accordance sop 811 consolidated statements operations classify revenue product revenue service revenue prescribed sec rule 503 b regulation sx multiple element arrangements include product service elements unable determine vsoe fair value elements arrangement management evaluates various available indicators fair value applies judgment reasonably classify arrangement fee product revenue service revenue amount multiple element arrangement fees classified product service revenue based management estimates fair value vsoe fair value elements arrangement exist could differ amounts classified product service revenue vsoe fair value elements existed allocation multiple element arrangement fees product revenue service revenue vsoe fair value elements exist consolidated financial statement presentation purposes affect timing revenue recognition amount revenue recognized determining amount multiple element arrangement fee classified product revenue service revenue comverse segment first allocates arrangement fee product revenue pcs classified service revenue based management’s estimate fair value elements remainder arrangement fee comprised service elements allocated service revenue estimate fair value product element based primarily management’s evaluation direct costs reasonable profit margins products determined appropriate methodology comverse segment historically product oriented respect pricing policies facilitates evaluation product costs related margins arriving reasonable estimate product element fair value management’s estimate reasonable profit margins requires significant judgment consideration various factors impact economic environment margins complexity projects stability product profit margins nature products estimate fair value pcs based management’s evaluation weighted average pcs rates arrangements vsoe fair value pcs exists determining classification revenue products services verint segment reviews vsoe fair value training installation pcs services similar transactions stand alone services arrangements compares peers order determine reasonable consistent approximations fair values service revenue remaining amount allocated product revenue sales resellers original equipment manufacturers oems purchase verint segment’s products resale generally recognized products shipped referred sellin basis reseller oem policy predicated verint segment’s ability estimate sales returns customers among criteria verint segment also required evaluate whether resellers oems ability honor commitment make fixed determinable payments regardless whether collect payment customers verint segment change assumptions judgments could cause material change reported revenue particular period verint segment historically experienced insignificant product returns resellers oems payment terms customers similar granted endusers reseller oem develops pattern payment delinquency seeks payment terms longer generally accepted verint segment defers recognition revenue receipt cash extended payment terms one critical judgments make assessment collectability probable recognition revenue based assessment probability collecting related accounts receivable balance onset sales arrangement certain comverse’s arrangements include payment terms depart customary practice situations customer adequate history abiding contractual payment terms without concessions sales price considered fixed determinable revenue recognized upon collection provided revenue recognition criteria met consider payment terms 5 arrangement fees due 120 days customer acceptance extended arrangement new customer payment terms extended evidence collecting original payment terms without making concessions therefore presumption fee fixed determinable cannot overcome arrangement existing customer evaluation customer’s payment history take place determine fee fixed determinable stockbased compensation measurement date selection cti stock options prior adoption statement financial accounting standards 123 revised 2004 sharebased payment february 1 2006 cti measured compensation expense stockbased employee compensation plans using intrinsic value method prescribed apb opinion 25 accounting stock issued employees apb 25 intrinsic value method compensation expense associated fixed awards excess quoted market price stock accounting measurement date amount employee must pay acquire stock apb 25 compensation expense measured date award received approval relevant authority number shares exercise price fixed allocation specific individuals occurred investigation revealed practice grant recipients options exercise price lower fair market value underlying shares grant date without recognizing stockbased compensation expense required recorded us gaap therefore actual accounting measurement dates determined course investigation cti’s stock option granting practices based review supporting approval documentation evidence awards approval dates grants periods covered cti’s phase investigation estimated connection special committee’s phase investigation cti reviewed 39 companywide option grants general grants directors general restricted stock awards made restatement period unanimous written consents associated grants lacked execution dates investigation revealed signatures often obtained stated “as of” dates grants means deliberately backdate stock option awards employees consultants senior executives cti always possible determine exact certainty actual measurement dates every grant therefore cti management collaboration special committee developed methodical consistently applied approach determining measurement date believes consistent guidance released september 19 2006 office chief accountant securities exchange commission approach included review available relevant documentary evidence order select measurement date deemed likely date compensation committee approved grant relevant support qualify measurement date process one million documents identified possibly relevant reviewed key documents ranked terms evidentiary quality cti considered quality evidence included evaluation reliability source content evidence indicate timing actual approval compensation committee key documents included ranked order highest lowest quality properly authorized dated minutes compensation committee meetings signed unanimous written consents existed evidence indicative authorization dates b systemgenerated dates grants processed cti’s stock administration database along corroborating evidence c dated documents supporting authorization specific awards communication awards employees systemgenerated dates grants processed cti’s stock administration database absent corroborating evidence e earliest option exercise date order corroborate measurement date selection process cti considered foregoing evidence conjunction circumstances surrounding award counsel special committee interviewed many employees either participants process certain grants recipients certain awards well certain members compensation committee aid interviews cti analyzed available relevant data grant chronological order reconstruct events surrounding general grant based available evidence information cti selected likely grant date new general measurement date based highest quality evidence located general grant would expected less documentary evidence available earlier general grants requiring judgment used determining likely grant date later grants particularly implementation sarbanes oxley 2002 highest quality evidence requiring little judgment many cases subjective judgments made application described approach order select appropriate grant date consideration relevant information result cumulative pretax charges retained earnings recorded amount 2685 million january 31 2005 related backdated stock options different measurement dates selected grant date resulting stockbased compensation charges may differed materially management believes measurement date review process resulting expense calculations reasonable sfas 123r assumptions since february 1 2006 accounted sharebased payment awards including employee stock options restricted stock deferred stock units employee stock purchases made employees directors accordance sfas 123r sharebased payment sfas 123r related interpretative guidance requires measurement recognition compensation expense awards based estimated fair value options granted cti well verint ulticom starhome subsidiaries required estimate fair value sharebased payment awards date grant using optionpricing model sfas 123r stockbased compensation expense measured grant date based fair value award cost recognized expense ratably award’s vesting period use blackscholes optionpricing model measure fair value stock option awards model requires us make significant judgments regarding assumptions used within model significant stock price volatility assumption expected term awards expected life option award based actual projected employee stock option behaviors inputs noted factored option valuation model use measure fair value stock awards subjective estimates changes estimates could cause fair value stock awards related stockbased compensation expenses vary materially except noted following key assumptions used stockbased compensation awards • riskfree interest rate assumption use based upon us treasury interest rates appropriate expected life awards • cti prospectively changed expected volatility assumption historical implied volatility effective august 1 2005 change based availability traded options cti’s stock assessment implied volatility better indicator expected volatility historical volatility implied volatility available may due lack trading cti utilize historical volatility • majorityowned subsidiaries including publiclytraded subsidiaries use historical volatility measuring volatility stock options • order determine estimated period time expect employees hold stock options analyzed historical exercise rates case modifications related additional time exercise afforded certain terminated employees affected restricted period estimated holding period based projected date compliance periodic reporting obligations federal securities laws restricted period resulted cti’s verint’s inability remain current periodic reporting obligations exchange act since april 2006 cti verint ineligible use registration statements form s8 offer sale equity securities including stock options employees • expected dividend rate zero since currently pay cash dividends common stock anticipate foreseeable future also required estimate expected forfeitures stockbased awards grant date recognize compensation cost awards expected vest although estimate forfeitures based historical experience future expectation actual forfeitures may differ forfeiture assumption adjusted actual forfeitures occur fiscal year ended january 31 2007 cti extended exercise rights respect certain employees’ vested stock options later occur 90 days date termination employment ii 30 days restricted period expired cti accounted additional time exercise afforded employees modifications original awards using currently available information terminations cti estimated number employees would terminate benefit arrangement cti also estimated date employees would begin exercise awards arrangement based estimated filing dates delinquent periodic reports sec resulting pretax modification expense cti 696 million recorded fiscal year ended january 31 2007 due significant use estimates discussed factors change employ different assumptions application optionpricing model future periods experience different forfeiture rates future compensation expense derived subsequently issued stock options may differ significantly recorded fiscal years ended january 31 2009 2008 2007 2006 consolidated stockbased compensation expense 550 million 635 million 1281 million 78 million respectively business combinations since february 1 2005 completed following acquisitions among others • witness systems acquired verint fiscal year ended january 31 2008 10851 million • netcentrex netonomy acquired comverse well mercom systems acquired verint fiscal year ended january 31 2007 total 2325 million • kenan acquired comverse multivision acquired verint fiscal year ended january 31 2006 total 2999 million assets acquired consisted primarily intangible assets goodwill acquired business allocated purchase price tangible identifiable intangible assets acquired liabilities assumed based upon estimated fair values acquisition date intangible assets consist primarily acquired technology customer relationships time engage independent thirdparty appraisal firms assist management considering determinations fair values significant net assets acquired residual purchase price recorded goodwill purchase price allocation process requires us make significant estimates assumptions especially acquisition date respect intangible assets including inprocess research development written acquisition date estimated restructuring liabilities preacquisition contingencies although believe assumptions estimates made past reasonable appropriate based part historical experience information obtained management acquired companies result inherent level uncertainty key critical estimates valuing certain intangible assets include limited future expected cash flows generated acquired technology customer relationships ii expected costs develop inprocess research development commercially viable products estimated cash flows projects completed iii acquired company’s brand competitive position well assumptions period time acquired brand continue used iv weighted average cost capital discount rates v estimating useful lives acquired assets well pattern manner assets amortize make significant judgments related business combinations including evaluating contingent consideration agreements review contingent consideration agreements ensure represent compensation ongoing activities business consider reasons contingent consideration provisions terms employment agreements mix employee selling shareholders nonemployee selling shareholders making determination whether contingent consideration accounted adjustment purchase price compensation services also estimate fair value contractual support obligations deferred revenue assuming acquired business estimated fair value support obligations determined utilizing cost buildup approach determines fair value estimating costs related fulfilling obligations plus reasonable profit margin estimated costs fulfill support obligations based historical direct costs related providing support services sum costs operating profit represents approximation amount would required pay third party assume support obligations unanticipated events circumstances may occur affect accuracy validity assumptions estimates actual results recoverability goodwill record goodwill purchase price net tangible intangible assets acquire exceeds fair value indefinitelived intangible assets goodwill january 31 2009 2008 2007 2006 accordance sfas 142 goodwill intangible assets sfas 142 review assets impairment least annually november 1 whenever events circumstances indicate carrying value may recoverable carrying value goodwill exceeds implied fair value impairment loss recognized test potential goodwill impairment first compare fair value reporting unit carrying value utilize incomebased approach using projected discounted cash flows marketbased approach using multiples comparable companies determine fair value estimate fair value reporting unit based number subjective factors including appropriate weighting valuation approaches incomebased approach marketbased approach ii estimates future revenue cash flows iii discount rate estimated cash flows iv selection peer group companies marketbased approach v required level working capital vi assumed terminal value vii time horizon cash flow forecasts viii control premium carrying value net assets assigned reporting unit exceeds fair value perform second step determine implied fair value reporting unit’s goodwill use work independent appraiser assist us considering determination implied fair value goodwill fair values calculated using income approach market approach based comparable companies income approach commonly known discounted cash flow approach estimates fair value based cash flows asset expected generate useful life carrying value reporting unit’s goodwill exceeds implied fair value impairment charge equal difference recorded assumptions estimates future values reporting units implied goodwill complex subjective affected variety factors including external factors industry economic trends internal factors changes business strategy internal forecasts although believe historical assumptions estimates made reasonable appropriate different assumptions estimates could materially impact reported financial results annual impairment test fiscal year ended january 31 2008 indicated carrying amount netcentrex reporting unit comverse segment exceeded fair value recorded pretax impairment charge 1351 million goodwill also second quarter fiscal year ended january 31 2009 perform interim impairment test longlived assets goodwill netcentrex reporting unit due significant reduction orders key customer reporting unit result test recorded pretax goodwill impairment charge fiscal year ended january 31 2009 214 million fully write remaining goodwill netcentrex reporting unit incur impairment goodwill fiscal years ended january 31 2007 2006 impairment longlived assets review recoverability longlived assets property equipment intangible assets finite lives whenever events changes circumstances occur indicate carrying value asset may recoverable impairment assets must considered prior impairment review goodwill assessment impairment based ability recover carrying value asset analyzing expected future undiscounted pretax cash flows specific asset group circumstances could trigger review include limited significant decreases market price asset significant adverse changes business climate legal factors accumulation costs significantly excess amount expected current period cash flow operating losses combined history losses forecast continuing losses associated use asset assess recoverability carrying value longlived assets lowest level identifiable undiscounted cash flows largely independent cash flows assets liabilities cash flows less carrying value asset group impairment loss measured based difference estimated fair value carrying value assets disposed writtendown greater fair value salvage value estimated fair values based assumptions concerning amount timing estimated future cash flows appropriate discount rates reflect varying degrees perceived risk significant management judgment involved estimating factors include inherent uncertainties measurement recoverability assets dependent upon accuracy assumptions used making estimates well estimates compare eventual future operating performance specific reporting unit assets attributed assumptions utilized impairment analysis consistent management’s internal planning result reviews verint segment recorded 27 million 45 million pretax impairment charges intangible assets finite lives fiscal year ended january 31 2008 2007 respectively 27 million impairment charge principally related customerrelated intangible assets 45 million impairment charge principally related acquired technology resulting decision replace certain acquired technology new technology sooner originally planned addition connection testing goodwill netcentrex reporting unit recorded 270 million 100 million charges intangible writedowns finite lives fiscal year ended january 31 2009 2008 respectively writedowns reflect impairment substantially reporting unit’s intangible assets allowance doubtful accounts estimate collectability accounts receivable balances reporting period adjust allowance doubtful accounts accordingly exercise judgment assessing collectability accounts receivable including consideration current economic trends creditworthiness customer collection history related aging past due receivables balances evaluate specific accounts learn customer may experiencing deterioration financial condition due lower credit ratings bankruptcy factors may affect customer’s ability render payment management used available information subsequent balance sheet date evaluate reasonableness estimates january 31 2009 2008 2007 2006 accounts receivable balance 3156 million 3812 million 2729 million 2753 million net allowance doubtful accounts 158 million 181 million 99 million 85 million respectively unanticipated events circumstances may occur affect accuracy validity assumptions estimates actual results valuation otherthantemporary impairments account investments accordance sfas 115 accounting certain investments debt equity securities related pronouncements sfas 115 designated debt equity securities availableforsale purchased accordingly report fair value fair value determined using quoted market prices active markets identical investments available valuation methodology used ars includes certain assumptions supported prices observable current market transactions instruments based observable market data quoted market prices active markets identical investments available estimate assistance valuation expert applicable fair value based underlying structure security ii present value future principle interest payment discounted rates considered reflect current market conditions iii considerations probabilities default auction failure interest rates reset zero maximum rate repurchase par period iv estimates recovery rates event default security prices recently traded securities also reviewed available general secondary market prices relatively thin trades widely ranging prices part however valuation estimate used us fell within range prices provided secondary market estimated fair values could change significantly based inherent variability aforementioned market factors ars valuations also vary significantly across various classes securities depending number factors including creditworthiness issuer guarantors quality sufficiency collateral example student loan auction rate securities slars substantially guaranteed federal government federal family education loan program ffelp liquidity slars severely constrained consistent ars market overall government guarantee results slars generally maintaining higher valuation ars issues guarantors lesser quality supported guarantee approximately 83 1203 million ars carrying amount january 31 2009 comprises slars valuations across slars issues also vary depending ranking securities within capital structure relevant trust issue less subordinated within given capital structure reflected security’s relative credit rating rate return time issuance greater degree subordination greater risk given security might fully redeemed event applicable trust liquidated prior maturity securities issued liquidation scenario assets trust would first applied redeem ars ranking highest capital structure applied subsequent layers descending rank order essentially slars carried initial credit ratings reflecting senior positions within capital structures various trusts thereby greatly reducing risk issues might redeemed respective par values liquidation event review investments indications impairment value quarterly basis accordance sfas 115 related guidance including sec staff accounting bulletin topic 5m temporary impairment certain investments debt equity securities consider investment otherthantemporarily impaired estimated fair value less cost determine probable unable collect contractual principal interest payments intend hold investment recovers carrying amount otherthantemporary impairment assessments consider many factors including severity duration decline fair value recent events specific issuer security andor industry issuer belongs external credit ratings recent downgrades ars represent material portion availableforsale securities declined significantly value liquid recorded otherthantemporary impairment charges 865 million 479 million pretax basis fiscal years ended january 31 2009 2008 respectively otherthantemporary impairment charges recognized fiscal years ended january 31 2007 2006 carrying amounts ars january 31 2009 2008 1203 million corresponding par value 2365 million 2147 million corresponding par value 2621 million respectively short interest rate reset period historically recorded ars current assets fiscal year ended january 31 2008 certain auctions related ars began fail january 31 2008 classified certain ars longterm assets result failed auctions fiscal year ended january 31 2009 auctions failed classified ars longterm assets february 1 2009 july 31 2010 recorded additional otherthantemporary impairment charges 73 million certain ars income taxes account income taxes accordance sfas 109 accounting income taxes sfas 109 fasb interpretation 48 accounting uncertainty income taxes interpretation fasb statement 109 fin 48 adopted fin 48 effective february 1 2007 income taxes provided using asset liability method income taxes ie deferred tax assets deferred tax liabilities taxes currently payablerefunds receivable tax expense recorded based amounts refundable payable current year include results difference us gaap tax reporting deferred income taxes reflect tax effect net operating losses capital losses general business credit carryforwards net tax effects temporary differences carrying amount assets liabilities financial statement income tax purposes determined enacted tax laws rates valuation allowances established management determines morelikelythannot portion deferred tax asset realized financial effect changes tax laws rates accounted period enactment subsequent realization net operating loss general business credit carryforwards acquired acquisitions accounted using purchase method accounting recognized consolidated statement operations research development credits recorded based amount benefit believe morelikelythannot earned additionally required recognize consolidated financial statements tax positions determined morelikelythannot sustained upon examination based technical merits positions time engage transactions tax consequences may subject uncertainty examples transactions include business acquisitions dispositions certain financing transactions significant judgment required assessing estimating tax consequences transactions prepare file tax returns based interpretation tax laws regulations normal course business tax returns subject examination various taxing authorities examinations may result future tax interest assessments taxing authorities determining tax provision financial reporting purposes establish reserve uncertain tax positions unless positions determined morelikelythannot sustained upon examination based technical merits financial reporting purposes recognize tax benefits taken tax return believe morelikelythannot sustained considerable judgment involved determining whether positions taken tax return morelikelythannot sustained adjust tax reserve estimates periodically ongoing examinations settlements various taxing authorities well changes tax laws regulations interpretations consolidated tax provision given year includes adjustments prior year income tax accruals considered appropriate related estimated interest policy recognize applicable interest penalties uncertain tax positions part income tax expense information see note 22 consolidated financial statements included item 15 annual report part accounting business combinations purchase price may allocated goodwill intangible assets impairment charges associated goodwill generally tax deductible result increased effective income tax rate quarter impairment recorded amortization expenses associated acquired intangible assets generally tax deductible pursuant existing tax structure however deferred taxes recorded nondeductible amortization expenses part purchase price allocation process taken account allocation identified intangibles among different taxing jurisdictions including nominal zero percent tax rates establishing related deferred tax liabilities income tax contingencies existing acquisition dates acquired companies evaluated quarterly adjustments recorded adjustments goodwill upon adoption fas 141r fiscal year ended january 31 2010 tax benefit future release acquisition date valuation allowances would reflected tax provision rather reduction goodwill litigation contingencies nature relate uncertainties require management exercise judgment assessing likelihood liability incurred well estimating amount potential loss accrue costs relating litigation claims contingent matters liabilities become probable reasonably estimable expense legal fees associated consultations outside counsel defense lawsuits incurred estimates may based advice third parties solely management’s judgment appropriate actual amounts paid may differ materially amounts estimated differences charged operations period final determination liability made time receive notices products processes may infringing patent intellectual property rights others notices shareholder litigation notices lawsuits claims us assess matter order determine contingent liability accordance statement financial accounting standards 5 accounting contingencies sfas 5 recorded making determination management may depending nature matter consult internal external legal counsel based information obtained combined management’s judgment regarding facts circumstances matter determine whether contingent loss probable whether amount loss estimated loss probable estimable record contingent loss accordance sfas 5 judgments estimates made management coincide future events judicial action us expected merit part party bringing action us may need record additional contingent losses could materially adversely impact results operations alternatively judgments estimates made management incorrect particular contingent loss occur contingent loss recorded would reversed thereby favorably impacting results operations fiscal year ended january 31 2007 recorded 1744 million pretax charge settling amounts payable settlement agreements consolidated class action federal state derivative actions agreements approved courts actions pending june 23 2010 july 1 2010 september 23 2010 respectively amounts payable settlements consisted aggregate 1650 million payable settlement shareholder class action settlement 94 million legal fees expenses plaintiffs settlement shareholder derivative actions amount charge determined based actual amount settlement reflected charges fiscal year ended january 31 2007 fiscal period actions commenced fiscal period lawsuits settled financial statements fiscal year ended january 31 2007 issued recent accounting pronouncements december 2007 fasb issued sfas 141 revised 2007 business combinations sfas 141r replaces sfas 141 business combinations sfas 141r significantly change accounting business combinations impact consolidated financial statements acquisition date subsequent periods sfas 141r requires acquiring entity recognize assets acquired liabilities assumed noncontrolling interest acquiree measured fair values acquisition date limited exceptions sfas 141r requires acquisition cost recognized separately business combination generally expensed incurred sfas 141r also includes substantial number new disclosure requirements sfas 141r applies prospectively business combinations commencing february 1 2009 exception accounting changes valuation allowances acquired deferred taxes acquired tax contingencies applied retrospectively impact sfas 141r consolidated financial statements depend nature size acquisitions completed adopt standard believe impact applying sfas 141r acquisition iontas february 2010 see note 27 subsequent events immaterial consolidated financial statements december 2007 fasb ratified consensus opinion reached eitf issue 071 accounting collaborative arrangements eitf 071 guidance eitf 071 defines collaborative arrangements establishes presentation disclosure requirements transactions within collaborative arrangement third parties participants arrangement eitf 071 effective fiscal years interim periods commencing february 1 2009 eitf 071 requires retrospective application collaborative arrangements existing effective date unless retrospective application impracticable impracticability evaluation exception performed arrangementbyarrangement basis anticipate adoption eitf 071 material impact consolidated financial statements december 2007 fasb issued sfas 160 noncontrolling interests consolidated financial statementsan amendment arb 51 sfas 160 sfas 160 establishes new accounting reporting standards noncontrolling interest subsidiary deconsolidation subsidiary sfas 160 also requires recognition noncontrolling interest minority interest equity consolidated financial statements separate parent’s equity amount net income attributable noncontrolling interest included consolidated net income face consolidated statements operations sfas 160 effective fiscal years interim periods commencing february 1 2009 upon adoption sfas 160 retrospectively present noncontrolling interest subsidiary within shareholders’ equity consolidated balance sheets net income noncontrolling interests presented consolidated net income consolidated statements operations march 2008 fasb issued sfas 161 disclosures derivative instruments hedging activities amendment fasb statement 133 sfas 161 sfas 161 amends sfas 133 accounting derivative instruments hedging activities sfas 133 requiring increased qualitative quantitative creditrisk disclosures entity’s derivative instruments hedging activities change sfas 133’s scope accounting sfas 161 effective commencing february 1 2009 adoption sfas 161 anticipated material impact consolidated financial statements april 2008 fasb issued fasb staff position fsp fas 1423 determination useful life intangible assets fsp fas 1423 fsp fas 1423 amends factors considered developing renewal extension assumptions used determine useful life recognized intangible asset sfas 142 intent fsp fas 1423 improve consistency useful life recognized intangible asset sfas 142 period expected cash flows used measure fair value asset sfas 141r us gaap fsp fas 1423 effective commencing february 1 2009 anticipate fsp fas 1423 material impact consolidated financial statements may 2008 fasb issued fsp apb 141 accounting convertible debt instruments may settled cash upon conversion including partial cash settlement fsp apb 141 fsp apb 141 requires issuer certain convertible debt instruments may settled cash assets conversion account separately liability debt equity conversion option components instrument manner reflects issuer’s nonconvertible debt borrowing rate fsp apb 141 effective fiscal years commencing february 1 2009 applied retrospectively beginning february 1 2009 change accounting certain convertible debt obligations fsp apb 141 requires separately account liability equity components liability component discounted manner reflect nonconvertible debt borrowing rate believe adoption result retrospective reclassification approximately 731 million carrying value certain convertible debt obligations date issuance january 26 2005 equity giving rise debt discount debt discount recognized interest expense using effective interest method first date holders securities could exercise put rights may 15 2008 april 2009 fasb issued following three fsps intended provide additional application guidance enhance disclosures fair value measurements impairments securities • fsp fas 1574 determining fair value volume level activity asset liability significantly decreased identifying transactions orderly fsp fas 1574 • fsp fas 1152 fas 1242 recognition presentation otherthantemporary impairments fsp fas 1152 • fsp fas 1071 apb 281 interim disclosures fair value financial instruments fsp fas 1071 fsp fas 1574 clarifies objective method fair value measurement even significant decrease market activity asset measured fsp fas 1152 establishes new model measuring otherthantemporary impairments debt securities including establishing criteria recognize writedown earnings versus comprehensive income fsp fas 1071 expands fair value disclosures required financial instruments within scope sfas 107 interim periods fsps effective interim annual periods commencing may 1 2009 anticipate adoption fsp fas 1574 fsp fas 1152 significant impact consolidated financial statements adoption fsp fas 1071 result increased disclosures future interim periods may 2009 fasb issued sfas 165 subsequent events sfas 165 sfas 165 intended establish general standards accounting disclosure events occur balance sheet date consolidated financial statements issued specifically sfas 165 sets forth period balance sheet date management reporting entity evaluate events transactions may occur potential recognition disclosure consolidated financial statements circumstances entity recognize events transactions occurring balance sheet date consolidated financial statements disclosures entity make events transactions occurred balance sheet date sfas 165 effective commencing interim filing period ended july 31 2009 annual filing period ended january 31 2010 currently anticipate statement materially impact consolidated financial statements june 2009 fasb issued sfas 167 amendments fasb interpretation 46r sfas 167 modifies approach determining primary beneficiary variable interest entity vie modified approach enterprise required make qualitative assessment whether power direct activities vie significantly impact entity’s economic performance ii obligation absorb losses vie right receive benefits vie could potentially significant vie enterprise characteristics enterprise considered primary beneficiary must consolidate vie modified approach determining primary beneficiary vie effective commencing february 1 2010 expected material impact consolidated financial statements june 2009 fasb issued sfas 168 fasb accounting standards codification hierarchy generally accepted accounting principles sfas 168 sfas 168 source authoritative accounting principles recognized fasb supersedes existing nonsec accounting reporting standards upon effective date subsequently fasb issue new standards form statements fasb staff positions eitf abstracts upon adoption sfas 168 references previous literature removed financial statements accompanying footnotes sfas 168 effective us commencing interim filing period ended october 31 2009 annual filing period ended january 31 2010 september 2009 fasb ratified consensuses reached eitf regarding following issues involving revenue recognition • eitf issue 081 revenue arrangements multiple deliverables eitf 081 previously titled revenue recognition single unit accounting • eitf issue 093 certain revenue arrangements include software elements eitf 093 eitf 081 addresses separate consideration multipledeliverable arrangements significantly expands disclosure requirements excluding software arrangements eitf 0801 establishes hierarchy determining selling price deliverable eliminates residual method allocation requires arrangement consideration allocated inception arrangement deliverables using relative selling price method eitf 093 applies multipledeliverable revenue arrangements contain software hardware elements focusing determining revenue arrangements within scope software revenue guidance sop 972 eitf 093 removes tangible products scope software revenue guidance provides guidance determining whether software deliverables arrangement includes tangible product within scope software revenue guidance eitf 081 eitf 093 effective prospective basis revenue arrangements entered materially modified commencing february 1 2011 elected early adopt eitf 081 eitf 093 assessing impact adoption eitf 081 eitf 093 may consolidated financial statements january 2010 fasb issued guidance amend disclosure requirements related recurring nonrecurring fair value measurements guidance requires new disclosures transfers assets liabilities level 1 quoted prices active market identical assets liabilities level 2 significant observable inputs fair value measurement hierarchy including reasons timing transfers additionally guidance requires gross presentation activity within level 3 significant unobservable inputs roll forward presenting information purchases sales issuance settlements separately guidance effective interim annual periods commenced february 1 2010 except gross presentation level 3 roll forward become effective interim annual periods commencing february 1 2011 adoption guidance anticipated result additional disclosures prior period adjustments prior period adjustments consolidated historical financial information resulted principally following investigations evaluations march 14 2006 cti disclosed board directors formed special committee composed outside directors review matters relating cti’s historic stock option grant practices including limited accuracy stated dates option grants whether proper corporate procedures followed investigation referred “phase investigation” november 14 2006 cti disclosed special committee’s investigation expanded financial accounting matters including recognition revenue related certain contracts errors recording certain deferred tax accounts misclassification certain expenses misuse accounting reserves intentional inaccurate presentation backlog investigation referred “phase ii investigation” november 2007 cti initiated separate evaluation application us gaap connection recognition revenue softwarerelated arrangements separate evaluation prompted concerns arose connection audit cti’s consolidated financial statements evaluation part investigations conducted special committee addition verint systems ulticom inc also conducted separate management audit committee reviews investigations stock option grant practices certain nonoption accounting issues including accounting reserves income statement expense classification conducted evaluation application us gaap connection recognition revenue accordance sop 972 detailed discussion special committee’s phase ii investigations revenue recognition evaluation conducted cti similar investigations revenue recognition evaluations conducted verint systems ulticom inc see section entitled “explanatory note” immediately preceding item 1 annual report verint systems’ review stock option grant practices referred “verint phase review” investigation earnings manipulation referred “verint phase ii investigation” ulticom inc’s investigation stock option grant practices referred “ulticom phase investigation” investigation earnings manipulation referred “ulticom phase ii investigation” investigations conducted cti’s special committee audit committees verint systems ulticom inc referred collectively “investigations” revenue recognition evaluations conducted cti verint systems ulticom inc referred collectively “evaluations” investigations revenue recognition evaluations together preparation consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 resulted prior period adjustments financial results fiscal periods january 31 2005 classified follows adjustments summarized “phase stockbased compensation” consist adjustments resulting cti’s special committee’s phase investigation ulticom’s phase investigation adjustments attributable cti’s stock options reflect additional compensation expense related corrections stock option grant measurement dates corrections errors accounting stockbased compensation fiscal year ended december 31 1991 fiscal year ended january 31 2005 include adjustments related cti stock options granted employees cti’s subsidiaries including verint ulticom addition category includes adjustments related errors accounting stockbased compensation relating stock option grants made ulticom inc ii adjustments summarized “phase ii reserves” consist adjustments resulting cti’s special committee phase ii investigation verint phase ii investigation ulticom phase ii investigation adjustments include corrections errors related inappropriate creation release reserves fiscal year ended december 31 1996 fiscal year ended january 31 2004 additionally investigations certain expenses including product costs service costs research development expenses selling general administrative expenses found inappropriately classified unsupported adjustments backlog discovered reclassification expenses backlog adjustments impact net income accumulated deficit iii adjustments summarized “revenue recognition evaluations” consist adjustments resulting revenue recognition evaluations conducted verint ulticom cti including subsidiaries related cost revenue adjustments made appropriately recognize revenue accordance us gaap fiscal year ended january 31 2000 fiscal year ended january 31 2005 iv adjustments summarized “other prior period adjustments” include corrections errors cti subsidiaries corrections summarized “phase stockbased compensation” “phase ii reserves” “revenue recognition evaluations” adjustments additional paidin capital include reduction deferred income tax valuation allowance associated net operating losses generated stock compensation expense remaining adjustments primarily correct accounting errors identified allowance doubtful accounts accrued bonuses sales commissions accruals restructuring initiatives goodwill vat write certain deferred financing fees v adjustments summarized “minority interest net tax” represent adjustments reflecting impact prior period adjustments minority interests cti’s majorityowned subsidiaries vi adjustments summarized “income tax provision” represent corrections errors related certain historical tax positions adjustments cti subsidiaries related tax effect aforementioned prior period adjustments following table presents cumulative effect prior period adjustments shareholders’ equity january 31 2005 phase stockbased compensation special committee’s phase investigation covered 39 stock option grants general grants directors made january 1991 october 2005 last stock option grant made prior commencement special committee’s phase investigation special committee concluded 29 grants made january 1991 october 2002 backdated obtain advantageous exercise prices addition management reviewed four general restricted stock award grants december 2005 special committee’s phase investigation management’s review revealed errors improprieties associated accounting administration cti’s equity awards granted cti employees subsidiary employees nonemployees incorrect measurement dates stock options connection investigation special committee reviewed evidence determine accuracy stated dates option grants whether correct measurement dates used us gaap stock option grants measurement date applicable stock options period investigation defined apb 25 accounting stock issued employees apb 25 date following first known individual employee entitled receive option grant ii number options individual employee entitled receive iii option exercise price apb 25 stockbased compensation expense required recorded stock options exercise price stock options least equal market value underlying common stock measurement date review general grants comprising approximately 82253000 shares 17201 individual awards revealed five general grants consisting approximately 21404000 shares 4916 individual awards previously accounted using correct measurement dates vast majority awards approved means unanimous written consents effective “as of” earlier purported grant date unanimous written consents lacked execution dates special committee’s phase investigation revealed 1991 2002 signatures members compensation committee prior reconstitution entirety december 2006 referred former compensation committee likely obtained stated “as of” dates grants awarded employees consultants senior executives special committee found inappropriate backdating options perpetrated knowledge participation cti’s former chairman chief executive officer jacob “kobi” alexander former director general counsel william sorin 1998 2002 former executive vice president chief financial officer david kreinberg mr alexander knowledge participation mr sorin 1998 2002 mr kreinberg backdated stock options selecting earlier grant date stock price lower purpose practice grant recipients options exercise price lower fair market value underlying shares grant date without recognizing stockbased compensation expense required recorded us gaap special committee found evidence grantees messrs alexander kreinberg sorin involved aware improprieties surrounding grants concluded grants employees consultant grantees honored similarly although special committee found irregularities concerning grants nonemployee directors concluded product intentional wrongdoing none nonemployee directors aware irregularities special committee determined honor prior grants well special committee determined limited evidence regarding actual dates general grants approved former compensation committee management developed method determining proper measurement dates backdated grant management believes consistent apb 25 january 2007 illustrative letter chief accountant sec approach included review relevant documentary evidence gathered special committee process one million documents identified possibly relevant reviewed special committee key documents regarding general grants ranked terms evidentiary quality management considered evidence conjunction circumstances surrounding award many cases subjective judgments made order select appropriate measurement date consideration relevant information different dates selected resulting amount expense may differed materially management believes measurement date review process resulting expense calculations reasonable accordance us gaap january 2007 illustrative letter chief accountant sec general measurement dates cti determined 34 general grants comprising approximately 60849000 shares 12285 individual awards approved unanimous written consent approved date later original effective date grant grants 29 backdated made prior january 31 2003 five grants made january 31 2003 comprising approximately 6929000 shares 1709 individual awards approved assigned measurement dates later original “as of” effective date grant due minor administrative delays approximately one week less general grants special committee management reviewed relevant documentary evidence using approach described determined 34 general grants described new measurement date referred new general measurement date representative date actual grant approval among 39 general grants reviewed cti’s may 2002 voluntary stock option exchange program measurement date regrant change result review therefore additional intrinsic value recorded related exchange individual measurement dates cti determined 349 individual option awards included 39 general grants distributed dates later new general measurement date cti researched exceptions ensure nature number imply awards associated general grant subject adjustment reallocation new general measurement date cti concluded based examination evidence described relation circumstances surrounding award exceptions identified imply open allocation process beyond new general measurement date ii impact completion required granting actions general grant therefore impact measurement date general grant 349 individual option awards distributed general grant date five different circumstances certain awards six noted general grants pooled fictitious account awards distributed individuals later dates time awards partially fully vested pooled account primarily funded fictitious names included grant lists attached unanimous written consents furnished former compensation committee approval former compensation committee unaware individuals actual employees approved grants result special committee’s phase investigation remaining undistributed awards later canceled compensation expense recorded ii individual option awards recycled unexercised grants forfeited grantees whose employment terminated transferred new recipients without approval former compensation committee stockbased compensation expense associated recycled awards attributed recipients whose awards ultimately vested iii certain cti’s business units took additional time finalize grantee lists case used measurement date last award entire business unit iv certain individuals hired grant date used individuals’ respective dates hire measurement dates v prior final distribution quantity awards modified amounts depicted original list approved former compensation committee measurement dates used awards dates final quantity awards determined final distribution awards sometimes months general grant date portion stockbased compensation expense related service period prior final distribution recognized measurement date individual award management accounted aforementioned grants apb 25 fasb interpretation 44 accounting certain transactions involving stock compensation interpretation apb opinion 25 new measurement dates resulted new intrinsic values based difference market price cti’s common stock new measurement date award strike price stockbased compensation expense based new intrinsic values recognized straightline basis revised measurement date final vesting date anniversary date full amount vested obligation recognized incorrect measurement dates restricted stock prior recording prior period adjustments stockbased compensation expense stockbased compensation expense cti recorded related restricted stock awards cti reviewed restricted stock awards granted certain key employees granted fiscal years ended january 31 2004 2005 2006 determined measurement dates two awards incorrect due minor administrative delays incorrect measurement dates cumulative effect evidence differences actual dates measurement recorded dates measurement respect verint systems’ stock option grants discovered course verint systems’ management review subsequent review verint systems’ audit committee ulticom inc’s audit committee however concluded improper procedures followed respect eight 22 stock option grants ulticom inc made management employees april 2000 april 2004 cumulative noncash pretax impact prior period adjustments related incorrect measurement dates cti stock options restricted stock charge 2314 million accumulated deficit january 31 2005 addition cumulative noncash pretax impact prior period adjustments related incorrect measurement dates ulticom inc’s stock options additional charge 38 million accumulated deficit january 31 2005 award accounting matters addition matters described errors cti accounting stock option administration including related • acceleration vesting terminated individuals original award terms allow acceleration • extension exercise term awards beyond term designated provisions applicable plan agreement certain individuals upon termination employment • inappropriate classification certain consultants employees accounting purposes correction errors required certain awards accelerated extended accounted modifications incremental intrinsic values date modification awards granted consultants accounted fair value instead intrinsic value cumulative noncash pretax impact prior period adjustments related errors accounting administration cti stockbased compensation charge 303 million accumulated deficit january 31 2005 withholding taxes result revised measurement dates referred many options formerly designated incentive stock options isos tax purposes longer eligible classification isos reclassified nonqualified stock options nsos additionally cti inadvertently exceeded qualifying limits established internal revenue service isos instances resulting conversions nsos resulted additional withholding taxes interest penalties failing properly withhold taxes past employees’ option exercises cumulative pretax impact us federal state foreign withholding taxes related penalties interest pertaining mentioned adjustments including award accounting matters resulted charge 27 million accumulated deficit january 31 2005 cumulative pretax impact accumulated deficit us federal state withholding taxes related penalties interest pertaining ulticom’s measurement date adjustment 02 million january 31 2005 addition internal revenue code section 409a imposes numerous requirements nonqualified deferred compensation plans including nsos extent requirements satisfied cases isos converted nsos participants may liable tax deferred compensation together interest penalties certain jurisdictions result relief provided transitional guidance internal revenue code section 409a impact prior period adjustments phase ii reserves phase investigation special committee received information alleging financial results least 1996 2003 intentionally misstated way aligning performance wall street expectations result special committee initiated phase ii investigation separate investigation conducted 50 interviews reviewed million documents additionally special committee reviewed accounted certain deferred tax accounts corrections related income taxes discussed heading “income tax provision benefit” special committee concluded least 1996 october 2003 messrs alexander kreinberg manipulated financial statements portray us company steady measured growth manipulation helped us meet exceed wall street expectations every quarter 1996 first quarter 2001 result initiation special committee’s phase ii investigation verint systems ulticom inc commenced phase ii investigations creation release excess reserves accruals special committee found achieve desired financial metrics messrs kreinberg alexander directed creation excess reserves later could released income kept running track “excess” “cushion” dozens reserve accounts cti’s special committee found due reserve manipulations pretax income understated fiscal year fiscal year ended december 31 1996 fiscal year ended january 31 2000 pretax income overstated fiscal year fiscal year ended january 31 2001 least fiscal year ended january 31 2003 verint system’s audit committee found certain accounting reserves overstated certain expenses misclassified ulticom inc’s audit committee found accounting practices related excess accruals improper deferral revenue implemented ulticom direction mr kreinberg purpose achieving upward trend growth ulticom’s revenue income result findings verint systems ulticom inc made adjustments included consolidated prior period adjustments accumulated deficit january 31 2005 cumulative pretax impact prior period adjustments relating phase ii reserves reduction 30 million accumulated deficit january 31 2005 including 07 million attributable verint inappropriate reclassification certain expenses special committee found mr kreinberg directed unsupported reclassification certain expenses cti certain whollyowned subsidiaries unsupported expense reclassifications occurred least first quarter fiscal year ended january 31 1999 third quarter fiscal year ended january 31 2004 reclassifications affect net loss income retained earnings accumulated deficit effect presenting consistent operating performance trends reclassifications principally product service costs ii research development costs iii selling general administrative expenses verint systems’ audit committee’s investigation revealed verint also misclassified certain expenses review classifications within consolidated statements operations found certain periods certain royalties license fees misclassified either selling expenses general administrative expenses research development expenses instead classified components cost revenue inappropriate reclassification certain expenses impact net income loss retained earnings accumulated deficit backlog special committee found corporate level mr kreinberg subordinate directed mr kreinberg repeatedly made unsupported downward adjustments sales backlog reported annual reports filed sec discussed regularly quarterly earnings conference calls analysts verint systems’ audit committee’s investigation revealed verint manipulate backlog historically defined sales backlog signed purchase orders firm customer commitments yet recognized revenue balance sheet date expected recognized next twelve months inappropriate backlog adjustments impact net income loss retained earnings accumulated deficit revenue recognition evaluations performed comprehensive review revenue recognition arrangements pursuant review found accounting revenue accordance certain provisions american institute certified public accountants’ statement position 972 software revenue recognition related interpretations referred collectively sop 972 sales arrangements generally include sale multiple deliverables inclusive products hardware software professional services primarily installation pcs training services multiple deliverables sold together multiple element arrangement management determines allocation sales price deliverable based existence vendor specific objective evidence vsoe fair value deliverable description policies judgments related revenue recognition establishing vsoe fair value see item 7 “management’s discussion analysis financial condition results operationscritical accounting estimates judgments” result evaluations concluded insufficient evidence existed support prior determination vsoe fair value existed certain elements contracts exception arrangements professional services include significant customization software products recognized sop 811 accounting performance constructiontype certain productiontype contracts referred sop 811 arrangements earliest point revenue recognition commence multiple element arrangements occurs upon completion professional services prior period adjustments related revenue recognition evaluations primarily impact timing revenue recognition generally call question validity underlying transactions isolated instances however total revenue certain contracts impacted significant findings resulting revenue recognition evaluations outlined professional services multiple element arrangements typically include professional services primarily related installation began account installation separately element fiscal year ended january 31 2004 fiscal year ended january 31 2004 october 2005 previously determined vsoe fair value installation services existed result revenue recognition evaluations concluded installation services separate element revenue transactions prior fiscal year ended january 31 2004 addition concluded vsoe fair value installation services exist period vsoe fair value could determined installation services typically last element contracts besides pcs delivered revenue previously recognized upon product delivery deferred completion installation services exception arrangements accounted sop 811 adjustment impacted revenue recognition nearly multipleelement arrangements postcontract support pcs fiscal year ended january 31 2004 began account separately pcs however perform sufficient analysis support assertion vsoe fair value beginning fiscal year ended january 31 2004 existed pcs result revenue recognition evaluations concluded pcs services separate element revenue transactions prior fiscal year ended january 31 2004 subsequently performed comprehensive evaluation sales arrangements determine vsoe fair value pcs could established based existence substantive renewal rates unable establish vsoe fair value pcs certain sales arrangements renewal rate deemed nonsubstantive contractually stated renewal rates entire arrangement fee recognized ratably upon completion professional services estimated economic life product stated renewal rate nonsubstantive recognized contractual term contractually stated renewal rate vsoe fair value exist revenue recorded delivered elements provided revenue recognition criteria met vsoe fair value existed undelivered elements training certain multiple element arrangements obligated provide customers training services related operation software solutions training services either provided customer “defined” basis limited number days “as requested” basis unlimited training contractual period time historically considered training insignificant concluded deliverable evaluated revenue recognition purposes however connection revenue recognition evaluations determined training identified deliverable sop 972 vsoe fair value training exist arrangements training provided asrequested recognized entire arrangement consideration ratably contractual period required “stand ready” perform training provided revenue recognition criteria met arrangements containing defined training obligations training services typically provided customer prior completion installation services situations revenue recognition commence completion installation defined training obligations impact recognition revenue limited circumstances training provided end installation period start date revenue recognition deferred fulfillment defined training commitment provided revenue recognition criteria met fiscal years ended january 31 2009 2008 2007 reviewed substantially multipleelement arrangements determined training fulfilled arrangements fiscal year ended january 31 2006 reviewed larger multipleelement arrangements determined training fulfilled arrangements estimated required revenue deferral remaining multipleelement arrangements fiscal year ended january 31 2006 well multipleelement arrangements prior years impact unfulfilled defined training obligations utilized information available fiscal years ended january 31 2009 basis conclude duration training contracts information respect timing fulfillment training limited due fact training previously considered separate element tracked sufficient detail arrangement deferred revenue estimated remaining arrangements based percentage revenue subject deferral following year relative total revenue certain multipleelement arrangements using average number days training fulfilled completion installation inherent estimates key assumptions related consistency percentage revenue subject deferral average number days provide defined training services completion installation believes methodology key assumptions reasonable part static stable customer base consistent training terms provided longterm contracts time consistent training practices time also believe estimate deferred revenue fiscal year ended january 31 2006 prior years would materially different amount would determined actual training information fiscal years extended payment terms prior evaluations comverse treated arrangements payment terms one year extended revenue generated arrangements recognized upon collection result revenue recognition evaluation comverse established agreement payment terms 5 total arrangement value due 120 days completion professional services deemed exceeded comverse’s standard terms therefore analyzed concessions customer history making timely payments due dates revenue recognized date collection provided revenue recognition criteria met pursuant review revenue recognition practices determined miscellaneous revenue recognition adjustments necessary categories included litigation customer settlements contract aggregation servicesonly arrangements penalties addition incorrectly translated deferred revenue denominated foreign currencies using current exchange rates opposed historical exchange rates reviewed direct incremental costs arrangements requiring revenue recognition deferral review resulted corresponding deferral material costs classified “deferred costs revenue” consolidated balance sheets order match costs related revenue recognition arrangements involving significant customization software additional project expenses deferred similar manner consistent guidance sop 811 cumulative noncash pretax impact prior period adjustments related revenue recognition evaluations increase 4854 million accumulated deficit january 31 2005 including 1313 million 71 million attributable verint ulticom respectively prior period adjustments prior period adjustments relating additional paidin capital resulted reduction valuation allowance associated net operating losses generated tax deductible stock compensation expenses morelikelythannot realized prior period adjustments relating retained earnings resulted miscellaneous items accounted properly related investigations evaluations adjusted accordingly items include errors identified allowance doubtful accounts accrued bonuses sales commissions accruals restructuring initiatives goodwill vat write certain deferred financing fees cumulative pretax impact prior period adjustments related errors increase accumulated deficit 16 million january 31 2005 including 19 million reduction retained earnings attributable verint minority interest net tax prior period adjustments related minority interest net tax represent portion prior period adjustments attributable holders minority shares cti’s majorityowned subsidiaries primarily verint ulticom cumulative impact prior period adjustments related minority interest net tax 175 million reduction accumulated deficit january 31 2005 income tax provision tax effect related prior period adjustments 207 million january 31 2005 includes 546 million cti subsidiaries verint ulticom starhome 297 million verint 42 million ulticom significant components adjusted provision described cti subsidiaries verint ulticom starhome • adjustments deferred tax assetliabilities previously recorded including release valuation allowances recorded federal nonus deferred tax assets • utilization net operating losses offset taxable income generated federal various state jurisdictions taxable income primarily generated due following among others • disallowance stock compensation tax deductions resulting backdating stock options • geographic allocation revenue expenses • nonus income subject us tax deemed dividends • identification contingent tax liabilities accounted accordance sfas 5 • prior period adjustments related phase investigation internal revenue code section 162m limits amount tax deductions public company take related compensation paid five highly compensated executives changes grants described deductions overstated resulting cumulative additional tax expense 15 million january 31 2005 addition additional paid capital overstated due excess tax benefits related section 162m disallowance 408 million january 31 2005 • conversely conversion isos nsos described partially offset section 162m tax obligation resulting cumulative income tax benefit increases additional paid capital 114 million january 31 2005 item 7aitem 7 management’s discussion analysis financial condition results operations following discussion analysis financial condition results operations read together item 1 “business” item 6 “selected financial data” consolidated financial statements related notes included item 15 annual report discussion analysis contains forwardlooking statements based current expectations relating future events future financial performance involve risks uncertainties see “forwardlooking statements” page iii annual report actual results may differ materially anticipated forwardlooking statements result many factors including set forth item 1a “risk factors” elsewhere annual report unless otherwise stated discussion analysis relates financial data january 31 2010 2009 fiscal years ended january 31 2010 2009 2008 derived consolidated financial statements included item 15 annual report consolidated financial data reflects effect adoption february 1 2009 financial accounting standards board’s fasb guidance relating debt conversion options may settled wholly partially cash applied retrospectively january 31 2009 fiscal years ended january 31 2009 2008 addition consolidated financial data also reflects revised presentation noncontrolling interest pursuant fasb’s guidance january 31 2009 fiscal years ended january 31 2009 2008 percentages amounts within section may calculate precisely due rounding differences certain financial information presented herein october 31 2010 latest interim consolidated balance sheet date discussion analysis includes following sections • overview summarizes structure management significant events impacted consolidated revenue performance business segments key developments trends challenges uncertainties business segments • results operations provides comparative discussion analysis consolidated results operations management views analyzes business segments discussion analysis results operations segments case fiscal year ended january 31 2010 compared fiscal year ended january 31 2009 fiscal year ended january 31 2009 compared fiscal year ended january 31 2008 addition discuss trends events uncertainties management currently believes reasonably likely material effect future operational results • liquidity capital resources provides overview recent liquidity developments sources liquidity cash uses matters relating liquidity capital resources • offbalance sheet arrangements discloses certain material offbalance sheet arrangements • contractual obligations discusses longterm debt longterm shortterm contractual obligations january 31 2010 • critical accounting estimates judgments discusses accounting policies require significant management judgment assumptions estimates • recent accounting pronouncements describes accounting standards may required implement future overview structure management cti subsidiaries cti holding company conducts business subsidiaries principally comverse inc verint systems starhome bv prior ulticom sale december 3 2010 ulticom inc cti’s reportable segments fiscal year ended january 31 2010 comverse segment comprised comverse inc whollyowned subsidiary cti subsidiaries verint segment comprised verint systems subsidiaries part previously disclosed initiatives improve cash position cti completed january 14 2011 sale 23 million shares verint systems’ common stock secondary public offering following completion offering january 14 2011 cti held 440 outstanding shares verint systems’ common stock 100 outstanding shares series convertible perpetual preferred stock par value 0001 per share verint systems preferred stock preferred stock became voting convertible verint systems’ common stock october 5 2010 accordingly following completion offering january 14 2011 cti beneficial ownership 562 verint systems’ common stock cti intends continue retain majority interest verint systems common stock verint systems publicly traded verint systems files separate periodic current reports sec available website wwwverintcom sec’s website wwwsecgov ulticom segment comprised ulticom inc subsidiaries december 3 2010 cti sold shares ulticom inc’s common stock affiliate platinum equity part ulticom sale information relating ulticom sale see item 1 “businessacquisition dispositionsdispositionssale ulticom” segment comprised starhome bv subsidiaries miscellaneous operations cti’s holding company operations january 14 2011 cti held 665 starhome bv privatelyheld company cti’s management directly responsible daytoday operations comverse reports cti’s board directors cti views majorityowned subsidiaries operations separate independent comverse accordingly cti’s majorityowned subsidiaries separate management responsible daytoday operations certain cti officers directors serve members boards directors cti’s majorityowned subsidiaries currently constitute majority board cti’s consolidated balance sheets reflect cash equivalents held majorityowned subsidiaries indebtedness incurred subsidiaries cti view majorityowned subsidiaries’ cash equivalents readily accessible guarantee indebtedness cti may receive cash majorityowned subsidiary primarily dividends extent paid subsidiary’s shareholders including minority shareholders example april 2009 ulticom inc paid special cash dividend 1996 million shareholders including cti 643 million paid ulticom inc’s minority shareholders verint systems however precluded paying cash dividends cti credit facility starhome bv may pay cash dividends without approval certain minority shareholders investment agreements cti’s management evaluates financial results segments based evaluations may allocate resources considered best interests cti segment although segment separate independent cti may take action support achievement business goals segment example may 2007 cti invested preferred stock verint systems aggregate purchase price 2930 million finance part verint’s acquisition witness significant events fiscal year ended january 31 2010 thereafter operated ordinary business conditions business conditions periods management required manage business facing significant challenges including continued weakness global economy reduced spending telecommunication service provider customers significantly affected comverse’s revenue well consolidated revenue fiscal year ended january 31 2010 comprehensive discussion see “segment business highlights trends” efforts file periodic reports fiscal year ended january 31 2010 nine months ended october 31 2010 continued incur significant expenses accounting tax legal fees connection efforts become current periodic reporting obligations lesser extent remediate material weaknesses internal control financial reporting fiscal year ended january 31 2010 expenses 1880 million 1292 million 545 million 43 million incurred cti comverse verint ulticom respectively nine months ended october 31 2010 expenses 1332 million 1059 million 271 million 03 million incurred cti comverse verint ulticom respectively continue make progress efforts become current periodic reporting obligations federal securities laws filing comprehensive form 10k october 4 2010 annual report form 10k yet current periodic reporting obligations cti determined best provide current accurate information investors focusing efforts preparing filing annual report form 10k fiscal year ending january 31 2011 2010 form 10k preparing filing quarterly reports form 10q may required become current periodic reporting obligations federal securities laws although cti expect able file 2010 form 10k april 1 2011 due date intends file 2010 form 10k soon practicable thereafter cti process reviewing various milestones financial close reporting disclosure processes expects provide additional information timeline completing various periodic reports late february 2011 expect complete necessary filings compliancerelated costs expenses significantly decline becomes current periodic reporting obligations federal securities laws cti intends apply relisting common stock nasdaq another national stock exchange significant litigation internal investigation settlements shareholder class action derivative actions continued negatively impacted ongoing litigation matters including shareholder class derivative actions initiated cti fiscal year ended january 31 2007 furthermore march 16 2009 cti disclosed audit committee conducting investigation comverse alleged improper payments potentially violation foreign corrupt practices act referred fcpa laws united states countries investigation required senior management’s attention significant resources addition june 2009 cti entered civil settlement sec allegations regarding improper backdating stock options accounting practices part settlement cti required compliance periodic reporting obligations february 8 2010 cti however unable file requisite periodic reports date result sec instituted administrative proceeding pursuant section 12j exchange act suspend revoke registration cti’s common stock july 22 2010 administrative law judge proceeding issued initial decision revoke registration cti’s common stock august 17 2010 sec issued order granting cti’s petition review administrative law judge’s initial decision sec currently cti’s petition review fully briefed pending sec cti unable predict time outcome review appeal therefrom detailed discussion legal proceedings internal investigation see item 3 “legal proceedings” december 2009 cti entered agreements settle consolidated shareholder class action federal state consolidated shareholder derivative actions part settlement consolidated shareholder class action cti agreed pay plaintiff class 1650 million less optout credit respect portion settlement funds would payable class member elected participate bound settlement 10 million 179 million paid december 2009 july 2010 respectively balance due fiscal year ending january 31 2012 300 million due may 15 2011 825 million due november 15 2011 payable cash cti’s election shares provided cti current periodic reporting obligations shares listed national securities exchange cti expects pay 300 million payment due may 15 2011 cash september 2010 class member elected participate bound settlement shareholder class action filed action cti intends vigorously defend action addition part settlement consolidated shareholder derivative actions cti paid october 21 2010 legal fees expenses plaintiffs 94 million detailed discussion see item 3 “legal proceedingsproceedings related cti’s special committee investigationssettlement agreements” repayment indebtedness compliance obligations applicable indenture may 15 2009 cti completed tender offer purchased using available cash 4173 million aggregate principal amount new convertible debt obligations following completion tender offer 22 million aggregate principal amount convertible debt obligations remained outstanding addition subsequent january 31 2010 verint repaid 377 million borrowings credit facility liquidity challenges primarily result circumstances described subsequent fiscal year ended january 31 2010 management forecasted absence successful completion one contemplated initiatives cti comverse would experience shortfall cash required support working capital needs business cti comverse fiscal year ending january 31 2012 improve cash position cti comverse successfully implemented first phase plan restructure operations comverse view toward aligning operating costs expenses anticipated revenue significantly reducing annualized operating costs ii comverse sold land israel received proceeds 271 million iii cti sold shares ulticom inc part ulticom sale received total cash proceeds 556 million iv cti completed sale 23 million shares verint systems’ common stock secondary public offering aggregate net proceeds 765 million addition developing second phase restructuring measures comverse focus process reengineering maximize business performance productivity operational efficiency comverse also evaluating initiatives improve focus core business maintain ability face intense competitive pressures markets part initiatives comverse pursuing wind continues evaluate strategic options netcentrex business following sale shares verint systems’ common stock secondary public offering currently forecast available cash equivalents sufficient meet liquidity needs including capital expenditures cti comverse fiscal year ending january 31 2012 enhance cash position cti comverse continue evaluate capital raising alternatives comprehensive discussion liquidity forecast see “liquidity capital resourcesrecent developmentsfinancial condition cti comverseliquidity forecast” verint’s credit agreement amendment part efforts enhance financial flexibility july 2010 verint entered amendment credit facility change method calculation applicable interest rate margin ii increase aggregate amount incremental revolving commitment term loan increases permitted credit facility 500 million 2000 million iii make certain changes negative covenants including providing covenant relief respect permitted consolidated leverage ratio iv increase revolving credit facility 150 million 750 million additional discussion see “liquidity capital resourcesindebtednessverint credit facility” also july 2010 verint entered agreement terminate interest rate swap making 217 million onetime payment additional discussion see “liquidity capital resourcesindebtednesstermination interest rate swap agreement” financial highlights consolidated total revenue consolidated total revenue fiscal year covered annual report declined 168 billion fiscal year ended january 31 2009 158 billion fiscal year ended january 31 2010 decline consolidated total revenue fiscal year ended january 31 2010 primarily attributable 136 decrease revenue experienced comverse segment partially offset 51 increase verint’s revenue detailed discussion see “results operationsfiscal year ended january 31 2010 compared fiscal year ended january 31 2009condensed consolidated resultstotal revenue” recent fiscal years experienced change relative contributions comverse verint segments consolidated total revenue verint’s contribution increasing yearoveryear large part due acquisition witness comverse’s revenue percentage consolidated total revenue declined 547 fiscal year ended january 31 2009 503 fiscal year ended january 31 2010 conversely verint’s revenue percentage consolidated total revenue increased 399 fiscal year ended january 31 2009 446 fiscal year ended january 31 2010 segment performance evaluate business assessing performance segments cti’s chief executive officer chief operating decision maker use segment performance defined primary basis assessing financial results segments allocation resources segment performance define accordance fasb’s guidance relating segment reporting necessarily comparable similarly titled captions companies segment performance defined management represents operating results segment without impact significant expenditures incurred segment connection efforts become current periodic reporting obligations federal securities laws certain noncash charges certain insignificant charges segment performance computed management loss income operations adjusted following stockbased compensation expense ii amortization acquisitionrelated intangibles iii compliancerelated professional fees iv compliancerelated compensation expenses v impairment charges vi litigation settlements related costs vii acquisitionrelated charges viii restructuring integration charges ix certain insignificant charges compliancerelated professional fees compliancerelated compensation expenses relate fees expenses incurred connection efforts complete current previously issued financial statements audits financial statements b efforts become current periodic reporting obligations federal securities laws additional information apply segment performance evaluate operating results segments fiscal years ended january 31 2010 2009 2008 see notes 1 22 consolidated financial statements included item 15 annual report evaluating segment’s performance management uses segment revenue consists revenue generated segment including intercompany revenue certain segment performance adjustments relate expenses included calculation loss income operations time certain segment performance adjustments may presented adjustments revenue calculating comverse’s segment performance fiscal years ended january 31 2010 2009 2008 presentation segment revenue gives effect segment revenue adjustment reflecting elimination negative impact revenue attributable patent litigation settlement addition calculating verint’s segment performance fiscal years ended january 31 2009 2008 presentation segment revenue gives effect segment revenue adjustments related acquisitions represent 1 impact fair value adjustments required fasb’s guidance relating acquired customer support contracts would otherwise recognized revenue standalone basis 2 certain sales concession adjustments relating accounts receivable balances existed prior acquisition date case respect acquisition witness may 2007 verint segment revenue adjustment fiscal year ended january 31 2010 detailed presentation revenue segment performance adjustments made fiscal years 2010 2009 2008 see “results operations” note 22 consolidated financial statements included item 15 annual report following table presents fiscal years ended january 31 2010 2009 segment revenue segment performance segment performance margin reflecting segment performance percentage segment revenue segments discussion results segments see “results operations” segment business highlights trends comverse segment business overview comverse leading provider softwarebased products systems related services provide prepaid postpaid converged billing active customer management wireless wireline cable network operators referred business support systems bss delivering value proposition designed ensure timely efficient service monetization enable realtime offers made end users based relevant customer profile information ii enable wireless wireline including cable networkbased valueadded services vas comprised three categoriesvoice messaging mobile internetand include voicemail call completion visual voicemail short messaging service sms text messaging texting multimedia picture video messaging mobile internet access internet protocol ip communications comverse’s products services designed generate carrier voice data network traffic revenue customer loyalty monetize network operators’ services improve operational efficiency 450 wireless wireline network communication service provider customers 125 countries including majority world’s 100 largest wireless network operators key trends challenges uncertainties fiscal year ended january 31 2010 comverse segment materially affected following trends challenges shift mix revenue fiscal year ended january 31 2010 sales comverse’s vas products continued decline result continuance weakness global economy resulting lower levels spending telecommunication service providers ii continued proliferation alternative messaging applications sms text messaging part attractive substitute voicemail usage iii continued maturation wireless industry particularly relates voicebased services voicemail resulting decreasing rate growth subscriber base comverse’s telecommunication service provider customers capital spending budgets iv increased competition certain product areas lowcost service providers particularly emerging markets v decrease maintenance revenue primarily due pricing pressures maintenance services voicebased products despite changing nature market continue view comverse’s vas products key driver business seek ways increase revenue existing products develop new innovative products comverse leading provider voicemail products although growth demand products moderated greatly believe well positioned maintain potentially grow market share respect upgrades installations next generation voicemail products leverage platform crosssell products existing customer base fiscal year ended january 31 2010 comverse also experienced decline revenue bss customer solutions primarily due reduction spending telecommunication service providers believe comverse’s bss product line potential become key driver growth going forward basis comverse established provision prepaid billing products services acquisition kenan december 2005 became significant provider postpaid billing products services comverse provider converged prepaidpostpaid product offerings although significant growth product offering occur fiscal year ended january 31 2010 fiscal year spending communication service providers weak believe product offerings provide comverse significant opportunities growth fiscal year ended january 31 2010 comverse segment experienced shift mix revenue proportion revenue generated professional services continuing increase proportion revenue generated licensing continuing decline shift resulted increases professional services required implement provide maintenance comverse’s increasingly complex projects negative impact comverse’s margins challenges global economy weakness global economy continued fiscal year ended january 31 2010 materially adversely affected telecommunications industry many comverse’s customers experienced significant declines revenue profitability customers required reduce excessive debt levels response challenges many comverse’s customers implemented cost cutting measures including closely managing operating expenses capital investment budgets resulted reduced demand comverse’s products services solutions longer customer purchasing decisions pricing pressures due part conditions comverse continued experience declines revenue increased operating losses changes telecommunications industry increased competition telecommunications industry comverse operates undergone continues undergo significant changes adverse comverse include emergence new lowcost competitors emerging markets ii proliferation alternative messaging applications sms text messaging part attractive substitute voicemail usage iii maturation wireless services industry particularly relates voicebased services voicemail iv relative commoditization voice sms text message services v increased dependence growth emerging markets lower average revenue per user vi changes regulatory environment believe changes reduced demand comverse products services increased pricing pressures turn impacted revenue time global wireless subscriptions traffic continued grow emerging wireless segments data services internet browsing experienced rapid adoption trends support demand several products although comverse believes products services superior lowcost competitors emerging markets competition caused comverse evaluate cost structure view toward reducing costs providing products services improving margins challenges relating efforts comply periodic reporting obligations discussed comverse operate ordinary business conditions fiscal year ended january 31 2010 fiscal year senior management required continue expend significant resources connection various legal proceedings efforts enable cti become current periodic reporting obligations federal securities laws addition cti’s inability become current periodic reporting obligations federal securities laws fiscal year ended january 31 2010 limited information comverse able provide public interested parties including customers furthermore inability become current limited ability use equity incentives attract retain motivate comverse’s employees although subject quantification management believes factors adverse impact comverse’s business relationships reputation believe adversely affected performance comverse’s strategy several elements comverse’s strategy including • expand comverse’s presence market share bss market believe comverse’s bss products offer customers several advantages competitors’ solutions including faster time market lower total cost ownership intend focus expanding comverse’s position market especially engagements large established communication service providers • maintain expand comverse’s market leadership established voicebased services intend sustain comverse’s strong market leadership position voicebased services voicemail call completion part promotion advanced offerings visual voicemail call management • expand comverse’s presence market share certain mobile data mobile internet product categories believe growth mobile data internet applications continue foreseeable future presenting opportunities growth comverse’s mobile internet products • improve margins competitive position reducing delivery cost comverse intends continue seek improvement margins primarily productizing software enable significantly reduce product delivery support costs • grow acquisitions addition organic growth companies comverse’s markets continue consolidate comverse intends evaluate acquisition opportunities means add business scale technology enhance market leadership complement geographic presence expand adjacent markets goingforward value drivers believe prolonged period efforts become current periodic reporting obligations adverse impact upon comverse’s business results operations cash flows financial condition believe become current periodic reporting obligations comverse’s business financial performance may improve primarily due ability management manage business operations execute strategies ordinary conditions anticipated significant decline professional fees addition cti becomes current customers potential customers may greater confidence levels comverse business verint segment business overview verint global leader actionable intelligence solutions valueadded services verint’s solutions enable organizations sizes make timely effective decisions improve enterprise performance enhance safety 10000 organizations 150 countriesincluding 80 fortune 100use verint’s actionable intelligence solutions capture distill analyze complex underused information sources voice video unstructured text enterprise market verint’s workforce optimization solutions help organizations enhance customer service operations contact centers branches backoffice environments increase customer satisfaction reduce operating costs identify revenue opportunities improve profitability security intelligence market verint’s video intelligence public safety communications intelligence solutions vital government commercial organizations efforts protect people property neutralize terrorism crime verint supports customers around globe directly extensive network selling support partners verint’s business verint serves two markets three product lines verint’s workforce optimization product line serves enterprise workforce optimization market video intelligence communications intelligence product lines serve security intelligence market verint leading provider enterprise workforce optimization software services verint’s solutions enable organizations extract analyze valuable information customer interactions related operational data order make effective proactive decisions optimizing performance customer service operations improving customer experience enhancing compliance key business technology trends driving solutions include growing interest unified workforce optimization suite sophisticated customer interaction analytics adoption workforce optimization solutions outside contact centers ongoing upgrade traditional timedivision multiplexing tdm voice systems voip telephony infrastructure fiscal years ended january 31 2010 2009 2008 revenue workforce optimization solutions represented approximately 53 49 verint’s total revenue respectively verint leading provider networked ip video solutions designed optimize security enhance operations verint’s video intelligence solutions portfolio includes ip video management software services edge devices capturing digitizing transmitting video different types wired wireless networks video analytics networked dvrs key business technology trends video intelligence solutions include increased demand advanced security solutions due ongoing terrorism security threats around world transition relatively passive analog cctv video systems sophisticated networkbased ip video solutions fiscal years ended january 31 2010 2009 2008 revenue video intelligence solutions represented approximately 21 19 28 verint’s total revenue respectively verint also leading provider communications intelligence investigative solutions help law enforcement national security intelligence civilian government agencies effectively detect investigate neutralize criminal terrorist threats verint’s solutions designed handle massive amounts unstructured structured information different sources quickly make sense complex scenarios generate evidence intelligence key business technology trends solutions include demand innovative communications intelligence investigative solutions due terrorism criminal activities security threats expanding range communication information media increasing complexity communications networks growing network traffic legal compliance requirements fiscal years ended january 31 2010 2009 2008 revenue communications intelligence solutions represented approximately 26 28 23 verint’s total revenue respectively verint’s strategy several elements verint’s strategy including • continue drive development actionable intelligence solutions unstructured data verint pioneer development solutions help businesses governmental organizations derive intelligence unstructured data verint intends continue leadership area drive adoption actionable intelligence solutions delivering solutions enterprise workforce optimization security intelligence markets integrate actionable intelligence unstructured data sources including unstructured data designed provide high return investment • maintain market leadership innovation customer centricity verint believes compete successfully must continue introduce solutions better enable customers derive actionable intelligence unstructured data order verint intends continue make significant investments research development protect intellectual property patents means maintain regular dialogue customers order understand business objectives requirements • continue expand verint’s market presence partnerships alliances including oem relationships verint expanded partnerships alliances integrators resellers distributors oems others verint believes relationships broaden market coverage intends continue expanding existing relationships creating new ones • augment verint’s organic growth acquisitions verint examines acquisition opportunities regularly means add technology increase geographic presence enhance market leadership expand adjacent markets historically verint engaged acquisitions purposes expects continue future strategic opportunities arise key trends developments verint’s business verint believes many factors affect ability sustain increase revenue profitability including • information technology spending continuing weakness global economy information technology spending decreased market verint’s products services adversely affected verint’s growth results depend part pace economic recovery spending information technology • market acceptance actionable intelligence unstructured data particularly analytics verint early stage market value certain aspects products solutions still process market acceptance verint believes future growth depends part continued increasing acceptance value data analytics across product offerings • verint’s debt instruments may constrain investment growth verint subject various restrictive covenants credit facility well leverage ratio financial covenant result verint’s credit facility limits ability incur additional debt make certain investments business limitations may impede verint’s ability execute upon business strategy subsequent fiscal year covered annual report verint systems became current periodic reporting obligations federal securities laws shares common stock relisted nasdaq july 6 2010 addition october 5 2010 verint systems’ stockholders approved issuance verint systems’ common stock underlying preferred stock held cti accordingly date preferred stock became voting convertible verint systems’ common stock ulticom segment ulticom designs develops markets licenses supports network signaling solutions products sold primarily direct sales network equipment manufacturers application developers service providers include ulticom’s products within systems services ulticom’s revenue fiscal year ended january 31 2010 declined 136 compared fiscal year ended january 31 2009 decline revenue began second half fiscal year ended january 31 2009 primarily result slowdown infrastructure spending communication service providers declines technology expenditures response circumstances fourth quarter fiscal year ended january 31 2009 ulticom took measures reduce selling general administrative expenses consisting primarily making reductions number sales marketing personnel september 2009 ulticom implemented additional measures lower costs operate effectively lower revenue levels principally consisting personnel reductions substantially areas operations fiscal years ended january 31 2010 2009 ulticom’s financial results also negatively impacted substantial expenses related investigation efforts become current periodic reporting obligations corporate development activities well employee retention workforce reduction payments activities associated investigating improper accounting practices completed early fiscal year ended january 31 2009 activities related efforts become current periodic reporting obligations continued completed fiscal year ended january 31 2010 december 3 2010 cti sold shares ulticom inc’s common stock affiliate platinum equity part ulticom sale information relating ulticom sale see item 1 “businessacquisitions dispositions dispositionssale ulticom” “liquidity capital resourcessources liquidityproceeds asset sales subsequent january 31 2010sale ulticom” note 26 consolidated financial statements included item 15 annual report segment fiscal years ended january 31 2010 2009 segment revenue 375 million 416 million respectively primarily generated starhome fiscal year ended january 31 2010 decrease segment revenue primarily attributable decreased revenue starhome’s products services results operations following discussion provides analysis condensed consolidated results operations segments fiscal years presented fiscal year ended january 31 2010 compared fiscal year ended january 31 2009 condensed consolidated results total revenue total revenue 15768 million fiscal year ended january 31 2010 decrease 1006 million 60 compared fiscal year ended january 31 2009 decrease primarily attributable decline revenue comverse segment 1247 million compared prior fiscal year mainly attributable continuance weakness global economy resulting lower levels spending telecommunication service providers ii continued proliferation alternative messaging applications sms text messaging part attractive substitute voicemail usage iii continued maturation wireless industry particularly relates voicebased services voicemail resulting decreasing rate growth subscriber base comverse’s telecommunication service provider customers capital spending budgets iv increased competition certain product areas lowcost service providers particularly emerging markets v decrease maintenance revenue primarily due pricing pressures maintenance services voicebased products decrease revenue partially offset increase revenue 341 million verint segment primarily attributable increase product service support revenue related verint’s video intelligence workforce optimization solutions loss operations loss operations 2031 million fiscal year ended january 31 2010 decrease 68 million 32 compared fiscal year ended january 31 2009 decrease primarily attributable • 591 million decrease research development expenses due restructuring cost saving initiatives implemented comverse verint • 450 million decrease charges impairment goodwill intangible assets relating netcentrex reporting unit comverse segment • 165 million decrease personnelrelated costs recorded selling general administrative related restructuring initiatives implemented comverse • 136 million decrease selling general administrative expenses due costsaving initiatives implemented verint • 131 million decrease professional fees compliancerelated professional fees primarily attributable reduction legal expenses related patent litigation comverse settled fiscal year ended january 31 2009 corresponding professional fees incurred fiscal year ended january 31 2010 • 88 million decrease integration restructuring costs primarily related witness acquisition attributable verint decreases partially offset • 1006 million decrease total revenue partially offset related decrease cost revenue 561 million primarily attributable comverse verint segments • 1068 million increase compliancerelated professional fees incurred comverse verint interest income interest income 90 million fiscal year ended january 31 2010 decrease 251 million 736 compared fiscal year ended january 31 2009 decrease primarily attributable lower average cash investment balances lower yields auction rate securities ars due declines index rates underlying variable interest rates fiscal year ended january 31 2010 compared fiscal year ended january 31 2009 interest expense interest expense 254 million fiscal year ended january 31 2010 decrease 205 million 447 compared fiscal year ended january 31 2009 decrease primarily attributable 122 million decline verint’s interest expense due lower interest rates outstanding borrowings credit facility fiscal year ended january 31 2010 73 million amortization remaining debt discount debt issuance costs related cti’s convertible debt obligations recorded fiscal year ended january 31 2009 corresponding debt discount debt issuance cost amortization recorded fiscal year ended january 31 2010 expense net expense net 168 million fiscal year ended january 31 2010 decrease 721 million 811 compared fiscal year ended january 31 2009 decrease primarily attributable 796 million decrease impairment charges associated ars 82 million decrease unrealized loss verint’s interest rate swap recorded impairment charges related ars 69 million fiscal year ended january 31 2010 compared 865 million recorded fiscal year ended january 31 2009 decreases partially offset 205 million change unrealized gain 136 million fiscal year ended january 31 2009 69 million impairment charge fiscal year ended january 31 2010 case attributable ubs put entered november 2008 definition discussion relating ubs put see “liquidity capital resourcessources liquidityinvestments securities portfolioubs put” income tax provision income tax provision 292 million fiscal year ended january 31 2010 compared 472 million fiscal year ended january 31 2009 effective tax rate continuing operations 124 fiscal year ended january 31 2010 compared 152 fiscal year ended january 31 2009 negative effective tax rate years ended january 31 2010 2009 resulted recording income tax expense consolidated pretax loss primarily attributable recording valuation allowance deferred tax assets recording income tax provision jurisdictions taxable income excluding impact valuation allowances effective tax rates fiscal years ended january 31 2010 2009 would 48 190 respectively lower us statutory tax rate fiscal year ended january 31 2010 significant differences impacting effective tax rate valuation allowance included impact withholding taxes tax contingencies dividend received deduction difference us federal statutory rate rates foreign jurisdictions us tax effect foreign earnings taxes penalties associated deemed dividends israel us although consolidated pretax loss still subject taxation due relative mix income losses generated multiple taxing jurisdictions tax rates different us statutory rate equity losses unconsolidated affiliates net tax equity losses unconsolidated affiliates net tax decreased 10 million 994 compared fiscal year ended january 31 2009 due lower losses reported unconsolidated affiliates net income loss attributable noncontrolling interest net income attributable noncontrolling interest 78 million fiscal year ended january 31 2010 change 413 million compared net loss attributable noncontrolling interest 335 million fiscal year ended january 31 2009 change primarily attributable change verint’s results reflecting net income fiscal year ended january 31 2010 compared net loss fiscal year ended january 31 2009 net loss attributable comverse technology inc net loss attributable comverse technology inc 2733 million fiscal year ended january 31 2010 decrease 519 million loss 160 compared fiscal year ended january 31 2009 due primarily reasons discussed segment results comverse revenue management analyzes comverse’s revenue generated customer solutions ii maintenance revenue generated customer solutions consists primarily licensing comverse’s bss vas customer solutions related professional services training professional services primarily include installation customization consulting services revenue customer solutions 4679 million fiscal year ended january 31 2010 decrease 898 million 161 compared fiscal year ended january 31 2009 revenue vas customer solutions 2544 million fiscal year ended january 31 2010 decrease 705 million 217 compared fiscal year ended january 31 2009 revenue bss customer solutions 2135 million fiscal year ended january 31 2010 decrease 193 million 83 compared fiscal year ended january 31 2009 decrease revenue vas customer solutions primarily attributable continuance weakness global economy resulting lower levels spending telecommunication service providers ii continued proliferation alternative messaging applications sms text messaging part attractive substitute voicemail usage iii continued maturation wireless industry particularly relates voicebased services voicemail resulting decreasing rate growth subscriber base comverse’s telecommunication service provider customers capital spending budgets iv increased competition certain product areas lowcost service providers particularly emerging markets included vas customer solutions revenue decrease decline revenue 366 million attributable comverse’s netcentrex reporting unit fiscal year ended january 31 2010 compared fiscal year ended january 31 2009 decline netcentrex’ revenue mainly due weakness market conditions increased competition lowcost service providers resulting pricing pressures significant reductions orders key customer decrease revenue bss customer solutions primarily attributable reduction spending telecommunication service providers maintenance revenue consists primarily postcontract customer support pcs including technical software support services unspecified software updates upgrades customers whenandifavailable basis maintenance revenue 3251 million fiscal year ended january 31 2010 decrease 349 million 97 compared fiscal year ended january 31 2009 decrease primarily attributable pricing pressures maintenance services voicerelated products maintenance revenue typically less susceptible changes market conditions generally represents stable revenue stream recurring renewals contracts comverse’s existing customer base revenue geographic region revenue americas europe middle east africa emea asia pacific represented approximately 27 54 19 comverse’s revenue respectively fiscal year ended january 31 2010 compared approximately 28 57 15 comverse’s revenue respectively fiscal year ended january 31 2009 presentation revenue geographic region based location customers changes presented attributable identifiable trend foreign currency impact revenue functional currency financial reporting purposes us dollar majority comverse’s revenue fiscal year ended january 31 2010 derived transactions denominated us dollars revenue derived transactions denominated various foreign currencies primarily euro fluctuations us dollar relative foreign currencies comverse conducted business fiscal year ended january 31 2010 compared fiscal year ended january 31 2009 unfavorably impacted revenue 34 million intercompany revenue intercompany revenue generated sales affiliates primarily starhome intercompany revenue 18 million fiscal year ended january 31 2010 decrease 11 million compared fiscal year ended january 31 2009 foreign currency impact costs significant portion comverse’s expenses principally personnelrelated costs incurred new israeli shekels nis whereas functional currency financial reporting purposes us dollar strengthening nis us dollar would increase us dollar value comverse’s expenses israel comverse enters foreign currency forward contracts mitigate risk attributable foreign currency exchange rate fluctuations cost revenue cost revenue consists primarily hardware software material costs compensation related expenses personnel involved customization comverse’s products customer delivery maintenance professional services installation costs training royalties license fees depreciation equipment used operations amortization capitalized software costs certain purchased intangible assets related overhead costs cost revenue 4707 million fiscal year ended january 31 2010 decrease 326 million 65 compared fiscal year ended january 31 2009 decrease primarily attributable • 197 million decrease material costs overhead result lower revenue • 190 million decrease personnelrelated costs principally due reduction employee workforce related restructuring initiatives implemented fiscal years ended january 31 2010 2009 fluctuations foreign currency exchange rates favorable impact personnelrelated costs approximately 81 million fiscal year ended january 31 2010 • 54 million decrease travel entertainment expenses • 50 million decrease costs associated research development activities result less customization projects specified customers fiscal year ended january 31 2010 • 30 million decrease amortization intangible assets capitalized software decreases partially offset 234 million increase costs associated use contractors selling general administrative selling general administrative expenses consist primarily compensation related expenses personnel professional services sales marketing expenses facility costs unallocated overhead expenses selling general administrative expenses 3413 million fiscal year ended january 31 2010 increase 560 million 196 compared fiscal year ended january 31 2009 increase primarily attributable • 810 million increase compliancerelated professional fees due continued efforts become current periodic reporting obligations federal securities laws • 81 million increase agent employee sales commissions principally due increase bookings generated certain projects respect comverse pays higher commissions sales agents lesser extent increase sales commissions paid employees principally due shift product project mix fiscal year ended january 31 2010 products projects respect comverse pays higher sales commissions compared fiscal year ended january 31 2009 increases partially offset 165 million decrease personnelrelated costs related restructuring initiatives 131 million decrease professional fees compliancerelated professional fees primarily attributable reduction legal expenses related patent litigation settled fiscal year ended january 31 2009 corresponding professional fees incurred fiscal year ended january 31 2010 fluctuations foreign currency exchange rates favorable impact personnelrelated costs approximately 63 million fiscal year ended january 31 2010 research development net research development expenses primarily consist personnelrelated costs involved product development net reimbursement government programs research development expenses also include thirdparty development programming costs amortization purchased software code services content used research development activities research development expenses net 1759 million fiscal year ended january 31 2010 decrease 547 million 237 compared fiscal year ended january 31 2009 decrease primarily attributable • 329 million decrease personnelrelated costs resulting restructuring initiatives prior years involving workforce reductions reduced research development activities fluctuations foreign currency exchange rates favorable impact personnelrelated costs approximately 59 million fiscal year ended january 31 2010 • 137 million decrease general administrative expenses relating research development • 41 million decrease contractor costs • 14 million decrease travel entertainment expenses related vas products accounted 1235 million research development expenses net fiscal year ended january 31 2010 research development expenses incurred connection variety different research development projects 344 million related voice mobile internet products enable operators quickly launch costeffective innovative massmarket voicerelated services 303 million related developing messaging browsing products assure efficient communications help maximize call completion messaging traffic 164 million related developing netcentrex ip communication products provide ipbased voice video messaging solutions addition 307 million spent shared software applications allow vas products systems offered variety sizes configurations well within many different environments expenses related bss products accounted 471 million research development expenses net fiscal year ended january 31 2010 amount spent primarily related enhancement comverse one operating expenses operating expenses 186 million fiscal year ended january 31 2010 decrease 386 million 674 compared fiscal year ended january 31 2009 decrease primarily attributable 450 million reduction charges impairment goodwill intangible assets related netcentrex reporting unit decrease partially offset 65 million increase restructuring charges comverse recorded 153 million restructuring charges fiscal year ended january 31 2010 compared 88 million fiscal year ended january 31 2009 loss operations loss operations 2142 million fiscal year ended january 31 2010 increase 540 million loss 337 compared fiscal year ended january 31 2009 due primarily reasons described segment performance comverse’s segment performance 377 million loss fiscal year ended january 31 2010 based segment revenue 7988 million representing segment performance loss 47 percentage segment revenue segment performance 205 million loss fiscal year ended january 31 2009 based segment revenue 9252 million representing segment performance loss 22 percentage segment revenue decrease segment performance margin primarily attributable decline revenue fiscal year ended january 31 2010 partially offset lower segment expenses verint revenue verint’s product revenue consists sale hardware software products product revenue 3743 million fiscal year ended january 31 2010 increase 88 million 24 compared fiscal year ended january 31 2009 increase primarily attributable 169 million increase product revenue related verint’s video intelligence solutions almost entirely due product delivery order major customer ii 89 million increase product revenue related verint’s workforce optimization solutions primarily due completion multisite installation major customer revenue recognized upon final customer acceptance increases offset decrease 170 million revenue verint’s communications intelligence solutions verint’s service support revenue consists primarily revenue installation consulting training services postcontract customer support service support revenue 3294 million fiscal year ended january 31 2010 increase 253 million 83 compared fiscal year ended january 31 2009 increase primarily attributable 136 million increase service revenue associated verint’s workforce optimization solutions combined increase 117 million service revenue associated verint’s video intelligence communications intelligence solutions increase workforce optimization solutions partially due increase maintenance renewal revenue recognized full value result elimination impact purchase accounting adjustments reflect obligations assumed witness acquisition verint recorded adjustment reducing support obligations assumed witness acquisition estimated fair value acquisition date result required business combination accounting rules revenue related maintenance contracts amount 52 million would otherwise recorded witness independent entity recognized fiscal year ended january 31 2009 revenue geographic region revenue americas emea asia pacific represented approximately 55 25 20 verint’s revenue respectively fiscal year ended january 31 2010 compared approximately 52 32 16 respectively fiscal year ended january 31 2009 cost revenue verint’s product costs primarily consist hardware material costs royalties due third parties software components embedded software applications amortization capitalized software development costs charges impairments intangible assets personnelrelated costs associated verint’s global operations contractor consulting expenses facility costs allocated overhead expenses product costs fiscal year ended january 31 2010 2009 also included amortization impairment acquired technology 80 million 90 million respectively product cost revenue 1315 million fiscal year ended january 31 2010 decrease 01 million compared fiscal year ended january 31 2009 verint’s overall product margins increased fiscal year ended january 31 2010 fiscal year ended january 31 2009 result increase revenue combined slight decline product costs favorable change product mix higher margin software revenue accounted larger portion overall product mix decrease product cost partially offset increases expenses verint’s communications intelligence solutions attributable change project mix resulting increase expenses relating resources dedicated delivery customized projects lower product margins verint’s service costs primarily consist personnelrelated costs contractor costs stockbased compensation expenses facility costs travel expenses relating installation training consulting maintenance services overhead expenses service costs 1004 million fiscal year ended january 31 2010 decrease 172 million 146 compared fiscal year ended january 31 2009 decrease primarily attributable costsaving initiatives related workforce optimization costs expenses employee compensation related expenses decreased 70 million travel lodging expenses decreased 34 million stockbased compensation expense contractor costs personnel communication expenses aggregate decreased 17 million expenses decreased 21 million result costsaving initiatives verint’s overall service margins increased fiscal year ended january 31 2010 due increases service revenue decrease service expenses described selling general administrative verint’s selling general administrative expenses consist primarily personnel costs related expenses professional fees sales marketing expenses including travel sales commissions sales referral fees facility costs communication expenses administrative expenses amortization acquired intangible assets selling general administrative expenses 3141 million fiscal year ended january 31 2010 increase 68 million 22 compared fiscal year ended january 31 2009 increase primarily attributable increase compliancerelated professional fees partially offset decrease selling general administrative expenses compliancerelated professional fees related expenses increased 257 million 545 million fiscal year ended january 31 2010 288 million fiscal year ended january 31 2009 verint expects compliancerelated professional fees related expenses decline fiscal year ending january 31 2011 increase partially offset 52 million decrease employee compensation related expenses ii 40 million decrease travel expenses iii 17 million decrease communication expenses iv 14 million reduction expenses v 13 million decrease personnel expenses due costsaving initiatives addition agent commissions decreased 27 million due decreased revenue verint’s communications intelligence solutions amortization acquired intangible assets decreased 30 million primarily due weakening british pound verint’s intangible assets denominated research development net verint’s research development expenses primarily consist personnel subcontracting expenses facility costs allocated overhead net certain software development costs capitalized well reimbursements government programs software development costs capitalized upon establishment technological feasibility related products available general release customers research development net 838 million fiscal year ended january 31 2010 decrease 44 million 50 compared fiscal year ended january 31 2009 decrease primarily attributable costsaving initiatives expenses contractor consultant fees decreased 40 million employee compensation related expenses decreased 16 million decreases partially offset increase stockbased compensation 11 million operating expenses operating expenses 01 million fiscal year ended january 31 2010 decrease 45 million 970 compared fiscal year ended january 31 2009 decrease attributable 88 million decrease integration restructuring costs primarily related witness acquisition partially offset net recovery 43 million due gain settlement legal matter net legal fees recorded fiscal year ended january 31 2009 income operations income operations 657 million fiscal year ended january 31 2010 increase 545 million compared fiscal year ended january 31 2009 due primarily reasons described foreign currency effect operating results fiscal year ended january 31 2010 compared fiscal year ended january 31 2009 fluctuations value us dollar relative major currencies used verint’s business affected operating results foreign exchange rates remained constant periods excluding impact foreign currency hedges verint’s revenue would approximately 120 million higher operating expenses cost revenue would approximately 150 million higher net unfavorable constant us dollar impact approximately 30 million operating income fiscal year ended january 31 2010 segment performance segment performance 1956 million fiscal year ended january 31 2010 based segment revenue 7036 million resulting segment performance margin 278 percentage segment revenue segment performance 1204 million fiscal year ended january 31 2009 based segment revenue 6754 million resulting segment performance margin 178 percentage segment revenue increase segment performance margin attributable increases revenue benefits costsaving initiatives ulticom revenue ulticom’s product revenue consists primarily sales software licenses interface boards product revenue 301 million fiscal year ended january 31 2010 decrease 78 million 207 compared fiscal year ended january 31 2009 decrease product revenue primarily due decreases sales boards licenses totaling approximately 82 million decrease primarily attributable one ulticom’s largest customers experiencing significant decline sales products ulticom’s boards embedded decline industrywide capital spending began make significant adverse impact ulticom’s revenue beginning third quarter fiscal year ended january 31 2009 ulticom’s service revenue consists primarily software maintenance fees related previously deployed software licenses ulticom’s products general demonstrate less volatility product revenue service revenue 128 million fiscal year ended january 31 2010 increase 19 million 175 compared fiscal year ended january 31 2009 increase primarily attributable growth installed base software licenses generated higher levels fees software maintenance support intercompany revenue intercompany revenue related revenue generated affiliates primarily comverse intercompany revenue 30 million fiscal year ended january 31 2010 decrease 13 million 301 compared fiscal year ended january 31 2009 cost revenue product costs 70 million fiscal year ended january 31 2010 decrease 17 million 199 compared fiscal year ended january 31 2009 decrease primarily attributable lower materials production costs due lower volume board license sales personnel laborrelated expenses included cost revenue lower approximately 14 million primarily result employing fewer production personnel fiscal year ended january 31 2010 compared fiscal year ended january 31 2009 service costs 50 million fiscal year ended january 31 2010 decrease 08 million 133 compared fiscal year ended january 31 2009 selling general administrative selling general administrative expenses 261 million fiscal year ended january 31 2010 decrease 73 million 219 compared fiscal year ended january 31 2009 decrease primarily attributable • 22 million decline personnel laborrelated expenses mainly due reductions sales marketing administrative staff related travel expenses • 19 million reduction expenses payments expired options • 13 million reduction corporate developmentrelated expenses consisting primarily exploring various strategic options evaluation special dividend paid ulticom april 2009 • 07 million 06 million reductions expenses professional fees stockbased compensation expense respectively decreases partially offset 06 million increase compliancerelated expenses activities associated investigating improper accounting practices completed early fiscal year ended january 31 2009 compliancerelated activities continued completed fiscal year ended january 31 2010 upon completion filing ulticom’s annual report form 10k fiscal year ended january 31 2009 quarterly reports form 10q fiscal quarters ended october 31 2008 april 30 2009 july 31 2009 october 31 2009 research development net research development expenses net 129 million fiscal year ended january 31 2010 decrease 34 million 207 compared fiscal year ended january 31 2009 decrease research development net primarily attributable 22 million decline personnel laborrelated costs mainly result decline research development personnel fiscal year ended january 31 2010 compared fiscal year ended january 31 2009 ii 03 million decrease stockbased compensation expense operating expenses operating expenses 19 million fiscal year ended january 31 2010 increase 12 million 1694 compared fiscal year ended january 31 2009 primarily due increase restructuring costs loss operations loss operations 71 million fiscal year ended january 31 2010 decrease 48 million 405 compared fiscal year ended january 31 2009 due primarily reasons described segment performance segment performance 12 million fiscal year ended january 31 2010 increase 09 million compared segment performance 03 million fiscal year ended january 31 2009 change attributable fact decline total segment expenses fiscal year ended january 31 2010 offset decline segment revenue fiscal year compared fiscal year ended january 31 2009 segment performance margin increased 25 percentage segment revenue fiscal year ended january 31 2010 05 fiscal year ended january 31 2009 revenue fiscal years generated primarily starhome’s product revenue consists sale hardware software products professional services including managed services pcs revenue 373 million fiscal year ended january 31 2010 decrease 40 million 98 compared fiscal year ended january 31 2009 decrease due primarily decreased revenue starhome’s products services cost revenue substantially cost revenue fiscal years attributable starhome’s cost revenue primarily consists material costs personnelrelated costs associated customization products providing maintenance professional services cost revenue 92 million fiscal year ended january 31 2010 decrease 30 million 245 compared fiscal year ended january 31 2009 primarily attributable reduction revenue starhome’s products services selling general administrative selling general administrative expenses include expenses incurred starhome cti’s holding company operations insignificant subsidiaries fiscal years ended january 31 2010 2009 selling general administrative expenses attributable starhome 169 million 197 million respectively selling general administrative expenses entire segment 663 million fiscal year ended january 31 2010 increase 13 million 20 compared fiscal year ended january 31 2009 increase primarily attributable increase compliancerelated professional fees cti research development net research development expenses net 75 million fiscal year ended january 31 2010 decrease 28 million 273 compared fiscal year ended january 31 2009 substantially research development expenses fiscal years related starhome operating expenses operating expenses 01 million fiscal year ended january 31 2010 decrease 09 million 872 compared fiscal year ended january 31 2009 decrease due primarily decrease restructuring activities starhome loss operations loss operations 475 million fiscal year ended january 31 2010 decrease loss 17 million 34 compared fiscal year ended january 31 2009 due primarily reasons described fiscal years ended january 31 2010 2009 starhome income operations 19 million loss operations 38 million respectively segment performance segment performance loss 175 million fiscal year ended january 31 2010 decrease loss 62 million 261 compared loss fiscal year ended january 31 2009 decrease primarily attributable reductions selling general administrative expenses research development expenses starhome partially offset increase professional fees cti fiscal years ended january 31 2010 2009 segment performance included starhome’s income 39 million loss 09 million respectively fiscal year ended january 31 2009 compared fiscal year ended january 31 2008 condensed consolidated results total revenue total revenue 16774 million fiscal year ended january 31 2009 decrease 461 million 27 compared fiscal year ended january 31 2008 decrease primarily attributable decline revenue comverse segment 1707 million compared prior fiscal year mainly attributable commencement global economic decline resulting reduction spending telecommunication service providers ii proliferation alternative messaging applications sms text messaging part attractive substitute voicemail usage iii maturation wireless industry particularly relates voicebased services voicemail resulting decreasing rate growth subscriber base comverse’s telecommunication service provider customers capital spending budgets iv increased competition certain product areas lowcost service providers particularly emerging markets decrease revenue partially offset increase revenue 1350 million verint segment primarily attributable inclusion results operations witness entire fiscal year ended january 31 2009 compared inclusion witness’ results operations prior year date acquisition verint may 2007 lesser extent verint’s organic growth loss operations loss operations 2099 million fiscal year ended january 31 2009 decrease 2119 million 502 compared fiscal year ended january 31 2008 decrease primarily attributable • 967 million decrease charges impairment goodwill intangible assets related netcentrex reporting unit comverse segment recorded impairment charges goodwill intangible assets 484 million fiscal year ended january 31 2009 compared 1451 million fiscal year ended january 31 2008 • 486 million decrease aggregate product service costs partially offset 461 million decrease total revenue principally attributable comverse • 277 million decrease personnelrelated costs 77 million decrease stockbased compensation expense recorded within selling general administrative research development fiscal year ended january 31 2009 primarily attributable comverse • 144 million decrease employee sales commissions recorded within selling general administrative expenses primarily attributable decline comverse’s revenue • 144 million decrease integration costs inprocess research development related verint’s acquisition witness verint recorded 110 million integration costs 67 million writeoff acquired inprocess research development fiscal year ended january 31 2008 compared 33 million integration costs corresponding writeoff acquired inprocess research development fiscal year ended january 31 2009 • 130 million decrease legal fees associated intellectual property litigation assumed verint acquisition witness net settlement recovery • 100 million decrease compliancerelated professional fees primarily attributable comverse interest income interest income 341 million fiscal year ended january 31 2009 decrease 424 million 554 compared fiscal year ended january 31 2008 decrease primarily attributable lower average cash investment balances lower yields ars due declines index rates underlying variable interest rates fiscal year ended january 31 2009 compared fiscal year ended january 31 2008 interest expense interest expense 459 million fiscal year ended january 31 2009 decrease 160 million 259 compared fiscal year ended january 31 2008 decrease primarily attributable 171 million decrease debt discount debt issuance cost amortization related cti’s convertible debt obligations fully amortized january 31 2009 expense net expense 889 million fiscal year ended january 31 2009 increase 361 million 683 compared fiscal year ended january 31 2008 increase primarily attributable • 386 million increase impairment charge associated ars recorded impairment charges 865 million fiscal year ended january 31 2009 compared 479 million recorded fiscal year ended january 31 2008 • 218 million increase related recognition net foreign currency transaction losses 49 million fiscal year ended january 31 2009 compared net foreign currency transaction gains 169 million fiscal year ended january 31 2008 • 208 million increase due net realized losses investments derivatives 102 million fiscal year ended january 31 2009 compared net realized gains investments derivatives 106 million fiscal year ended january 31 2008 increases offset decrease unrealized loss 277 million verint’s interest rate swap unrealized gain 136 million ubs put entered november 2008 income tax provision income tax provision 472 million fiscal year ended january 31 2009 compared 128 million fiscal year ended january 31 2008 effective tax rate continuing operations 152 fiscal year ended january 31 2009 compared 28 fiscal year ended january 31 2008 negative effective tax rate years ended january 31 2009 2008 resulted recording income tax expense consolidated pretax loss primarily attributable recording valuation allowance deferred tax assets recording income tax provision jurisdictions taxable income excluding impact valuation allowances effective tax rate fiscal years ended january 31 2009 2008 would 190 174 respectively lower us statutory tax rate fiscal year ended january 31 2009 significant differences impacting effective tax rate valuation allowance included impact nondeductible goodwill impairment charges well withholding taxes although consolidated pretax loss still subject taxation due relative mix income losses generated multiple taxing jurisdictions tax rates different us statutory rate equity losses earnings unconsolidated affiliates net tax equity losses unconsolidated affiliates 10 million fiscal year ended january 31 2009 change 18 million compared equity earnings unconsolidated affiliates 07 million fiscal year ended january 31 2008 change primarily attributable unconsolidated affiliates incurring losses fiscal year ended january 31 2009 generating income fiscal year ended january 31 2008 net loss attributable noncontrolling interest net loss attributable noncontrolling interest 335 million fiscal year ended january 31 2009 decrease 492 million 595 compared fiscal year ended january 31 2008 decrease change primarily attributable decrease verint’s net loss fiscal year ended january 31 2009 compared january 31 2008 net loss attributable comverse technology inc net loss attributable comverse technology inc 3253 million fiscal year ended january 31 2009 decrease 640 million loss 164 compared fiscal year ended january 31 2008 due primarily reasons discussed segment results comverse revenue customer solutions 5577 million fiscal year ended january 31 2009 decrease 1561 million 219 compared fiscal year ended january 31 2008 revenue vas customer solutions 3249 million fiscal year ended january 31 2009 decrease 1515 million 318 compared fiscal year ended january 31 2008 revenue bss customer solutions 2328 million fiscal year ended january 31 2009 decrease 46 million 19 compared fiscal year ended january 31 2008 decrease revenue vas customer solutions principally attributable commencement global economic decline resulting reduction spending telecommunication service providers ii proliferation alternative messaging applications sms text messaging part attractive substitute voicemail usage iii maturation wireless industry particularly relates voicebased services voicemail resulting decreasing rate growth subscriber base comverse’s telecommunication service provider customers capital spending budgets iv increased competition certain product areas lowcost service providers particularly emerging markets decrease revenue bss customer solutions primarily attributable reduction spending telecommunication service providers maintenance revenue 3600 million fiscal year ended january 31 2009 decrease 146 million 39 compared fiscal year ended january 31 2008 decrease primarily attributable lower pricing maintenance services related comverse’s voicerelated products revenue geographic region revenue americas emea asia pacific represented approximately 28 57 15 comverse’s revenue respectively fiscal year ended january 31 2009 compared approximately 37 51 12 comverse’s revenue respectively fiscal year ended january 31 2008 changes presented attributable identifiable trend foreign currency impact revenue majority comverse’s revenue fiscal year ended january 31 2009 derived transactions denominated us dollars revenue derived transactions denominated various foreign currencies primarily euro fluctuations us dollar relative foreign currencies comverse conducted business fiscal year ended january 31 2009 compared fiscal year ended january 31 2008 favorably impacted revenue 78 million intercompany revenue intercompany revenue generated sales affiliates primarily starhome intercompany revenue 29 million fiscal year ended january 31 2009 decrease 19 million compared fiscal year ended january 31 2008 cost revenue cost revenue 5034 million fiscal year ended january 31 2009 decrease 733 million 127 compared fiscal year ended january 31 2008 decrease primarily attributable • 526 million decrease material costs overhead result lower revenue • 184 million decrease personnelrelated costs principally due reduction employee workforce related restructuring initiatives implemented fiscal years ended january 31 2009 2008 fluctuations foreign currency exchange rates unfavorable impact personnelrelated costs approximately 85 million fiscal year ended january 31 2009 decreases offset 53 million increase costs associated use contractors lieu company employees part effort reduce personnelrelated costs selling general administrative selling general administrative expenses 2853 million fiscal year ended january 31 2009 decrease 615 million 177 compared fiscal year ended january 31 2008 decrease primarily attributable • 193 million decrease agent employee sales commissions principally due lower revenue fiscal year ended january 31 2009 compared fiscal year ended january 31 2008 • 185 million decrease personnelrelated costs result certain restructuring initiatives commenced fiscal quarter ended july 31 2007 increased reductions continuing fiscal year ended january 31 2009 primarily relating consolidation facilities elimination associated staff positions effort streamline comverse’s operational activities fluctuations foreign currency exchange rates unfavorable impact personnelrelated costs approximately 75 million fiscal year ended january 31 2009 • 113 million decline stockbased compensation expense primarily due absence significant equity grants fiscal periods ended subsequent january 31 2006 stockbased compensation expense recognized awards’ multiyear vesting period ranging three four years • 108 million decrease compliancerelated professional fees due substantial completion special committee’s investigations january 2008 partially offset professional fees incurred connection revenue recognition evaluation • 40 million decrease bad debt expense primarily due decrease revenue • 45 million decrease costs including travel entertainment communications costs result cost reduction initiatives resulting overall decrease revenue comverse fiscal year ended january 31 2009 compared fiscal year ended january 31 2008 decreases partially offset increase professional fees compliancerelated professional fees 89 million due primarily legal expenses related patent litigation audit fees research development net research development expenses net 2307 million fiscal year ended january 31 2009 decrease 302 million 116 compared fiscal year ended january 31 2008 decrease primarily attributable • 185 million decrease personnelrelated costs resulting restructuring initiatives prior years involving workforce reductions reduced research development activities fluctuations foreign currency exchange rates unfavorable impact personnelrelated costs approximately 111 million fiscal year ended january 31 2009 • 41 million decrease primarily due reduction general administrative expenses relating research development • 34 million decrease contractor costs 17 million decline travel entertainment fiscal year ended january 31 2009 compared fiscal year ended january 31 2008 expenses related vas products accounted 1680 million research development expenses net fiscal year ended january 31 2009 research development expenses incurred connection variety different research development projects 578 million related developing messaging browsing products assure efficient communications help maximize call completion messaging traffic 497 million related voice mobile internet products enable operators quick launch costeffective innovative massmarket voicerelated services 200 million related developing netcentrex ip communication products provide ipbased voice video messaging solutions addition 340 million spent shared software applications allow vas products systems offered variety sizes configurations well within many different environments expenses related bss products accounted 595 million research development expenses net fiscal year ended january 31 2009 amount spent primarily related enhancement comverse one operating expenses operating expenses 572 million fiscal year ended january 31 2009 decrease 1053 million 648 compared fiscal year ended january 31 2008 decrease primarily attributable • 1137 million decrease charges impairment goodwill related netcentrex reporting unit comverse recorded goodwill impairment charge 214 million fiscal year ended january 31 2009 compared 1351 million fiscal year ended january 31 2008 • 86 million decrease restructuring charges comverse recorded 88 million restructuring charges fiscal year ended january 31 2009 compared 174 million fiscal year ended january 31 2008 decrease partially offset 170 million increase impairment intangible assets related netcentrex reporting unit comverse recorded impairment charges intangible assets 270 million fiscal year ended january 31 2009 compared 100 million fiscal year ended january 31 2008 loss operations loss operations 1602 million fiscal year ended january 31 2009 decrease 984 million loss 380 compared fiscal year ended january 31 2008 due primarily reasons described segment performance segment performance 205 million loss fiscal year ended january 31 2009 based segment revenue 9252 million representing segment performance loss 22 percentage segment revenue segment performance 398 million fiscal year ended january 31 2008 based segment revenue 10982 million representing segment performance margin 36 percentage segment revenue decrease segment performance margin primarily attributable rapid decline revenue fiscal year ended january 31 2009 partially offset lower product service costs personnelrelated compensation expenses verint revenue product revenue 3655 million fiscal year ended january 31 2009 increase 324 million 97 compared fiscal year ended january 31 2008 increase primarily attributable 474 million increase product revenue related verint’s communications intelligence solutions well increase 66 million verint’s workforce optimization solutions increases offset decrease 216 million video intelligence solutions revenue service support revenue 3041 million fiscal year ended january 31 2009 increase 1027 million 510 compared fiscal year ended january 31 2008 increase primarily related service revenue associated workforce optimization solutions represented 849 million total increase well combined increase 178 million service revenue associated video intelligence communications intelligence solutions increase workforce optimization solutions due primarily inclusion results operations witness entire fiscal year ended january 31 2009 compared inclusion witness’ results operations prior year date acquisition may 2007 coupled increase witness maintenance renewal revenue recognized full value result reduced impact purchase accounting adjustments reflect obligations assumed acquisition verint recorded adjustment reducing support obligations assumed witness acquisition estimated fair value acquisition date result required business combination accounting rules revenue related maintenance contracts amount 52 million 339 million would otherwise recorded witness independent entity recognized fiscal years ended january 31 2009 2008 respectively revenue geographic region revenue americas emea asia pacific represented approximately 52 32 16 verint’s revenue respectively fiscal year ended january 31 2009 compared approximately 52 33 15 respectively fiscal year ended january 31 2008 cost revenue product costs fiscal year ended january 31 2009 also included amortization impairment acquired technology 90 million product costs 1406 million fiscal year ended january 31 2009 increase 110 million 85 compared fiscal year ended january 31 2008 increase due primarily increased product revenue related communications intelligence solutions increase revenue resulted increase hardware material costs well expenses relating resources dedicated delivery customized projects included increase personnelrelated costs 60 million increase consulting contracting costs 32 million increase product costs 08 million product costs related workforce optimization solutions also increased result increase product revenue product costs related video intelligence solutions decreased result decrease product revenue service costs 1175 million fiscal year ended january 31 2009 increase 172 million 171 compared fiscal year ended january 31 2008 increase primarily attributable inclusion results operations witness entire fiscal year ended january 31 2009 compared inclusion witness’ results operations prior year date acquisition may 2007 expenses personnelrelated costs increased 83 million materials costs increased 43 million contractor expenses increased 17 million travel lodging increased 07 million stockbased compensation expenses increased 05 million expenses increased 16 million selling general administrative selling general administrative expenses 3073 million fiscal year ended january 31 2009 increase 285 million 102 compared fiscal year ended january 31 2008 increase primarily attributable • 93 million increase agent commissions due increased revenue • 74 million increase personnelrelated costs partially due inclusion results operations witness entire fiscal year ended january 31 2009 compared inclusion witness’ results operations date acquisition may 2007 fiscal year ended january 31 2008 partially offset lower expenses due reduction workforce attributable costsaving initiatives absence prior year’s special retention program • 56 million increase amortization acquisitionrelated intangible assets 20 million increase stockcompensation expense 20 million increase rent utilities expense due inclusion results operations witness entire fiscal year ended january 31 2009 compared inclusion witness’ results operations date acquisition may 2007 fiscal year ended january 31 2008 • 60 million increase professional fees including 25 million increase compliancerelated professional fees increases partially offset 32 million decline sales commissions due reduction customer orders verint’s workforce optimization video intelligence solutions received fiscal year well expense reductions totaling 07 million research development net research development net 882 million fiscal year ended january 31 2009 increase 06 million 07 compared fiscal year ended january 31 2008 increase primarily attributable • 23 million increase contractor consultant fees • 19 million increase stockbased compensation expense • 05 million increase expenses primarily attributable inclusion results operations witness entire fiscal year ended january 31 2009 compared inclusion witness’ results operations date acquisition may 2007 increases partially offset absence special bonus program fiscal year ended january 31 2009 totaled 42 million fiscal year ended january 31 2008 operating expenses operating expenses 47 million fiscal year ended january 31 2009 decrease 273 million 854 compared fiscal year ended january 31 2008 decrease primarily attributable • 130 million decrease litigation charges resulting recovery 43 million due gain settlement legal matter net legal fees recorded fiscal year ended january 31 2009 compared legal fees 87 million incurred fiscal year ended january 31 2008 • 67 million writeoff inprocess research development primarily related incomplete research development projects attributable witness acquisition fiscal year ended january 31 2008 corresponding acquisitionrelated charges recorded fiscal year ended january 31 2009 • 53 million decrease integration restructuring costs primarily related witness acquisition income loss operations income operations 112 million fiscal year ended january 31 2009 improvement 1050 million compared loss operations 938 million fiscal year ended january 31 2008 due primarily reasons described foreign currency effect operating results fiscal year ended january 31 2009 compared fiscal year ended january 31 2008 fluctuations value us dollar relative major currencies used verint’s business adversely affected operating results us dollar weakened euro nis strengthened british pound sterling canadian dollar net impact unfavorable verint’s revenue due primarily weaker british pound sterling net unfavorable impact verint’s operating income due primarily stronger nis caused verint’s local expenses higher foreign exchange rates fiscal year ended january 31 2008 remained constant fiscal year ended january 31 2009 verint’s total revenue would approximately 50 million higher operating expenses product service costs would approximately 20 million lower net favorable constant dollar impact approximately 70 million operating income fiscal year ended january 31 2009 segment performance segment performance 1204 million fiscal year ended january 31 2009 based segment revenue 6754 million resulting segment performance margin 178 percentage segment revenue segment performance 754 million fiscal year ended january 31 2008 segment revenue 5718 million resulting segment performance margin 132 percentage segment revenue increase segment performance margin principally result increases revenue offset part increases costs ulticom revenue product revenue 379 million fiscal year ended january 31 2009 decrease 52 million 120 compared fiscal year ended january 31 2008 decrease product revenue due primarily effect decline sales volume lower average selling prices boards service revenue 109 million fiscal year ended january 31 2009 increase 04 million 40 compared fiscal year ended january 31 2008 intercompany revenue intercompany revenue related revenue generated affiliates primarily comverse intercompany revenue 42 million fiscal year ended january 31 2009 decrease 12 million 221 compared fiscal year ended january 31 2008 cost revenue product costs 88 million fiscal year ended january 31 2009 decrease 17 million 160 compared fiscal year ended january 31 2008 decrease due primarily writedowns values inventory excess obsolete boards board components recorded fiscal year ended january 31 2008 corresponding writedowns recorded fiscal year ended january 31 2009 ii reduction workforce fiscal year ended january 31 2009 iii lower materials production costs resulting lower volume sales orders compared fiscal year ended january 31 2008 service costs 57 million fiscal year ended january 31 2009 consistent fiscal year ended january 31 2008 selling general administrative selling general administrative expenses 334 million fiscal year ended january 31 2009 decrease 17 million 48 compared fiscal year ended january 31 2008 decrease due primarily workforce reductions sales marketing administrative staff related travel expenses completion activities associated ulticom’s investigations financial restatement activities early fiscal year ended january 31 2009 decrease partially offset additional expenses recorded fiscal year ended january 31 2009 relating ulticom’s corporate development related activities consisted primarily exploring various strategic options evaluation special cash dividend paid april 2009 ii cash payments compensate holders expired options costs associated employee retention payments workforce reductions research development net research development net expenses 163 million fiscal year ended january 31 2009 consistent fiscal year ended january 31 2008 percentage revenue research development expenses increased 30 operating expenses operating expenses 07 million fiscal year ended january 31 2009 increase 03 million compared fiscal year ended january 31 2008 loss operations loss operations 119 million fiscal year ended january 31 2009 increase 27 million 293 compared fiscal year ended january 31 2008 due primarily reasons described segment performance segment performance changed loss 04 million fiscal year ended january 31 2008 income 03 million fiscal year ended january 31 2009 change attributable fact decline total segment expenses fiscal year ended january 31 2009 offset decline segment revenue fiscal year compared fiscal year ended january 31 2008 segment performance margins remained relatively constant revenue fiscal years generated primarily starhome revenue 413 million fiscal year ended january 31 2009 decrease 57 million 120 compared fiscal year ended january 31 2008 decrease due primarily divestiture insignificant subsidiary cti cost revenue substantially cost revenue fiscal years attributable starhome cost revenue 121 million fiscal year ended january 31 2009 decrease 21 million 145 compared fiscal year ended january 31 2008 primarily due divestiture insignificant subsidiary selling general administrative selling general administrative expenses segment 650 million fiscal year ended january 31 2009 decrease 118 million 153 compared fiscal year ended january 31 2008 decrease due primarily 65 million decrease professional fees ii 30 million decrease selling general administrative expenses iii 17 million reduction starhome’s agent commissions fiscal years ended january 31 2009 2008 selling general administrative expenses attributable starhome 197 million 207 million respectively research development net research development expenses net 103 million fiscal year ended january 31 2009 decrease 18 million 148 compared fiscal year ended january 31 2008 substantially research development expenses years related starhome operating expenses operating expenses 10 million fiscal year ended january 31 2009 corresponding expense recorded fiscal year ended january 31 2008 expense recorded related restructuring activities starhome fiscal year ended january 31 2009 loss operations loss operations 492 million fiscal year ended january 31 2009 decrease loss 106 million 178 compared fiscal year ended january 31 2008 due primarily reasons described fiscal years ended january 31 2009 2008 loss operations attributable starhome 38 million 55 million respectively segment performance segment performance loss 237 million fiscal year ended january 31 2009 decrease loss 80 million 252 compared loss fiscal year ended january 31 2008 decrease primarily attributable reductions selling general administrative expenses cti starhome insignificant subsidiaries fiscal years ended january 31 2009 2008 segment performance included starhome’s loss 09 million 41 million respectively liquidity capital resources overview principal sources liquidity historically consisted cash equivalents cash flows operations including changes working capital borrowings term loans revolving credit facilities proceeds issuance convertible debt obligations sale investments assets receipt dividends subsidiaries believe future sources liquidity would include cash equivalents proceeds sales investments including ars new borrowings cash generated asset divestitures proceeds issuance equity debt securities fiscal year ended january 31 2010 principal uses liquidity fund operating expenses make capital expenditures repay significant indebtedness service debt obligations pay significant professional fees expenses connection efforts become current periodic reporting obligations federal securities laws addition expended resources made investments improve internal control financial reporting hiring additional experienced finance accounting personnel redesigning processes implementing accounting finance systems performing additional business analytics expect expenses decline significantly subsequent fiscal years become current periodic reporting obligations federal securities laws improve internal controls expand financial reporting analysis capabilities recent developments financial condition cti comverse cash equivalents october 31 2010 cti comverse cash equivalents bank time deposits restricted cash approximately 2824 million compared approximately 4464 million january 31 2010 nine months ended october 31 2010 cti comverse made following significant disbursements • approximately 1256 million paid primarily professional fees connection cti’s efforts become current periodic reporting obligations federal securities laws lesser extent remediate material weaknesses internal control financial reporting • approximately 273 million paid cti connection settlements consolidated shareholder class action consolidated shareholder derivative actions • approximately 81 million cash paid special retention bonuses • approximately 70 million restructuring payments including workforce reduction initiative comverse addition nine months ended october 31 2010 comverse cti’s holding company operations experienced negative cash flows operations reductions partially offset primarily • proceeds approximately 570 million received sales redemptions ars • proceeds approximately 271 million received comverse sale land ra’anana israel • insurance proceeds 165 million received cti directors’ officers’ insurance policies connection settlements consolidated shareholder class action consolidated shareholder derivative actions subsequent october 31 2010 cti received december 3 2010 556 million cash result receipt dividend sale shares common stock ulticom inc addition cti completed january 14 2011 sale 23 million shares verint systems’ common stock secondary public offering aggregate proceeds net underwriting discounts commissions 765 million part efforts improve cash position cti comverse commenced certain initiatives including plan restructure operations comverse view towards aligning operating costs expenses anticipated revenue comverse successfully implemented first phase plan significantly reducing annualized operating costs second phase measures developed comverse focus process reengineering maximize business performance productivity operational efficiency expect commence implementation second phase measures first half fiscal year ending january 31 2012 comverse also evaluating initiatives improve focus core business maintain ability face intense competitive pressures markets part initiatives comverse pursuing wind continues evaluate strategic options netcentrex business restricted cash restricted cash aggregated 673 million october 31 2010 compared 834 million january 31 2010 restricted cash includes compensating cash balances related existing lines credit deposits pledged collateral restricted use settle specified creditrelated bank instruments proceeds received sales redemptions ars restricted terms consolidated shareholder class action settlement agreement october 31 2010 january 31 2010 cti 313 million 261 million respectively restricted cash received sales redemptions ars restricted terms settlement agreement ars cash equivalents bank time deposits restricted cash excludes ars totaling october 31 2010 946 million aggregate principal amount valued date approximately 696 million noted proceeds sales redemptions ars restricted terms consolidated shareholder class action settlement agreement liquidity forecast currently forecast available cash equivalents sufficient meet liquidity needs including capital expenditures cti comverse fiscal year ending january 31 2012 enhance cash position cti comverse continue evaluate capital raising alternatives prior completion sale cti shares verint systems’ common stock secondary public offering management forecasted shortfall approximately 250 500 million cash required support working capital needs business cti comverse fiscal quarter ending october 31 2011 management’s current forecast described based upon number assumptions including among others improved operating performance comverse segment due among things implementation second phase comverse’s restructuring plan continued reduced operating costs attributable first phase comverse’s restructuring plan restricted cash bank time deposits amounts consistent historical levels slight reductions unrestricted cash levels required support working capital needs business reductions compliancerelated costs sales redemptions substantially cti’s remaining ars proceeds consistent approximate recorded value october 31 2010 intraquarter working capital fluctuations consistent historical trends use cash lieu cti stock satisfy 300 million payment obligation shareholder class action settlement due may 15 2011 use cti’s stock satisfy 825 million 1125 million payment obligation settlement agreement due november 15 2011 management believes abovenoted assumptions reasonable however one assumptions prove incorrect one risks uncertainties described item 1a “risk factors” materialize cti comverse may experience shortfall cash required support working capital needs cti’s ability use shares common stock satisfy 825 million payment obligations shareholder class action settlement conditioned upon cti becoming current periodic reporting obligations federal securities laws common stock listed national securities exchange fifteenth trading day preceding payment date november 15 2011 financial condition cti’s majorityowned subsidiaries based past performance current expectations believe cash equivalents cash generated operations majorityowned subsidiaries sufficient meet respective anticipated operating costs working capital needs capital expenditures research development spending commitments respect verint required payments principal interest least next 12 months liquidity cti’s majorityowned subsidiaries could negatively impacted decrease demand products service support including impact changes customer buying behavior due weakness global economy verint incurred significant professional fees related expenses connection becoming current periodic reporting obligations federal securities laws continued incur significant professional fees costs nine months ended october 31 2010 verint expects incur related expenses fourth quarter ending january 31 2011 fiscal year ending january 31 2012 verint’s liquidity could negatively impacted additional fees costs event cti’s majorityowned subsidiaries determines make acquisitions otherwise require additional funds may need raise additional capital could involve issuance equity debt securities assurance subsidiary would able raise additional equity debt private public markets terms favorable sources liquidity following discussion highlights primary sources liquidity cash equivalents changes amounts due operations financing investing activities cash flows fiscal year ended january 31 2010 compared fiscal year ended january 31 2009 1 consists investments recorded within “other assets” consolidated balance sheets consolidated financial statements included item 15 annual report operating cash flows operating cash flows vary significantly year based timing collections accounts receivable receipts deposits workinprocess achievement milestones fiscal year ended january 31 2010 used net cash 1004 million operating activities net cash used operating activities primarily attributable net loss noncash charges addback 1093 million decrease 93 million accounts payable accrued expenses decrease 74 million deferred revenue increase 77 million inventories compared fiscal year ended january 31 2009 partially offset decrease 40 million prepaid current assets change 284 million assets liabilities compared fiscal year ended january 31 2009 investing cash flows fiscal year ended january 31 2010 cash provided investing activities 803 million increase cash investing activities primarily attributable 1851 million sales maturities investments net purchases investments partially offset 265 million cash used capital expenditures including capitalization software development costs 588 million reclassified cash equivalents restricted cash bank time deposits primarily attributable requirement maintain 450 million compensating cash balances terms lines credit comverse ltd banks january 31 2010 compared 200 million one line credit comverse ltd bank january 31 2009 ii proceeds 261 million received sales redemptions ars restricted terms consolidated shareholder class action settlement agreement cti entered december 16 2009 information restrictions see “investments securities portfoliorestriction use ars sales proceeds” investments 1825 million january 31 2010 decrease 1638 million compared january 31 2009 decrease primarily attributable sales maturities investments net purchases investments 1851 million financing cash flows fiscal year ended january 31 2010 cash used financing activities 4919 million primarily attributable 4173 million cash used repurchase convertible debt obligations 644 million dividends paid ulticom inc minority shareholders 41 million dividends paid verint noncontrolling stockholders joint venture effects exchange rates cash equivalents majority cash equivalents denominated us dollar however due nature global business also hold cash denominated currencies primarily euro nis british pound sterling fiscal year ended january 31 2010 fluctuation foreign currency exchange rates favorable impact 79 million cash equivalents primarily due weakening us dollar relative major foreign currencies held fiscal year liquidity investments fiscal year ended january 31 2010 market liquidity ars exhibited improvement although prices markets certain classes ars holdings continued decline accordingly recorded otherthantemporary impairment charges 69 million respect cti’s holdings specific ars january 31 2010 carrying amount 2066 million principal amount ars 1147 million additional information see “critical accounting estimates judgmentsvaluation otherthantemporary impairments” january 31 2010 investments ars held cti date restricted cti’s ability use proceeds sales ars restricted pursuant terms settlement agreement consolidated shareholder class action cti entered december 16 2009 information restrictions see “investments securities portfoliorestrictions use ars sales proceeds” terms original settlement agreement consolidated shareholder class action prior amendment june 19 2010 cti agreed exercise ubs put june 30 2010 ii within 48 hours receipt payment pay plaintiff class proceeds received subsequent date settlement agreement sales ars held account ubs including proceeds received result exercise ubs put would reduce amount 515 million payable august 15 2010 part amendment settlement agreement payments schedule settlement agreement revised payment due august 15 2010 reduced 179 million representing agreed 215 million payment less holdback 36 million respect anticipated optout credit certain applicable provisions settlement agreement remained unchanged amendment pursuant amendment cti continued obligated exercise ubs put june 30 2010 required pay reduced payment using proceeds received sales ars held account ubs additional proceeds remain cti ubs purchased approximately 416 million aggregate principal amount ars cti prior june 30 2010 effective june 30 2010 cti exercised ubs put balance 100 million aggregate principal amount ars subject ubs put july 2010 cti paid 179 million plaintiff class required settlement agreement amended january 31 2010 651 million investments us government agency securities principal amounts totaling 650 million investments classified availableforsale considered highly liquid readily convertible cash fiscal year ended january 31 2009 compared fiscal year ended january 31 2008 1 consists longterm debt investments recorded within “other assets” consolidated balance sheets consolidated financial statements included item 15 annual report operating cash flows fiscal year ended january 31 2009 generated 297 million cash operating activities cash generated operating activities primarily attributable increase deferred revenues 634 million decrease accounts receivable 389 million fiscal year ended january 31 2008 net income noncash charges addback 158 million increases partially offset decrease accounts payable accrued expenses 345 million change assets liabilities 316 million increase prepaid expenses current assets 218 million fiscal year ended january 31 2008 investing cash flows fiscal year ended january 31 2009 used 1880 million cash investing activities decrease cash investing activities primarily attributable 1018 million cash used purchases investments net cash receipts sales maturities investments 402 million cash used capital expenditures including capitalization software development costs 248 million reclassified cash equivalents restricted cash bank time deposits primarily attributable requirement maintain 200 million cash balance terms line credit comverse ltd bank investments 3463 million january 31 2009 increase 320 million compared january 31 2008 increase primarily attributable purchases investments net sales maturities investments 985 million net unrealized gains 149 million recorded investments held january 31 2009 increase offset change cumulative otherthantemporary impairment charges 814 million ars held january 31 2009 financing cash flows fiscal year ended january 31 2009 cash provided financing activities 116 million primarily attributable 150 million proceeds borrowings verint’s revolving credit facility partially offset repayment bank borrowings longterm debt effects exchange rates cash equivalents fiscal year ended january 31 2009 fluctuation foreign currency exchange rates unfavorable impact 136 million cash equivalents primarily due strengthening us dollar relative major foreign currencies held fiscal year liquidity investments principal amount ars investment portfolio 2365 million january 31 2009 fiscal year ended january 31 2009 liquidity portfolio continued decline significantly result illiquid conditions global credit markets absence liquidity support auctions ars historically provided brokerdealers certain cases decline credit quality issuers underlying securities accordingly recorded otherthantemporary impairment charges respect cti’s holdings ars result january 31 2009 carrying amount 2365 million principal amount ars 1203 million additional information see “critical accounting estimates judgmentsvaluation otherthantemporary impairments” january 31 2009 2233 million investments us government corporation agency bonds principal amounts totaling 2226 million investments classified availableforsale considered highly liquid readily convertible cash proceeds asset sales subsequent january 31 2010 sale land september 16 2010 comverse ltd indirect whollyowned subsidiary cti entered agreement sale land ra’anana israel third party approximately 285 million approximately 271 million proceeds received balance held escrow cover extent necessary applicable taxes levies sale consummated following bid process considered multiple offers land sale pursued part initiatives undertaken management improve cash position sale ulticom december 3 2010 referred effective date ulticom inc completed merger affiliate platinum equity pursuant terms conditions merger agreement dated october 12 2010 referred merger agreement utah intermediate holding corporation uihc delaware corporation utah merger corporation merger sub new jersey corporation whollyowned subsidiary uihc result merger ulticom inc became whollyowned subsidiary uihc immediately prior effective time merger ulticom inc paid special cash dividend aggregate amount 640 million referred dividend amounting 574 per share shareholders record november 24 2010 cti received 424 million respect dividend pursuant terms merger ulticom inc’s shareholders cti received 233 cash without interest per share common stock ulticom inc payment dividend shares ulticom inc’s common stock held cti purchased affiliate platinum equity pursuant terms conditions share purchase agreement dated october 12 2010 following payment dividend immediately prior consummation merger consideration thereof cti received aggregate consideration 172 million amounting 233 per share consisting approximately 132 million cash ii issuance merger sub cti two noninterest bearing promissory notes originally aggregate principal amount 40 million first promissory note originally amount 14 million subsequently reduced 08 million connection purchase certain products ulticom payable cti 14 months effective date second promissory note amount 26 million payable cti following determination ulticom’s revenue 24month period beginning january 1 2011 subject reduction 40 difference 75 million revenue generated ulticom period sale shares verint systems’ common stock january 14 2011 cti completed sale 23 million shares verint systems’ common stock secondary public offering aggregate proceeds net underwriting discounts commissions 765 million offering completed part initiatives undertaken management improve cash position investments securities portfolio hold ars supported corporate issuers student loans ars longterm stated maturities prior january 31 2008 classified ars shortterm investments due liquid nature evidenced successful auctions occurring every seven ninety days beginning third quarter fiscal year ended january 31 2008 auctions ars began fail ubs put november 2008 accepted offer ubs ag referred ubs providing rights related 516 million aggregate principal amount ars held account ubs referred ubs put terms offer right obligation sell eligible ars par value ubs time period june 30 2010 july 2 2012 referred right ubs put additionally ubs right discretion time july 2 2012 purchase ars us par value defined price equal principal amount ars plus accrued unpaid dividends interest ubs purchased approximately 416 million aggregate principal amount ars cti prior june 30 2010 pursuant purchase right terms settlement agreement consolidated shareholder class action cti required exercise ubs put june 30 2010 effective june 30 2010 cti exercised ubs put balance ars subject ubs put fourth quarter ended january 31 2009 recorded put right fair value 136 million elected fair value option applicable accounting guidance consequently ubs put carried historical cost assessed impairment evaluated ubs put impairment based redemptions changes fair value related ars subject ubs put fiscal year ended january 31 2010 recorded 69 million impairment charges january 31 2010 fair value related ars 358 million consideration ubs put corresponding principal amount 426 million additional information relating ars ubs put see note 3 consolidated financial statements included item 15 annual report otherthantemporary impairment ars determined could assert intended hold ars fair value ars recovered amortized cost accordingly recorded otherthantemporary impairment charges 69 million 865 million 479 million pretax basis fiscal years ended january 31 2010 2009 2008 respectively nine months ended october 31 2010 recorded additional otherthantemporary pretax impairment charges 04 million certain ars additionally nine months ended october 31 2010 1120 million aggregate principal amount ars recorded value 487 million sold redeemed proceeds 570 million amounts included 426 million aggregate principal amount ars subject ubs put 326 million aggregate principal amount ars purchased ubs cti pursuant purchase right prior june 30 2010 100 million aggregate principal amount ars purchased ubs upon exercise cti ubs put effective june 30 2010 restrictions use ars sales proceeds part settlement agreement consolidated shareholder class action amended cti granted security interest benefit plaintiff class account cti holds ars held account ubs proceeds sales thereof restricting cti’s ability use proceeds sales ars amounts payable settlement agreement paid full addition terms settlement agreement consolidated shareholder class action cti receives net cash proceeds sale certain ars held aggregate amount excess 500 million cti required use 500 million proceeds prepay settlement amounts settlement agreement cti receives net cash proceeds sale ars aggregate amount excess 1000 million cti required use additional 500 million proceeds prepay settlement amounts settlement agreement october 31 2010 january 31 2010 cti 313 million 171 million restricted cash received sales redemptions ars provisions settlement agreement apply respectively october 31 2010 january 31 2010 cti held 946 million 1640 million aggregate principal amount ars recorded value 696 million 788 million respectively restrictions apply addition january 31 2010 cti held 90 million received sales ars held ubs terms settlement agreement consolidated shareholder class action cti required apply towards amounts payable settlement agreement indebtedness verint credit facility may 25 2007 verint entered 6500 million term loan 250 million revolving credit facility group banks fund portion acquisition witness original 250 million revolving credit facility effectively reduced 150 million september 2008 connection bankruptcy lehman brothers one lenders related subsequent termination revolving commitment credit agreement june 2009 later increased 750 million july 2010 also july 2010 verint amended credit facility among things change method calculation applicable interest rate margin based consolidated leverage ratio time ii add 150 libor floor iii increase aggregate amount incremental revolving commitment term loan increases permitted credit facility 500 million 2000 million iv make certain changes negative covenants including providing covenant relief respect permitted consolidated leverage ratio unless context otherwise requires references herein verint’s credit facility credit facility amended term loan matures may 25 2014 revolving credit facility matures may 25 2013 verint’s obligations credit facility guaranteed certain domestic subsidiaries including witness secured substantially assets verint subsidiaries credit facility guaranteed cti secured assets october 31 2010 january 31 2010 verint’s outstanding term loan balance credit facility approximately 5832 million 6059 million respectively verint borrowed 150 million revolving credit facility november 2008 loan remained outstanding october 31 2010 accordingly verint 600 million remaining availability thereunder october 31 2010 december 2010 verint repaid 150 million previously borrowed revolving credit facility verint’s ability borrow revolving credit facility dependent upon certain conditions including absence material adverse effect change verint’s business defined credit agreement commitment fee unused capacity revolving credit facility increased 05 075 per annum credit facility requires mandatory payments term loan net cash proceeds certain asset sales extent net cash proceeds otherwise reinvested assets useful verint’s business annual basis percentage excess cash flow ranges 0 50 depending verint’s consolidated leverage ratio defined credit agreement also requires periodic amortization payments term loan may 2009 verint made 41 million mandatory “excess cash flow” payment applied three immediately following principal payments may 2010 verint made 221 million mandatory “excess cash flow” payment term loan based upon operating results fiscal year ended january 31 2010 124 million applied eight immediately following principal payments 97 million applied pro rata remaining principal payments february 2010 verint made amortization payment 06 million verint’s next amortization payment 15 million due may 1 2012 verint expects cash liquidity sufficient fund term loan payments required next 12 months credit agreement contains one financial covenant requires verint meet fiscal quarter certain consolidated leverage ratio defined verint’s consolidated net total debt divided consolidated ebitda trailing four quarters ebitda defined credit agreement net incomeloss plus income tax expense interest expense depreciation amortization intangibles losses related hedge agreements extraordinary unusual nonrecurring expenses losses noncash charges expenses incurred taken prior april 30 2008 connection acquisition witness minus interest income extraordinary unusual nonrecurring income gains related hedge agreements noncash income credit agreement quarterly periods ended january 31 april 30 july 31 october 31 2009 consolidated leverage ratio permitted exceed 4501 quarterly periods ended january 31 april 30 july 31 october 31 2010 consolidated leverage ratio permitted exceed 3501 verint compliance requirements dates october 31 2010 verint’s consolidated leverage ratio 2611 versus permitted consolidated leverage ratio 3501 implies verint’s ebitda period ended exceeded requirement covenant least 480 million quarterly periods ending january 31 april 30 july 31 october 31 2011 consolidated leverage ratio permitted exceed 3501 quarterly periods ending january 31 2012 thereafter consolidated leverage ratio permitted exceed 3001 addition verint subject number restrictive covenants including limitations ability incur indebtedness create liens make fundamental business changes dispose property make restricted payments including dividends make significant investments enter sale leaseback transactions enter new lines business provide negative pledges enter transactions related parties enter speculative hedges although limited exceptions covenants credit agreement also contains number affirmative covenants including requirement verint submit consolidated financial statements lenders within certain periods fiscal year quarter past verint timely delivered financial statements required credit agreement may future fail make deliveries april 2010 verint entered amendment credit agreement extend due date delivery audited consolidated financial statements related documentation fiscal year ended january 31 2010 may 1 2010 june 1 2010 verint systems filed annual report form 10k fiscal year ended january 31 2010 containing requisite financial statements may 19 2010 accordingly delivered audited consolidated financial statements lenders compliance terms credit agreement future verint unable comply requirements credit agreement unable obtain amendment waiver requirements event default could occur could cause permit holders debt thereunder declare amounts outstanding immediately due payable event verint may forced sell assets raise additional capital securities offering seek refinance restructure debt case verint may able consummate sale securities offering refinancing restructuring reasonable terms risks related verint’s debt see item 1a “risk factorsrisks related businesses industriesverint incurred significant indebtedness connection acquisition witness makes highly leveraged subjects restrictive covenants could adversely affect operations” prior amendment verint’s credit facility july 2010 applicable interest rate margin loans determined reference corporate ratings twice increased time 25 basis points due verint’s previous failure deliver certain audited financial statements lack corporate ratings resulting continued delay filing periodic reports applicable margin accordingly reduced 50 basis points june 2010 verint delivered required financial statements obtained corporate ratings since entering amendment credit facility july 2010 applicable margin determined reference verint’s consolidated leverage ratio october 31 2010 interest rate term loan revolving credit facility borrowings 525 interest rate term loan revolving line credit borrowings 349 january 31 2010 higher interest rate october 31 2010 reflects among things impact july 2010 amendments discussed information verint’s credit facility see item 7a “quantitative qualitative disclosures market riskinterest rate risk indebtedness” notes 12 26 consolidated financial statements included item 15 annual report termination interest rate swap agreement july 2010 verint terminated interest rate swap agreement entered may 2007 connection entry credit facility effect fixed verint’s interest rate exposure respect 4500 million term loans thereunder 518 interest rate terminate interest rate swap agreement prior may 2011 maturity verint paid approximately 217 million august 2010 counterparty representing approximate present value expected remaining quarterly settlement payments otherwise due verint thereafter information verint’s interest rate swap agreement see item 7a “quantitative qualitative disclosures market risksinterest rate risk indebtedness” notes 12 13 consolidated financial statements included item 15 annual report convertible debt obligations may 2003 cti issued 4200 million aggregate principal amount existing convertible debt obligations january 26 2005 cti completed offer holders outstanding existing convertible debt obligations exchange existing convertible debt obligations new convertible debt obligations 4200 million aggregate principal amount existing convertible debt obligations outstanding prior exchange offer approximately 4177 million aggregate principal amount representing approximately 995 original issue existing convertible debt obligations validly tendered exchange equal principal amount new convertible debt obligations convertible debt obligations mature may 15 2023 bear interest convertible debt obligations secured assets guaranteed cti’s subsidiaries january 31 2010 2009 cti 22 million 4195 million aggregate principal amount outstanding convertible debt obligations respectively dates included 01 million 4174 million aggregate principal amount outstanding new convertible debt obligations respectively terms indenture governing new convertible debt obligations cti obligation offer purchase cash new convertible debt obligations may 15 2009 meet obligations indenture cti commenced tender offer april 17 2009 upon completion tender offer may 15 2009 cti purchased using available cash 4173 million aggregate principal amount new convertible debt obligations august 2010 standard poor’s discontinued rating convertible debt obligations time became convertible additional information relating convertible debt obligations see note 12 consolidated financial statements included item 15 annual report comverse ltd lines credit january 31 2010 comverse ltd whollyowned israeli subsidiary comverse inc 250 million line credit bank used borrowings various performance guarantees customers vendors letters credit execute foreign currency transactions ordinary course business line credit bears interest subject renewal annual basis comverse ltd required maintain cash balances least 250 million bank times regardless amounts borrowed utilized line credit january 31 2010 comverse ltd borrowings line credit utilized 77 million capacity line credit guarantees execution foreign currency transactions june 2010 line credit decreased 150 million corresponding decrease cash balances comverse ltd required maintain bank 150 million october 31 2010 comverse ltd borrowings line credit utilized 60 million capacity line credit guarantees execution foreign currency transactions december 2009 comverse ltd entered additional line credit bank 200 million used borrowings various performance guarantees customers vendors letters credit execute foreign currency transactions ordinary course business line credit bears interest subject renewal annual basis comverse ltd required maintain cash balances least 200 million bank times regardless amounts borrowed utilized line credit january 31 2010 comverse ltd borrowings line credit utilized 98 million capacity line credit guarantees execution foreign currency transactions june 2010 line credit decreased 150 million corresponding decrease cash balances comverse ltd required maintain bank 150 million october 31 2010 comverse ltd borrowings line credit utilized 81 million capacity line credit guarantees execution foreign currency transactions comverse ltd’s requirement maintain cash balances banks disclosed lines credit financial covenant provisions settlements shareholder class derivative actions december 16 2009 december 17 2009 cti entered agreements settle consolidated shareholder class action consolidated shareholder derivative actions respectively agreement settle consolidated shareholder class action amended june 19 2010 pursuant amendment cti agreed waive certain rights terminate settlement exchange deferral timing scheduled payments settlement consideration optout credit respect portion settlement funds would payable class member elected participate bound settlement discussion actions see item 3 “legal proceedings” part settlement consolidated shareholder class action amended cti agreed make payments class action settlement fund aggregate amount 1650 million paid remain payable follows • 10 million paid following signing settlement agreement december 2009 • 179 million paid july 2010 representing agreed 215 million payment less holdback 36 million respect anticipated optout credit holdback required paid cti optout credit less • 300 million payable may 15 2011 • 1125 million less amount optout credit exceeds holdback discussed payable november 15 2011 300 million due may 15 2011 825 million 1125 million due november 15 2011 payable cash cti’s election shares cti’s common stock valued using tenday average closing prices cti’s common stock prior election provided cti becomes current periodic reporting obligations federal securities laws common stock listed national securities exchange fifteenth trading day preceding applicable payment date shares delivered one time aggregate value least 275 million cti expects pay 300 million payment due may 15 2011 cash cti receives net cash proceeds sale certain ars held aggregate amount excess 500 million cti required use 500 million proceeds prepay settlement amounts referred cti receives net cash proceeds sale securities aggregate amount excess 1000 million cti required use additional 500 million proceeds prepay settlement amounts referred addition cti granted security interest benefit plaintiff class account cti holds ars held account ubs proceeds sales thereof restricting cti’s ability use proceeds sales ars amounts payable settlement agreement paid full part settlement shareholder derivative actions cti paid october 21 2010 94 million cover legal fees expenses plaintiffs september 2010 cti received insurance proceeds 165 million directors’ officers’ insurance policies connection settlements shareholder derivative actions consolidated shareholder class action agreement settle consolidated shareholder class action amended approved court action pending june 23 2010 agreement settle federal state derivative actions approved courts actions pending july 1 2010 september 23 2010 respectively expect fund cash payments make settlement consolidated shareholder class action using cash hand insufficient proceeds sale investments including ars new borrowings cash generated asset divestitures proceeds issuance equity debt securities restructuring initiatives review business manage costs align resources market demand result also conjunction various acquisitions taken several actions reduce fixed costs eliminate redundancies strengthen operational focus better position us respond market pressures unfavorable economic conditions restructuring initiatives expected positive impact operating cash flows long term also led lead charges fiscal year ended january 31 2010 comverse’s management approved restructuring plan close certain facilities eliminate associated staff positions plan implemented around comverse’s core competencies innovations enhance quality product offerings better align customers’ needs improve delivery service capabilities aggregate cost plan 144 million severancerelated facilitiesrelated costs 126 million 10 million respectively paid fiscal year ended january 31 2010 remaining costs 08 million expected paid january 31 2012 january 31 2010 restructuring accruals restructuring initiatives 55 million october 2010 commenced first phase plan restructure operations comverse view toward aligning operating costs expenses anticipated revenue first phase plan includes termination certain employees located primarily israel us asia pacific united kingdom aggregate cost first phase estimated 124 million expected substantially paid january 31 2011 second phase measures developed focus process reengineering maximize business performance productivity operational efficiency expect commence implementation second phase measures first half fiscal year ending january 31 2012 part initiatives improve focus core business maintain ability face intense competitive pressures markets comverse pursuing wind netcentrex business connection therewith fourth quarter fiscal year ending january 31 2011 comverse’s management approved restructuring plan eliminate staff positions primarily located france estimated aggregate cost approximately 281 million plan expected implemented fiscal years ending january 31 2011 2012 2013 alternative wind management continues evaluate strategic options netcentrex business guarantees liens restrictions access subsidiary cash guarantees provide certain customers ordinary course business financial performance guarantees certain cases backed standby letters credit surety bonds majority cash collateralized accounted restricted cash bank time deposits liable amounts guarantees event nonperformance would permit customer exercise guarantee january 31 2010 2009 believe compliance performance obligations contracts financial performance guarantee liabilities arising connection guarantees material adverse effect consolidated results operations financial position cash flows also obtained bank guarantees primarily provide customer assurance relating performance certain obligations required customer agreements guarantee certain payment obligations guarantees aggregated 350 million january 31 2010 generally scheduled released upon performance specified contract milestones majority scheduled completed various dates january 31 2012 comverse ltd liens december 2009 part operations comverse ltd agreed placement floating liens assets support potential future borrowings banking services provided two israeli banks january 31 2009 comverse ltd borrowings supported liens however liens remained full force effect liens included provisions prohibited comverse ltd selling transferring assets ordinary course business effect restricting comverse ltd’s ability pay dividends extend loans shareholders without obtaining banks’ prior written approval december 2009 liens assets comverse ltd released dividends subsidiaries ability israeli subsidiaries pay dividends governed israeli law provides dividends may paid israeli corporation earnings defined accordance israeli companies law 1999 provided reasonable concern payment cause subsidiary fail meet current expected liabilities come due cash dividends paid israeli corporation united states resident corporate parents subject convention avoidance double taxation israel united states convention terms convention dividends subject taxation israel united states case israel dividends distributed income derived respect israeli company entitled reduced tax rate applicable approved enterprise generally subject withholding israeli income tax source rate 15 addition case dividend distributed tax exempted income derived period company entitled tax exempt income accordance encouragement law company subject tax year dividend distributed corporate tax grossed transferred amounts according corporate tax rate income subject approved enterprise program 10 tax addition 15 withholding tax applicable dividends distributed income subject regular corporate income tax rates included benefit tax rate income exempted income encouragement law subject withholding tax 125 terms convention significant portion cash equivalents investments held outside united states various foreign subsidiaries january 31 2010 cash equivalents investments held outside united states distributed united states resident corporate parents form dividends otherwise may subject additional us income taxes subject adjustment foreign tax credits foreign withholding taxes may incur substantial withholding taxes repatriate cash certain foreign subsidiaries addition verint party credit facility contains customary affirmative negative covenants credit facilities type including limitations verint’s ability pay cash dividends effect asset distributions also pursuant investment agreements starhome bv precluded paying cash dividends shareholders without approval certain minority shareholders investment verint systems’ preferred stock may 25 2007 connection verint’s acquisition witness cti entered securities purchase agreement verint referred securities purchase agreement whereby cti purchased cash aggregate 293000 shares verint’s series convertible perpetual preferred stock referred preferred stock aggregate purchase price 2930 million proceeds issuance preferred stock used partially finance acquisition preferred stock eliminated consolidation originally preferred stock confer cti voting rights convertible verint systems’ common stock october 5 2010 verint systems’ stockholders approved special stockholders meeting issuance verint systems’ common stock underlying preferred stock accordingly date preferred stock became voting convertible verint systems’ common stock ranking preferred stock issued purchase price 1000 per share ranks senior verint’s common stock liquidation preferred stock initial liquidation preference equal purchase price preferred stock 1000 per share event voluntary involuntary liquidation dissolution windingup verint cti entitled receive assets available distribution verint’s stockholders distribution assets holders verint common stock amount equal thencurrent liquidation preference includes accrued unpaid dividends october 31 2010 january 31 2010 liquidation preference preferred stock 3354 million 3259 million respectively dividends cash dividends preferred stock cumulative calculated quarterly specified dividend rate liquidation preference effect time dividend rate 3875 per annum verint determines prohibited paying cash dividends preferred stock terms credit facility debt instruments may elect make dividend payments shares common stock common stock valued 95 volume weightedaverage price common stock five consecutive trading days ending second trading day immediately prior record date dividend verint’s credit facility contains restrictive covenant limits ability pay dividends preferred stock verint’s ability pay dividends common stock ranks junior preferred stock respect payment dividends limited declared dividend payment regularly scheduled dividend payment date preferred stock date hereof dividends declared paid preferred stock october 31 2010 january 31 2010 cumulative undeclared dividends preferred stock 424 million 329 million respectively voting share preferred stock entitled number votes equal number shares common stock share preferred stock convertible conversion rate effect date preferred stock issued cti conversion share preferred stock convertible option cti number shares verint’s common stock equal liquidation preference effect divided conversion price effect initially set 3266 may adjusted time liquidation preference equal issue price 1000 per share plus sum accrued unpaid dividends whether declared initial conversion rate set 306185 shares common stock share preferred stock converted october 31 2010 january 31 2010 preferred stock could converted approximately 103 million 100 million shares verint’s common stock respectively time verint may force conversion less preferred stock common stock option closing sale price common stock immediately prior conversion equals exceeds conversion price effect 140 conversion may 25 2010 prior may 25 2011 b 135 conversion may 25 2011 special rights upon fundamental change terms preferred stock also provide upon fundamental change defined certificate designation preferred stock cti right require verint repurchase preferred stock 100 liquidation preference effect verint fails repurchase preferred stock required upon fundamental change number directors constituting board directors increased two cti right elect two directors fill vacancies upon repurchase preferred stock subject fundamental change repurchase right cti longer right elect additional directors term office additional director terminate immediately upon repurchase number directors without action reduced two addition event fundamental change conversion rate increased provide additional shares common stock issuable holders preferred stock upon conversion based sliding scale depending acquisition price defined certificate designation preferred stock ranging zero 37 additional shares common stock every share preferred stock converted common stock following fundamental change transfer registration rights cti right sell preferred stock since november 25 2007 either private public transactions pursuant registration rights agreement cti verint entered concurrently securities purchase agreement referred new registration rights agreement commencing 180 days verint regains compliance periodic reporting obligations federal securities laws cti entitled two demands require verint register shares common stock underlying preferred stock resale securities act 1933 amended securities act new registration rights agreement also provides cti unlimited piggyback registration rights certain securities act registrations filed verint behalf verint stockholders cti’s rights new registration rights agreement addition rights previous registration rights agreement cti entered verint shortly verint’s initial public offering 2002 registration rights agreement referred original registration rights agreement covers shares common stock held cti additional shares common stock acquired cti later date original registration rights agreement cti entitled unlimited demand registrations shares registration statement form s3 long verint eligible use registration statement form s3 cti also entitled one demand registration statement form s1 effective july 15 2010 cti made demand pursuant original registration rights agreement 28 million shares verint systems’ common stock registered registration statement form s1 january 14 2011 completed sale 23 million shares verint systems’ common stock secondary public offering addition similar new registration rights agreement original registration rights agreement also provides cti unlimited piggyback registration rights liquidation preference starhome bv event liquidation merger sale starhome bv first 200 million proceeds would distributed certain minority shareholders thereafter cti would entitled greater 410 million remaining proceeds less certain amounts 11 million payable cti founders starhome ii pro rata share remaining proceeds asconverted basis business acquisition february 4 2010 verint acquired outstanding shares iontas limited privately held provider desktop analytics solutions total consideration 219 million including cash consideration 179 million additional milestonebased contingent payments 38 million tied certain performance targets achieved twoyear period following acquisition date offbalance sheet arrangements material offbalance sheet arrangements performance guarantees previously discussed see “liquidity capital resourcesguarantees liens restrictions access subsidiary cash” contractual obligations following table presents contractual obligations january 31 2010 1 purchase obligations include agreements purchase goods services enforceable legally binding us specify significant terms including fixed minimum quantities purchased fixed minimum variable price provisions approximate timing transaction purchase obligations exclude agreements cancelable without penalty 2 includes cti’s payment obligations settlement agreements consolidated shareholder class action shareholder derivative actions subsequent january 31 2010 part amendment settlement agreement shareholder class action payment schedule thereunder revised resulting deferral payment 300 million originally payable august 15 2010 november 15 2011 3 consolidated balance sheet january 31 2010 includes 1505 million noncurrent tax reserves uncertain tax positions specific timing cash payments relating obligation cannot projected reasonable certainty therefore amounts obligation included table set forth longterm debt obligations reflected include projected interest payments term debt assuming interest rates 349 interest rate effect borrowings verint’s term loan revolving credit facility january 31 2010 actual interest debt variable longterm debt obligations also include projected quarterly settlements verint’s interest rate swap expiration may 2011 using interest rate assumptions underlie estimated fair value swap january 31 2010 july 2010 verint amended credit facility among things change method calculation interest expense borrowings agreement also july 2010 verint entered agreement terminate interest rate swap making 217 million onetime payment august 3 2010 detailed discussion see item 7a “quantitative qualitative disclosures market riskinterest rate risk indebtedness” impact verint’s credit facility amendment termination interest rate swap reflected table critical accounting estimates judgments accounting estimates judgments discussed section consider critical understand consolidated financial statements financial statements involve significant judgments uncertainties specifically accounting estimates judgments outlined critical materially affect operating results financial condition inasmuch require management make difficult subjective judgments regarding uncertainties many estimates include determinations fair value estimates reflect best judgment current estimates future economic market conditions effects based information available us date accompanying financial statements result accuracy estimates likelihood future changes depend range possible outcomes number underlying variables beyond control see also note 1 consolidated financial statements included item 15 annual report additional information significant accounting estimates judgments underlying financial results disclosed consolidated financial statements please note following discussion critical accounting estimates judgments contains citations fasb’s provisions effect applicable consolidated financial statements january 31 2010 end recent fiscal year covered annual report revenue recognition report revenue consolidated financial statements two categories product revenue including hardware software products ii service revenue including revenue professional services training services postcontract customer support pcs professional services primarily include installation customization consulting services vast majority revenue accounted accordance fasb’s guidance relating revenue recognition software component multiple element arrangements incidental products sold applying provisions fasb guidance exercise judgment use estimates determination revenue recognized accounting period arrangements require significant modification customization underlying software recognize revenue persuasive evidence arrangement product shipped services provided customer sales price fixed determinable collectability probable pertinent criteria met required fasb’s guidance majority software license arrangements contain multiple elements including perpetual software licenses hardware pcs training professional services allocate revenue delivered elements arrangement using residual method whereby revenue allocated undelivered elements based vendor specific objective evidence vsoe fair value undelivered elements remaining arrangement fee allocated delivered elements recognized revenue assuming revenue recognition criteria met unable establish vsoe fair value undelivered elements arrangement revenue recognition deferred entire arrangement elements arrangement delivered however undelivered element pcs recognize arrangement fee ratably pcs period timing recognition revenue transactions involves numerous judgments estimates policy determinations significant summarized follows pcs revenue derived primarily providing technical software support services unspecified software updates upgrades customers available basis pcs revenue recognized ratably term pcs period pcs included within multiple element arrangement primarily utilize substantive renewal rate establish vsoe fair value pcs much lesser extent bellshaped curve approach used certain verint segment arrangements depending upon business operating segment geographical region product line using substantive renewal rate method may unable establish vsoe fair value pcs renewal rate deemed nonsubstantive contractuallystated renewal rates stated renewal rate nonsubstantive entire arrangement fee recognized ratably estimated economic life product five eight years beginning upon delivery elements pcs believe estimated economic life product best estimate long customer renew pcs contractually stated renewal rate entire arrangement fee recognized ratably relevant contractual pcs term beginning upon delivery elements pcs arrangements include stated renewal rate determining whether actual renewal rate substantive matter judgment group products stratify customers based size install base geographic location customer based historical negotiations contract experience believe customers behave differently perceive different values pcs based two main factors bellshaped curve approach establishing vsoe fair value verint segment performs vsoe fair value compliance test ensure substantial majority 75 actual pcs renewals within narrow range plus minus 15 median pricing evaluate many factors determining estimated economic life products including support period product technological obsolescence average time new product releases upgrade activity customers concluded estimated economic lives key software products range five eight years policy establishing vsoe fair value professional services training based upon analysis separate sales services compared fees charged elements included multiple element arrangement comverse segment yet established vsoe fair value element pcs certain multipleelement arrangements obligated provide training services customers related operation software products training services either provided customer “defined” basis limited specified number days training classes “asrequested” basis unlimited training contractual period comverse segment established vsoe fair value either type training multipleelement arrangements containing asrequested training obligations recognize total arrangement consideration ratably contractual period required “stand ready” perform training provided criteria revenue recognition met multipleelement arrangements containing defined training obligations training services typically provided customer prior completion installation services situations revenue recognition commence completion installation defined training obligations impact timing recognition revenue certain circumstances training provided end installation period commence revenue recognition upon completion training provided criteria revenue recognition met arrangements require significant customization product meet particular requirements customer arrangements revenue recognized accordance fasb’s guidance longterm construction type contracts typically using percentageofcompletion poc method determination whether services entail significant customization requires judgment primarily based alterations features functionality standard release complex unusual interfaces well amount hours necessary complete customization solution relative size contract revenue arrangements recognized poc method based ratio total hours incurred date compared estimated total hours complete contract required make judgments estimate total estimated costs progress completion changes estimates impact timing revenue recognition period use historical experience project plans assessment risks uncertainties inherent arrangement establish estimates uncertainties arrangements include implementation delays performance issues may within control event profitability contract cannot assured completedcontract method revenue recognition applied level profitability assured related revenue costs cannot reasonably estimated revenue recognized extent costs incurred time project’s profitability estimated services completed vsoe fair value pcs exist revenues recognized equal extent costs incurred services completed provided able make reliable cost estimates level profitability assured services completed remaining unrecognized portion arrangement fee recognized ratably remaining pcs period situations able make reliable estimates level profitability assured revenue deferred completion professional services recognized ratably respective pcs period determine based estimates costs exceed sales price entire amount estimated loss accrued period losses become evident revenue recognized multiple periods accordance revenue recognition policies material cost including hardware thirdparty software license fees deferred amortized period product revenue recognized costs recognized “deferred cost revenue” consolidated balance sheets however made accounting policy election whereby cost installation service costs expensed incurred except arrangements recognized accordance fasb’s guidance longterm construction type contracts consolidated statements operations classify revenue product revenue service revenue prescribed sec rules regulations multiple element arrangements include product service elements unable determine vsoe fair value elements arrangement management evaluates various available indicators fair value applies judgment reasonably classify arrangement fee product revenue service revenue amount multiple element arrangement fees classified product service revenue based management estimates fair value vsoe fair value elements arrangement exist could differ amounts classified product service revenue vsoe fair value elements existed allocation multiple element arrangement fees product revenue service revenue vsoe fair value elements exist consolidated financial statement presentation purposes affect timing revenue recognition amount revenue recognized determining amount multiple element arrangement fee classified product revenue service revenue comverse segment first allocates arrangement fee product revenue pcs classified service revenue based management’s estimate fair value elements remainder arrangement fee comprised service elements allocated service revenue estimate fair value product element based primarily management’s evaluation direct costs reasonable profit margins products determined appropriate methodology comverse segment historically product oriented respect pricing policies facilitates evaluation product costs related margins arriving reasonable estimate product element fair value management’s estimate reasonable profit margins requires significant judgment consideration various factors impact economic environment margins complexity projects stability product profit margins nature products estimate fair value pcs based management’s evaluation weighted average pcs rates arrangements vsoe fair value pcs exists determining classification revenue products services verint segment reviews vsoe fair value training installation pcs services similar transactions stand alone services arrangements compares peers order determine reasonable consistent approximations fair values service revenue remaining amount allocated product revenue sales resellers original equipment manufacturers oems purchase verint segment’s products resale generally recognized products shipped referred sellin basis reseller oem policy predicated verint segment’s ability estimate sales returns customers among criteria verint segment also required evaluate whether resellers oems ability honor commitment make fixed determinable payments regardless whether collect payment customers verint segment change assumptions judgments could cause material change reported revenue particular period verint segment historically experienced insignificant product returns resellers oems payment terms customers similar granted endusers reseller oem develops pattern payment delinquency seeks payment terms longer generally accepted verint segment defers recognition revenue receipt cash extended payment terms one critical judgments make related revenue recognition assessment collectability probable recognition revenue based assessment probability collecting related accounts receivable balance onset sales arrangement certain comverse’s arrangements include payment terms depart customary practice situations customer adequate history abiding contractual payment terms without concessions sales price considered fixed determinable revenue recognized upon collection provided revenue recognition criteria met consider payment terms 5 arrangement fees due 120 days customer acceptance extended arrangement new customer payment terms extended evidence collecting original payment terms without making concessions therefore presumption fee fixed determinable cannot overcome arrangement existing customer evaluation customer’s payment history take place determine fee fixed determinable stockbased compensation account sharebased payment awards including employee stock options restricted stock deferred stock units employee stock purchases made employees directors accordance fasb’s guidance sharebased payment related interpretative guidance requires measurement recognition compensation expense awards based estimated fair value options granted cti well verint ulticom starhome subsidiaries required estimate fair value sharebased payment awards date grant using optionpricing model fasb’s guidance stockbased compensation expense measured grant date based fair value award cost recognized expense ratably award’s vesting period use blackscholes optionpricing model measure fair value stock option awards model requires us make significant judgments regarding assumptions used within model significant stock price volatility assumption expected term awards expected life option award based actual projected employee stock option behaviors inputs noted factored option valuation model use measure fair value stock awards subjective estimates changes estimates could cause fair value stock awards related stockbased compensation expenses vary materially except noted following key assumptions used stockbased compensation awards • riskfree interest rate assumption use based upon us treasury interest rates appropriate expected life awards • cti prospectively changed expected volatility assumption historical implied volatility effective august 1 2005 change based availability traded options cti’s stock assessment implied volatility better indicator expected volatility historical volatility implied volatility available may due lack trading cti utilize historical volatility • majorityowned subsidiaries including publiclytraded subsidiaries use historical volatility measuring volatility stock options • order determine estimated period time expect employees hold stock options analyzed historical exercise rates case modifications related additional time exercise afforded certain terminated employees affected restricted period estimated holding period based projected date compliance periodic reporting obligations federal securities laws restricted period resulted cti’s verint’s inability remain current periodic reporting obligations exchange act since april 2006 cti verint ineligible use registration statements form s8 offer sale equity securities including stock options employees verint became current periodic reporting obligations federal securities laws june 2010 • expected dividend rate zero since currently pay cash dividends common stock anticipate foreseeable future also required estimate expected forfeitures stockbased awards grant date recognize compensation cost awards expected vest although estimate forfeitures based historical experience future expectation actual forfeitures may differ forfeiture assumption adjusted actual forfeitures occur fiscal years ended january 31 2010 2009 2008 consolidated stockbased compensation expense 584 million 550 million 635 million respectively business combinations prior adoption fasb’s revised guidance relating business combination february 1 2009 acquired business allocated purchase price tangible identifiable intangible assets acquired liabilities assumed based upon estimated fair values acquisition date upon adoption fasb’s revised guidance allocate purchase price noncontrolling interest business combinations consummated february 1 2009 intangible assets consist primarily acquired technology customer relationships time engage independent thirdparty appraisal firms assist management considering determinations fair values significant net assets acquired residual purchase price recorded goodwill purchase price allocation process requires us make significant estimates assumptions especially acquisition date respect intangible assets including inprocess research development written acquisition date estimated restructuring liabilities preacquisition contingencies although believe assumptions estimates made past reasonable appropriate based part historical experience information obtained management acquired companies result inherent level uncertainty key critical estimates valuing certain intangible assets include limited • future expected cash flows generated acquired technology customer relationships • expected costs develop inprocess research development commercially viable products estimated cash flows projects completed • acquired company’s brand competitive position well assumptions period time acquired brand continue used • weighted average cost capital discount rates • estimating useful lives acquired assets well pattern manner assets amortize make significant judgments related business combinations including evaluating contingent consideration agreements review contingent consideration agreements ensure represent compensation ongoing activities business consider reasons contingent consideration provisions terms employment agreements mix employee selling shareholders nonemployee selling shareholders making determination whether contingent consideration accounted adjustment purchase price compensation services also estimate fair value contractual support obligations deferred revenue assuming acquired business estimated fair value support obligations determined utilizing cost buildup approach determines fair value estimating costs related fulfilling obligations plus reasonable profit margin estimated costs fulfill support obligations based historical direct costs related providing support services sum costs operating profit represents approximation amount would required pay third party assume support obligations unanticipated events circumstances may occur affect accuracy validity assumptions estimates actual results recoverability goodwill prior adoption fasb’s revised guidance relating business combinations february 1 2009 business combinations occurring prior date goodwill represents excess purchase price business combination fair value tangible intangible assets acquired net liabilities assumed business combination consummate february 1 2009 goodwill represents purchase price business combination fair value tangible intangible assets acquired net fair value liabilities assumed fair value noncontrolling interest acquiree record goodwill purchase price net tangible intangible assets acquire exceeds fair value indefinitelived intangible assets goodwill january 31 2010 2009 2008 accordance fasb’s guidance goodwill intangible assets review assets impairment annually november 1 whenever events circumstances indicate carrying value may recoverable carrying value goodwill exceeds implied fair value impairment loss recognized test potential goodwill impairment first compare fair value reporting unit carrying value utilize incomebased approach using projected discounted cash flows marketbased approach using multiples comparable companies determine fair value estimate fair value reporting unit based number subjective factors including appropriate weighting valuation approaches incomebased approach marketbased approach ii estimates future revenue cash flows iii discount rate estimated cash flows iv selection peer group companies marketbased approach v required level working capital vi assumed terminal value vii time horizon cash flow forecasts viii control premium carrying value net assets assigned reporting unit exceeds fair value perform second step determine implied fair value reporting unit’s goodwill use work independent appraiser assist us considering determination implied fair value goodwill fair values calculated using income approach market approach based comparable companies income approach commonly known discounted cash flow approach estimates fair value based cash flows asset expected generate useful life carrying value reporting unit’s goodwill exceeds implied fair value impairment charge equal difference recorded assumptions estimates future values reporting units implied goodwill complex subjective affected variety factors including external factors industry economic trends internal factors changes business strategy internal forecasts although believe historical assumptions estimates made reasonable appropriate different assumptions estimates could materially impact reported financial results comverse segment incurred operating net losses declines cash flows cash equivalents working capital expect comverse experience continued negative cash flows next twelve months comverse segment consists comverse reporting unit netcentrex reporting unit comverse reporting unit goodwill approximately 1557 million january 31 2010 recent annual impairment test date november 1 2009 estimated fair value comverse reporting unit 27 times carrying value significant component comverse reporting unit’s estimated fair value excess working capital comprising approximately 83 estimated fair value comverse reporting unit excess working capital represents total working capital less estimated required working capital fund operations excess working capital principally consists cash equivalents extent comverse reporting unit’s operating loss declines cash equivalents substantially greater anticipate may goodwill impairment charges future therefore continue monitor goodwill impairment incur impairment goodwill fiscal year ended january 31 2010 second quarter fiscal year ended january 31 2009 performed interim impairment test longlived assets goodwill netcentrex reporting unit due significant reduction orders key customer reporting unit result test recorded pretax goodwill impairment charge fiscal year ended january 31 2009 214 million fully write remaining goodwill netcentrex reporting unit previously connection annual impairment test fiscal year ended january 31 2008 carrying amount netcentrex reporting unit comverse segment exceeded fair value recorded pretax impairment charge 1351 million goodwill impairment longlived assets review recoverability longlived assets property equipment intangible assets finite lives whenever events changes circumstances occur indicate carrying value asset may recoverable impairment assets must considered prior impairment review goodwill assessment impairment based ability recover carrying value asset analyzing expected future undiscounted pretax cash flows specific asset group circumstances could trigger review include limited significant decreases market price asset significant adverse changes business climate legal factors accumulation costs significantly excess amount expected current period cash flow operating losses combined history losses forecast continuing losses associated use asset assess recoverability carrying value longlived assets lowest level identifiable undiscounted cash flows largely independent cash flows assets liabilities cash flows less carrying value asset group impairment loss measured based difference estimated fair value carrying value assets disposed writtendown greater fair value salvage value estimated fair values based assumptions concerning amount timing estimated future cash flows appropriate discount rates reflect varying degrees perceived risk significant management judgment involved estimating factors include inherent uncertainties measurement recoverability assets dependent upon accuracy assumptions used making estimates well estimates compare eventual future operating performance specific reporting unit assets attributed result reviews verint segment recorded 27 million pretax impairment charges intangible assets finite lives fiscal year ended january 31 2008 27 million impairment charge principally related customerrelated intangible assets addition connection testing goodwill netcentrex reporting unit recorded charges 34 million 270 million 100 million relating finitelived intangible assets fiscal year ended january 31 2010 2009 2008 respectively writedowns reflect impairment reporting unit’s intangible assets allowance doubtful accounts estimate collectability accounts receivable balances reporting period adjust allowance doubtful accounts accordingly exercise judgment assessing collectability accounts receivable including consideration current economic trends creditworthiness customer collection history related aging past due receivables balances evaluate specific accounts learn customer may experiencing deterioration financial condition due lower credit ratings bankruptcy factors may affect customer’s ability render payment management used available information subsequent balance sheet date evaluate reasonableness estimates january 31 2010 2009 accounts receivable balance 3202 million 3156 million net allowance doubtful accounts 170 million 158 million respectively unanticipated events circumstances may occur affect accuracy validity assumptions estimates actual results valuation otherthantemporary impairments account investments accordance fasb’s guidance accounting certain investments debt equity securities designated debt equity securities availableforsale purchased accordingly report fair value fair value determined using quoted market prices active markets identical investments available valuation methodology used ars includes certain assumptions supported prices observable current market transactions instruments based observable market data quoted market prices active markets identical investments available estimate assistance valuation expert applicable fair value based underlying structure security ii present value future principle interest payment discounted rates considered reflect current market conditions iii considerations probabilities default auction failure interest rates reset zero maximum rate repurchase par period iv estimates recovery rates event default security prices recently traded securities also reviewed available general secondary market prices relatively thin trades widely ranging prices part however valuation estimate used us fell within range prices provided secondary market estimated fair values could change significantly based inherent variability aforementioned market factors ars valuations also vary significantly across various classes securities depending number factors including creditworthiness issuer guarantors quality sufficiency collateral example student loan auction rate securities slars substantially guaranteed federal government federal family education loan program ffelp liquidity slars severely constrained consistent ars market overall government guarantee results slars generally maintaining higher valuation ars issues guarantors lesser quality supported guarantee approximately 84 1147 million 83 1203 million ars carrying amount january 31 2010 january 31 2009 comprises slars respectively valuations across slars issues also vary depending ranking securities within capital structure relevant trust issue less subordinated within given capital structure reflected security’s relative credit rating rate return time issuance greater degree subordination greater risk given security might fully redeemed event applicable trust liquidated prior maturity securities issued liquidation scenario assets trust would first applied redeem ars ranking highest capital structure applied subsequent layers descending rank order essentially slars carried initial credit ratings reflecting senior positions within capital structures various trusts thereby greatly reducing risk issues might redeemed respective par values liquidation event review investments indications impairment value quarterly basis consider investment impaired fair value less carrying value amortized cost evaluated impaired investment individually determine whether investment otherthantemporarily impaired equity securities consider among factors severity decline value financial condition issuer ability hold security length time necessary allow recovery market value debt securities consider whether intent sell security ii likely required sell security recovery decline fair value amortized cost iii credit loss exists measured difference amortized cost basis security present value projected future cash flows expected collected debt securities intend sell security likely required sell security recovery amortized cost basis portion otherthantemporary impairment attributable credit loss recognized current earnings remaining portion recognized component comprehensive income ars determined could assert intended hold ars fair value ars recovered amortized cost accordingly recorded otherthantemporary impairment charges 69 million 865 million 479 million pretax basis fiscal years ended january 31 2010 2009 2008 respectively carrying amounts ars january 31 2010 2009 1147 million corresponding par value 2066 million 1203 million corresponding par value 2365 million respectively short interest rate reset period historically recorded ars current assets fiscal year ended january 31 2008 certain auctions related ars began fail fiscal year ended january 31 2009 auctions failed classified ars longterm assets january 31 2010 continued classify ars longterm investments except ars subject ubs put required exercised settlement agreement consolidated shareholder class action june 30 2010 exercised cti date additional information relating ars ubs put see note 3 consolidated financial statements included item 15 annual report nine months ended october 31 2010 recorded additional otherthantemporary impairment charges 04 million certain ars income taxes account income taxes accordance fasb’s guidance relating income taxes adopted fasb’s guidance relating accounting uncertainty income taxes effective february 1 2007 income taxes provided using asset liability method income taxes ie deferred tax assets deferred tax liabilities taxes currently payablerefunds receivable tax expense recorded based amounts refundable payable current year include results difference us gaap tax reporting deferred income taxes reflect tax effect net operating losses capital losses general business credit carryforwards net tax effects temporary differences carrying amount assets liabilities financial statement income tax purposes determined enacted tax laws rates valuation allowances established management determines morelikelythannot portion deferred tax asset realized financial effect changes tax laws rates accounted period enactment subsequent realization net operating loss general business credit carryforwards acquired acquisitions accounted using purchase method accounting recognized consolidated statement operations research development credits recorded based amount benefit believe morelikelythannot earned additionally required recognize consolidated financial statements tax positions determined morelikelythannot sustained upon examination based technical merits positions time engage transactions tax consequences may subject uncertainty examples transactions include business acquisitions dispositions certain financing transactions significant judgment required assessing estimating tax consequences transactions prepare file tax returns based interpretation tax laws regulations normal course business tax returns subject examination various taxing authorities examinations may result future tax interest assessments taxing authorities determining tax provision financial reporting purposes establish reserve uncertain tax positions unless positions determined morelikelythannot sustained upon examination based technical merits financial reporting purposes recognize tax benefits taken tax return believe morelikelythannot sustained considerable judgment involved determining whether positions taken tax return morelikelythannot sustained adjust tax reserve estimates periodically ongoing examinations settlements various taxing authorities well changes tax laws regulations interpretations consolidated tax provision given year includes adjustments prior year income tax accruals considered appropriate related estimated interest policy recognize applicable interest penalties uncertain tax positions part income tax expense information see note 21 consolidated financial statements included item 15 annual report part accounting business combinations purchase price may allocated goodwill intangible assets impairment charges associated goodwill generally tax deductible result increased effective income tax rate quarter impairment recorded amortization expenses associated acquired intangible assets generally tax deductible pursuant existing tax structure however deferred taxes recorded nondeductible amortization expenses part purchase price allocation process taken account allocation identified intangibles among different taxing jurisdictions including nominal zero percent tax rates establishing related deferred tax liabilities income tax contingencies existing acquisition dates acquired companies evaluated quarterly adjustments recorded adjustments goodwill upon adoption fasb’s revised guidance relating business combinations fiscal year ended january 31 2010 tax benefit future release acquisition date valuation allowances reflected tax provision rather reduction goodwill litigation contingencies nature relate uncertainties require management exercise judgment assessing likelihood liability incurred well estimating amount potential loss accrue costs relating litigation claims contingent matters liabilities become probable reasonably estimable expense legal fees associated consultations outside counsel defense lawsuits incurred estimates may based advice third parties solely management’s judgment appropriate actual amounts paid may differ materially amounts estimated differences charged operations period final determination liability made time receive notices products processes may infringing patent intellectual property rights others notices shareholder litigation notices lawsuits claims us assess matter order determine contingent liability recorded making determination management may depending nature matter consult internal external legal counsel based information obtained combined management’s judgment regarding facts circumstances matter determine whether contingent loss probable whether amount loss estimated loss probable estimable record contingent loss judgments estimates made management coincide future events judicial action us expected merit part party bringing action us may need record additional contingent losses could materially adversely impact results operations alternatively judgments estimates made management incorrect particular contingent loss occur contingent loss recorded would reversed thereby favorably impacting results operations fiscal year ended january 31 2007 recorded 1744 million pretax charge settlement amounts payable settlement agreements consolidated shareholder class action federal state derivative actions agreements approved courts actions pending june 23 2010 july 1 2010 september 23 2010 respectively amounts payable settlements consisted aggregate 1650 million payable settlement consolidated shareholder class action settlement 94 million legal fees expenses plaintiffs settlement shareholder derivative actions amount charge determined based actual amount settlement reflected charges fiscal year ended january 31 2007 fiscal period actions commenced fiscal period lawsuits settled financial statements fiscal year ended january 31 2007 issued october 31 2010 cti paid 189 million 94 million agreements settle consolidated shareholder class action consolidated shareholder derivative actions respectively recent accounting pronouncements standards implemented december 2007 fasb revised guidance business combinations new guidance requires acquiring entity recognize assets acquired liabilities assumed noncontrolling interest acquiree measured fair values acquisition date limited exceptions addition guidance requires acquisition costs recognized separately business combination expensed incurred guidance also includes substantial number new disclosure requirements guidance effective us february 1 2009 exception accounting changes valuation allowances acquired deferred taxes acquired tax contingencies applied retrospectively effect guidance consolidated financial statements depends nature size acquisitions completed effective date believe impact applying guidance acquisition iontas february 2010 immaterial consolidated financial statements april 2009 fasb issued amendment revised business combination guidance regarding accounting assets acquired liabilities assumed business combination arise contingencies requirements amended guidance carry forward without significant revision guidance contingencies existed prior january 1 2009 assets acquired liabilities assumed business combination arise contingencies recognized fair value fair value reasonably estimated fair value cannot reasonably estimated asset liability would generally recognized accordance fasb’s guidance contingencies impact consolidated financial statements upon adoption december 2007 fasb issued guidance defining collaborative arrangements establishing presentation disclosure requirements transactions within collaborative arrangement third parties participants arrangement guidance effective fiscal years interim periods commencing february 1 2009 guidance requires retrospective application collaborative arrangements existing effective date unless retrospective application impracticable impracticability evaluation exception performed arrangementbyarrangement basis application guidance material impact consolidated financial statements december 2007 fasb issued new guidance relating accounting reporting standards noncontrolling interest subsidiary deconsolidation subsidiary guidance also requires recognition noncontrolling interest minority interest equity consolidated financial statements separate parent’s equity amount net income loss attributable noncontrolling interest included consolidated net income face consolidated statements operations adopted guidance february 1 2009 retrospective application presentation disclosure requirements upon adoption noncontrolling interest previously referred minority interest 1099 million january 31 2009 1386 million january 31 2008 1887 million january 31 2007 reclassified mezzanine section consolidated balance sheets liabilities equity addition guidance retrospectively applied include net loss attributable noncontrolling interest 335 million 828 million consolidated net loss face consolidated statement operations fiscal years ended january 31 2009 2008 respectively net loss previously reported presented “net loss attributable comverse technology inc” march 2008 fasb issued new disclosure requirements regarding derivative instruments hedging activities guidance requires increased qualitative quantitative creditrisk disclosures entity’s derivative instruments hedging activities adopted new requirements february 1 2009 adoption guidance material impact consolidated financial statements april 2008 fasb issued new requirements developing renewal extension assumptions used determine useful life recognized intangible asset intent guidance improve consistency useful life recognized intangible asset period expected cash flows used measure fair value intangible asset guidance effective us commencing february 1 2009 applies intangible assets acquired date guidance material impact consolidated financial statements may 2008 fasb issued new accounting guidance relating debt conversion options may settled cash upon conversion including partial cash payments guidance requires issuers instruments separately account liability equity components manner reflects entity’s nonconvertible debt borrowing rate interest cost recognized subsequent periods adopted guidance effective february 1 2009 required applied provisions retrospectively cti’s new convertible debt obligations due may 15 2023 may wholly partially settled cash required separately account liability equity components manner reflects nonconvertible debt borrowing rate interest costs recognized subsequent periods accordingly aggregate principal amount new convertible debt obligations allocated estimated fair value liability component exchange date january 26 2005 determined utilizing 60 annual interest rate comparable rate interest cti would pay nonconvertible borrowings difference fair value liability component 3446 million aggregate principal amount new convertible debt obligations 4177 million exchange date 731 million retrospectively recorded exchange date debt discount corresponding increase additional paidin capital effect taxation debt issuance costs 277 million net increase additional paidin capital exchange date 454 million addition recognized 48 million decrease accumulated deficit debt discount amortized interest expense utilizing effective interest method 33 year period expected life liability may 15 2008 first designated date holders right require cti repurchase new convertible debt obligations effective interest rate 583 effect change accounting guidance periods prior presented consolidated financial statements pretax tax amortization expense debt discount debt issuance costs 454 million 295 million respectively following tables set forth effect retrospective application guidance certain previously reported items presented consolidated financial statements condensed consolidated balance sheet condensed consolidated statements operations 1 “as previously reported” column reflects revised presentation noncontrolling interest pursuant fasb’s guidance april 2009 fasb issued guidance intended provide additional application guidance enhance disclosures fair value measurements impairments securities • clarified objective method fair value measurement even significant decrease market activity asset measured • established new model measuring otherthantemporary impairments debt securities including establishing criteria recognize writedown earnings versus comprehensive income • expands fair value disclosures required financial instruments interim periods adopted guidance interim annual periods ending june 15 2009 adoption guidance significant impact consolidated financial statements may 2009 fasb issued guidance intended establish general standards accounting disclosure events occur balance sheet date consolidated financial statements issued specifically guidance sets forth period balance sheet date management reporting entity evaluate events transactions may occur potential recognition disclosure consolidated financial statements circumstances entity recognize events transactions occurring balance sheet date consolidated financial statements disclosures entity make events transactions occurred balance sheet date adopted guidance commencing interim filing period ended july 31 2009 annual filing period ended january 31 2010 impact consolidated financial statements june 2009 fasb issued fasb accounting standards codification hierarchy generally accepted accounting principles referred codification source authoritative accounting principles recognized fasb supersedes existing nonsec accounting reporting standards upon effective date subsequently fasb issue new standards form statements fasb staff positions eitf abstracts upon adoption guidance references previous literature removed consolidated financial statements accompanying footnotes guidance effective us commencing interim filing period ended october 31 2009 fiscal year ended january 31 2010 impact consolidated financial statements standards implemented june 2009 fasb issued guidance modifies approach determining primary beneficiary variable interest entity vie modified approach enterprise required make qualitative assessment whether power direct activities vie significantly impact entity’s economic performance ii obligation absorb losses vie right receive benefits vie could potentially significant vie enterprise characteristics enterprise considered primary beneficiary must consolidate vie modified approach determining primary beneficiary vie effective us commencing february 1 2010 expected material impact consolidated financial statements september 2009 fasb issued revenue recognition guidance applicable multipledeliverable arrangements • applies multipledeliverable revenue arrangements contain software hardware elements focusing determining revenue arrangements within scope software revenue guidance • addresses separate consideration multipledeliverable arrangements excluding software arrangements establishes hierarchy determining selling price deliverable also eliminates residual method allocation requiring arrangement consideration allocated inception arrangement deliverables using relative selling price method also significantly expands disclosure requirements elected early adopt guidance result effective prospective basis revenue arrangements entered materially modified february 1 2011 preliminarily determined new guidance adopted portion multipledeliverable arrangements longer included within scope software revenue guidance generally result accelerated revenue recognition comparison historical treatment primarily relates arrangements multiple product deliverables well arrangements recognized ratably pcs period due absence vsoe fair value process developing methodology determining estimated selling price products services assessment quantification ongoing believe adoption guidance material impact consolidated financial statements beginning fiscal year ending january 31 2012 january 2010 fasb issued guidance amend disclosure requirements related recurring nonrecurring fair value measurements guidance requires new disclosures transfers assets liabilities level 1 quoted prices active market identical assets liabilities level 2 significant observable inputs fair value measurement hierarchy including reasons timing transfers additionally guidance requires gross presentation activity within level 3 significant unobservable inputs roll forward presenting information purchases sales issuance settlements separately guidance effective us interim annual periods commenced february 1 2010 except gross presentation level 3 rollforward become effective us interim annual periods commencing february 1 2011 adoption guidance anticipated result additional disclosures december 2010 fasb issued guidance perform step two goodwill impairment test reporting units zero negative carrying amounts upon adoption carrying value reporting unit zero negative reporting entity must perform step two goodwill impairment test likely goodwill impaired date adoption consider whether adverse qualitative factors indicating whether likely goodwill impairment exists goodwill impairment recognized upon adoption guidance presented cumulativeeffect adjustment opening retained earnings adoption date reflecting change accounting principle guidance effective us interim annual periods commencing february 1 2011 assessing impact adoption guidance consolidated financial statements beginning fiscal year ending january 31 2012 item 7aitem 7 managements discussion analysis financial condition results operations overview company benefited growth business capital base past three years make significant new investment operations infrastructure intended enhance opportunities future growth profitability companys results operations reflect significant increase investment operations past three years company increased gross expenditures research development 18117000 1994 36613000 1996 adding new features capabilities existing product lines introducing new products supporting planned introduction next generation products time company significantly expanded sales marketing activities regional offices sales marketing support services opened australia canada finland germany hong kong singapore thailand united kingdom company increased direct sales activities throughout europe north america far east total revenues increased throughout period 114312000 1994 207311000 1996 companys backlog december 31 1996 stood record 70339000 company intends continue 1997 make significant investments growth business examine opportunities additional growth acquisitions strategic investments impact decisions future profitability cannot predicted assurance companys commitment growth may increase vulnerability unforeseen downturns markets technology changes shifts competitive conditions however company believes significant opportunities exist markets main product lines continued strong investment technical product development marketing sales capabilities enhance opportunities longterm growth profitability results operations comparison 1995 1996 operations total revenues total revenues increased 1995 1996 approximately 61415000 42 reflecting increase trilogue related products services sales 51541000 57 increase audiodiskultra related products services sales 8491000 18 increase interest income 1383000 16 increase interest income resulted primarily increased interest dividend income investment funds generated issuance convertible subordinated debentures october 1996 realized gains sales shortterm investments cost sales cost sales increased approximately 25022000 42 1995 1996 primarily result increase sales gross margins increased approximately 568 1995 approximately 572 1996 research development expenses gross research development expenses 1996 increased approximately 9452000 35 1995 due overall growth research development operations initiation significant new research development projects increases salaries costs associated research development operations israel net research development expenses reimbursement approved expenditures government funding programs increased approximately 8015000 41 higher rate growth net research development expense comparison gross research development expense primarily result increase portion research development activities benefiting reimbursement arrangements lower rate reimbursement associated certain projects conducted government funding programs selling general administrative expenses selling general administrative expenses increased 1995 1996 approximately 11959000 29 percentage total revenues decreased approximately 28 1995 approximately 26 1996 increased amount result increased sales marketing administrative activities associated overall growth companys operations particularly expansion direct sales marketing activities royalties license fees royalties license fees increased 1995 1996 approximately 1946000 80 due primarily growth sales royaltybearing products royalties license fees percentage total sales increased approximately 18 1995 approximately 22 1996 reflecting increase royalty rate payable funding agency became effective 1996 income tax provision income taxes increased 1995 1996 approximately 1301000 63 companys overall effective tax rate decreased approximately 108 1995 approximately 107 1996 companys overall rate tax reduced significantly tax benefits associated qualified activities one israeli subsidiaries entitled favorable income tax rates program israeli government approved enterprise investments country net income net income taxes increased approximately 17050000 1995 approximately 27988000 1996 increase approximately 10938000 64 net income taxes percentage total revenues increased approximately 117 1995 approximately 135 1996 increases resulted primarily factors described comparison 1994 1995 operations total revenues total revenues increased 1994 1995 approximately 31584000 28 reflecting increase trilogue related products services sales 17817000 25 increase audiodisk related products services sales 11182000 31 increase interest income 2585000 42 increase interest income resulted primarily increased interest dividend income realized gains sales shortterm investments cost sales cost sales increased approximately 11582000 24 1994 1995 primarily result increase sales gross margins increased approximately 559 1994 approximately 568 1995 research development expenses gross research development expenses 1995 increased approximately 9044000 50 1994 due overall growth research development operations initiation significant new research development projects increases salaries costs associated research development operations israel net research development expenses reimbursement approved expenditures government funding programs increased approximately 6786000 54 higher rate growth net research development expense comparison gross research development expense primarily result increase portion research development activities benefiting reimbursement arrangements lower rate reimbursement associated certain projects conducted government funding programs selling general administrative expenses selling general administrative expenses increased 1994 1995 approximately 7707000 23 percentage total revenues decreased approximately 29 1994 approximately 28 1995 increased amount result increased sales marketing administrative activities associated overall growth companys operations particularly expansion direct sales marketing activities royalties license fees royalties license fees increased 1994 1995 approximately 233000 11 due growth sales royalty bearing products royalties license fees percentage total sales decreased approximately 20 1994 approximately 18 1995 reflecting increase proportion total sales comprised products bearing lower rates royalty royalties due income tax provision income taxes increased 1994 1995 approximately 274000 15 companys overall effective tax rate decreased approximately 128 1994 approximately 108 1995 companys overall rate tax reduced significantly tax benefits associated qualified activities one israeli subsidiaries entitled favorable income tax rates program israeli government approved enterprise investments country net income net income taxes increased approximately 12098000 1994 approximately 17050000 1995 increase approximately 4952000 41 net income taxes percentage total revenues increased approximately 106 1994 approximately 117 1995 increases resulted primarily factors described liquidity capital resources december 31 1996 company cash equivalents approximately 196724000 bank time deposits approximately 10000000 shortterm investments approximately 39464000 working capital approximately 292249000 company believes existing working capital together funds generated operations sufficient provide planned operations least december 31 1997 companys liquidity capital resources anticipated materially affected restrictions pertaining ability foreign subsidiaries pay dividends withholding taxes associated dividend payments certain trends uncertainties company experienced rapid growth recent periods intends continue grow internal expansion acquisitions company regularly examines opportunities acquire additional companies businesses technologies product lines although companys management believes acquisitions present potentially costeffective opportunities growth also present significant financial operational legal risks company order maintain improve operating results companys management required manage growth expansion effectively companys failure effectively manage growth including growth resulting acquisitions could material adverse effect companys results operations financial condition company may time issue additional debt andor equity securities either direct consideration acquisitions raise additional funds used whole part payment acquired securities assets issuance securities could expected dilutive impact companys shareholders assurance whether acquired business would contribute positive operating results commensurate associated investment company maintains portion assets variety financial instruments including government corporate debt obligations commercial paper bank time deposits moneymarket accounts common preferred stocks mutual funds purposes cash management extent strategic portfolio investments activities subject company risks inherent capital markets generally performance businesses direct control company made several investments earlystage technology ventures expects make additional similar investments primarily israel united states investments entail substantial risks due factors limited operating histories ventures typical illiquidity securities company regard portfolio strategic investment activities primary element overall business plan expects continue allocate liquid assets comprising portion funds required working capital acquisition plans purposes given magnitude companys liquid assets relative overall size results operations future may greater degree past affected results companys capital management investment activities risks associated activities company encounters strong competition markets competition may expected continue intensify foreseeable future competition affects prices company able obtain products associated payment terms rapid growth increased competition throughout telecommunications industry particularly increase number new telecommunications services operators organized recent periods take advantage emerging opportunities personal communication services licensees increased competitive pressure equipment vendors company provide financing customers extend payment terms offers customers trend likely continue foreseeable future may draw increasingly companys financial resources liquidity increase exposure uncollectable accounts industries company principally involved highly competitive characterized frequent technological market changes voice processing enhanced services platform industry experienced continuing evolution product offerings alternatives delivery services trends affected may expected significant continuing influence conditions industry although impact industry generally companys position industry cannot predicted assurance significant changes industry make planning decisions difficult increase risk inherent planning process market telecommunications monitoring systems also period significant transition budgetary constraints uncertainties resulting introduction new technologies telecommunications environment shifts pattern government expenditures resulting geopolitical events increased uncertainties market resulting certain instances attenuation government procurement programs beyond originally expected performance periods increased incidence delay cancellation reduction planned projects competitive conditions sector also affected increasing use certain potential government customers internal development resources rather outside vendors provide certain technical solutions addition number established government contractors particularly developers integrators technology products taken steps redirect marketing strategies product plans reaction cutbacks traditional areas focus resulting increase number competitors range products offered response particular requests proposals lack predictability timing scope government procurements similarly made planning decisions difficult increased associated risks company historically derived significant portion revenue operating profit relatively small number contracts large system installations customers commercial government sectors growth companys business reduced dependence specific customers continues emphasize large capacity systems product development marketing strategies contracts large installations typically involve lengthy complex bidding selection process ability company obtain particular contracts inherently difficult predict company believes opportunities large installations continue grow commercial government markets intends continue expand research development manufacturing sales marketing product support capabilities anticipation growth however timing scope opportunities pricing margins associated eventual contract award difficult forecast may vary substantially transaction companys future operating results may accordingly exhibit higher degree volatility operating results companies industries adopted different strategies company experienced prior periods although company actively pursuing number significant procurement opportunities united states internationally timing eventual procurements probability companys receipt significant contract awards uncertain degree dependence company large orders investment required enable company perform orders without assurance continuing order flow customers predictability gross margins future orders increase risk associated business company significantly increased expenditures areas operations recent periods including areas research development marketing sales company plans increase expenditures foreseeable future increase research development expenditures reflects companys concentration enhancing range features capabilities existing product lines developing new generations products company believes efforts essential continuing competitiveness product offerings positioning participate future growth opportunities commercial government sectors increase sales marketing expenditures primarily results companys decision expand activities direct presence number world markets cost company attracting retaining qualified scientific engineering technical personnel increasing may expected continue increase demand personnel growing rapidly worldwide particular companys costs operations affected increases cost operations israel resulting general inflation increases personnel costs reflecting rapid expansion technologybased industries country increase costs recent periods offset proportional devaluation israeli shekel us dollar accordingly negative impact companys overall results operations significant portion companys research development manufacturing operations located israel may affected regulatory political military economic conditions country companys historical operating results reflect substantial benefits programs sponsored israeli government support research development well favorable tax rates available approved enterprises israel israeli government indicated intention reexamine certain policies areas recently acted increase 2 3 associated product sales 3 5 associated product revenues including service related revenues annual rate royalties applied repayment amounts received reimbursement qualified research development expenditures program administered office chief scientist ministry industry trade company regularly participated continues receive significant reimbursement companys repayment amounts received program accelerated higher royalty rates repayment completed israeli authorities also indicated funding program may reduced future company anticipates percentage total research development expenditures reimbursed program declined significantly recent years continue decline future see business research development israeli government also recently shortened period tax moratorium applicable approved enterprises four years two years although change affect tax status companys current projects apply future approved enterprises company changes law government policies regarding programs result termination adverse modification company become unable participate take advantage programs cost company operations israel would materially increase would adverse effect results companys operations whole company currently derives majority sales customers outside united states international transactions involve particular risks including political decisions affecting tariffs trade conditions rapid unforeseen changes economic conditions individual countries turbulence foreign currency credit markets increased costs resulting lack proximity customer volatility international currency exchange rates may significant impact companys operating results either result adverse changes exchange rates cost hedging risk changes company always able hedge exchange rate risks associated contracts denominated foreign currencies certain instances elects hedge risks result cost factors trading price companys shares may affected factors noted well prevailing economic financial trends conditions public securities markets recent periods share prices companies technology government contracting businesses particularly smaller mediumsized publicly traded companies company exhibited high degree volatility shortfalls revenues earnings levels anticipated public markets could immediate significant effect trading price companys shares given period shortfalls may result events beyond companys immediate control unpredictable since significant proportion companys sales fiscal quarter tend occur latter stages quarter may discernible end financial reporting period may contribute volatility trading value shares regardless companys longterm prospects trading price companys shares may also affected developments including reported financial results fluctuations trading prices shares publiclyheld companies computer telecommunications industries generally voice processing industry particular may direct relationship companys business prospects forwardlooking statements time company makes forwardlooking statements forwardlooking statements include financial projections statements plans objectives future operations statements future economic performance statements assumptions relating thereto company may include forwardlooking statements periodic reports securities exchange commission forms 10k 10q 8k annual report shareholders proxy statements written materials statements made employees analysts investors representatives media others nature forward looking statements subject uncertainties general specific risks exist predictions forecasts projections forwardlooking statements achieved actual results may differ materially due variety factors including without limitation discussed certain trends uncertainties elsewhere report investors others carefully consider uncertainties events whether statements described forwardlooking statements made company intended apply time made unless explicitly stated contrary moreover whether stated connection forwardlooking statement company undertakes obligation correct update forwardlooking statement company later become aware likely achieved company particular instance update correct forwardlooking statement investors others conclude company make additional updates corrections thereafter item 8item 7 management’s discussion analysis financial condition results operations following discussion analysis financial condition results operations read together item 1 “business” item 6 “selected financial data” consolidated financial statements related notes included item 15 annual report discussion analysis contains forwardlooking statements based current expectations relating future events future financial performance involve risks uncertainties see “forwardlooking statements” page ii annual report actual results may differ materially anticipated forwardlooking statements result many factors including set forth item 1a “risk factors” elsewhere annual report unless otherwise stated discussion analysis relates financial data january 31 2011 2010 fiscal years ended january 31 2011 2010 2009 derived consolidated financial statements included item 15 annual report percentages amounts within section may calculate precisely due rounding differences discussion analysis includes following sections • overview summarizes structure management significant events fiscal year financial highlights key trends challenges uncertainties business segments • results operations provides comparative discussion analysis consolidated results operations management views analyzes business segments discussion analysis results operations segments case fiscal year ended january 31 2011 compared fiscal year ended january 31 2010 fiscal year ended january 31 2010 compared fiscal year ended january 31 2009 addition discuss trends events uncertainties management currently believes reasonably likely material effect future operational results • liquidity capital resources provides overview recent liquidity developments sources liquidity cash uses matters relating liquidity capital resources • offbalance sheet arrangements discloses certain material offbalance sheet arrangements • contractual obligations discusses longterm debt longterm shortterm contractual obligations january 31 2011 • critical accounting estimates judgments discusses accounting policies require significant management judgment assumptions estimates • recent accounting pronouncements describes accounting standards implemented fiscal year may required implement future overview structure management cti subsidiaries cti holding company conducts business subsidiaries principally comverse inc verint systems starhome bv prior sale december 3 2010 ulticom inc cti’s reportable segments fiscal year ended january 31 2011 comverse segment comprised comverse inc subsidiaries comverse inc whollyowned subsidiary cti verint segment comprised verint systems subsidiaries april 29 2011 cti held 425 outstanding shares verint systems’ common stock 100 outstanding shares series convertible perpetual preferred stock par value 0001 per share verint systems preferred stock giving cti aggregate beneficial ownership 549 verint systems’ common stock common stock verint systems publicly traded verint systems files separate periodic current reports sec available website wwwverintcom sec’s website wwwsecgov segment comprised starhome bv subsidiaries miscellaneous operations cti’s holding company operations april 29 2011 cti held 665 starhome bv privatelyheld company ulticom reportable segment prior sale december 3 2010 result ulticom sale results operations ulticom including gain ulticom sale reflected discontinued operations cti’s management directly responsible daytoday operations comverse reports cti’s board directors cti views two majorityowned subsidiaries operations separate independent comverse accordingly verint systems starhome bv separate management responsible daytoday operations certain cti’s officers directors serve members boards directors subsidiaries cti’s consolidated balance sheets reflect cash equivalents held majorityowned subsidiaries indebtedness incurred subsidiaries cti view majorityowned subsidiaries’ cash equivalents readily accessible guarantee indebtedness addition cti expect receive cash dividends majorityowned subsidiaries verint systems precluded paying cash dividends cti new credit agreement starhome bv may pay cash dividends without approval certain minority shareholders investment agreements significant events operated ordinary business conditions fiscal year ended january 31 2011 efforts file periodic reports fiscal year ended january 31 2011 continued incur significant expenses accounting tax legal fees connection efforts become current periodic reporting obligations federal securities laws lesser extent remediate material weaknesses internal control financial reporting fiscal year ended january 31 2011 expenses aggregated 1617 million 1328 million incurred cti comverse 289 million incurred verint cti continues make progress efforts become current periodic reporting obligations federal securities laws fiscal year ended january 31 2011 cti filed comprehensive form 10k october 4 2010 annual report form 10k fiscal year ended january 31 2010 january 25 2011 cti however yet current periodic reporting obligations federal securities laws cti expects file quarterly report form 10q fiscal quarter ended april 30 2011 second half june 2011 additional quarterly reports form 10q may required become current periodic reporting obligations federal securities laws soon practicable thereafter timeline subject completion various milestones financial close reporting disclosure processes expect complete filing necessary periodic reports compliancerelated costs expenses significantly decline determines position based status filings periodic reports sec resolution pending administrative proceedings section 12j exchange act cti intends apply relisting common stock nasdaq another national securities exchange soon practicable litigation continued negatively impacted ongoing litigation matters fiscal year ended january 31 2011 june 2009 cti entered civil settlement sec allegations regarding improper backdating stock options accounting practices part settlement cti required compliance periodic reporting obligations february 8 2010 cti however unable file requisite periodic reports date result march 2010 sec instituted administrative proceeding pursuant section 12j exchange act suspend revoke registration cti’s common stock july 2010 administrative law judge proceeding issued initial decision revoke registration cti’s common stock august 2010 sec issued order granting cti’s petition review administrative law judge’s initial decision sec currently cti’s petition review fully briefed scheduled oral argument july 14 2011 final order issued sec suspend revoke registration cti’s common stock public trading cti’s common stock would prohibited cti unable predict time outcome review appeal therefrom detailed discussion see item 3 “legal proceedingsproceedings related cti’s special committee investigationssec civil actions” december 2009 cti entered agreements amended june 2010 settle consolidated shareholder class action federal state consolidated shareholder derivative actions part settlement consolidated shareholder class action amended cti agreed pay plaintiff class 1650 million less optout credit respect portion settlement funds would payable class member elected participate bound settlement 10 million 179 million 300 million paid december 2009 july 2010 may 2011 respectively balance 1125 million less certain amounts respect optout credit payable november 15 2011 825 million payable cash cti’s election shares provided cti’s common stock listed national securities exchange cti expects make 825 million payment shares cti’s common stock balance amount payable 300 million cash september 2010 class member elected participate bound settlement shareholder class action filed action cti defending action addition part settlement consolidated shareholder derivative actions cti paid october 2010 legal fees expenses plaintiffs 94 million detailed discussion see item 3 “legal proceedingsproceedings related cti’s special committee investigationssettlement agreements” march 2009 cti disclosed audit committee board directors conducting internal investigation alleged improper payments april 2009 sec advised cti investigating matter issued subpoena cti connection investigation audit committee provided information cooperated fully doj sec respect findings internal investigation april 2011 cti entered nonprosecution agreement doj sec submitted settlement agreement cti united states district court eastern district new york approval obtained april 12 2011 agreements resolved allegations cti certain foreign subsidiaries violated books records internal controls provisions fcpa inaccurately recording certain improper payments made 2003 2006 certain former employees external sales agent comverse ltd subsidiaries connection sale certain products foreign jurisdictions nonprosecution agreement doj cti paid fine 12 million doj settlement agreement sec cti paid approximately 16 million disgorgement prejudgment interest detailed discussion see item 3 “legal proceedingsinvestigation alleged unlawful payments” restructuring initiatives fiscal year ended january 31 2011 comverse commenced number initiatives restructure operations view toward aligning operating costs expenses anticipated revenue improve focus core business initiatives included eliminating staff positions closing certain facilities wind sale netcentrex business aggregate cost plans fiscal year ended january 31 2011 297 million 242 million paid fiscal year initial cost savings initiatives expected realized fiscal year ending january 31 2012 liquidity challenges cti comverse fiscal year ended january 31 2011 management forecasted absence successful completion certain operational capital raising initiatives cti comverse would experience shortfall cash required support working capital needs business cti comverse fiscal year ending january 31 2012 improve cash position cti comverse successfully implemented first phase plan restructure operations comverse view toward aligning operating costs expenses anticipated revenue significantly reducing annualized operating costs ii comverse sold land ra’anana israel received proceeds 271 million iii cti received total cash proceeds 556 million ulticom sale iv cti completed sale 23 million shares verint systems’ common stock secondary public offering aggregate net proceeds 765 million addition first quarter fiscal year ending january 31 2012 comverse commenced implementation second phase restructuring measures referred phase ii business transformation focuses process reengineering maximize business performance productivity operational efficiency part phase ii business transformation comverse process creating new business units designed improve operational efficiency business performance one primary purposes phase ii business transformation solidify comverse’s leadership bss leverage growth mobile data usage maintaining leadership vas comprehensive discussion relating phase ii business transformation see “segment business highlights trendscomverse segment phase ii business transformation” comverse also evaluating initiatives improve focus core business maintain ability face intense competitive pressures markets part initiatives comverse pursuing wind continues evaluate strategic options netcentrex business currently forecast available cash equivalents sufficient meet liquidity needs including capital expenditures cti comverse least next 12 months enhance cash position cti comverse continue evaluate capital raising alternatives comprehensive discussion liquidity forecast see “liquidity capital resourcesfinancial condition cti comverseliquidity forecast” verint’s indebtedness preferred stock fiscal year ended january 31 2011 first quarter fiscal year ending january 31 2012 verint experienced changes indebtedness capital structure new verint credit agreement may 25 2007 verint entered credit agreement group banks fund portion acquisition witness april 29 2011 verint entered credit agreement referred new credit agreement group lenders credit suisse ag administrative agent collateral agent lenders referred capacities agent ii terminated credit agreement dated may 25 2007 referred prior facility new credit agreement provides 7700 million secured senior credit facilities comprised 6000 million term loan maturing october 2017 referred new term loan facility 1700 million revolving credit facility maturing april 2016 referred new revolving credit facility subject increase maximum increase 3000 million reduction time according terms new credit agreement april 30 2011 verint outstanding borrowings new revolving credit facility additional discussion see “liquidity capital resourcesindebtednessverint credit facilitiesnew credit agreement” verint’s prior facility amendment part efforts enhance financial flexibility july 2010 verint amended prior facility change method calculation applicable interest rate margin ii increase aggregate amount incremental revolving commitment term loan increases permitted prior facility 500 million 2000 million iii make certain changes negative covenants including providing covenant relief respect permitted consolidated leverage ratio iv increase revolving credit facility prior facility 150 million 750 million additional discussion see “liquidity capital resourcesindebtednessverint credit facilitiesprior facility” also july 2010 verint entered agreement terminate interest rate swap making 217 million onetime payment additional discussion see “liquidity capital resourcesindebtednessverint credit facilitiestermination interest rate swap agreement” preferred stock october 5 2010 verint systems’ stockholders approved issuance verint systems’ common stock underlying preferred stock held cti accordingly date preferred stock became voting convertible verint systems’ common stock financial highlights consolidated total revenue consolidated total revenue increased 153 billion fiscal year ended january 31 2010 162 billion fiscal year ended january 31 2011 increase primarily attributable 85 increase revenue comverse segment 33 increase revenue verint segment comverse’s revenue percentage consolidated total revenue increased 517 fiscal year ended january 31 2010 530 fiscal year ended january 31 2011 conversely verint’s revenue percentage consolidated total revenue decreased 459 fiscal year ended january 31 2010 448 fiscal year ended january 31 2011 represents first time number fiscal years comverse segment’s contribution consolidated total revenue increased relative verint segment’s contribution change however attributable identifiable trend future fiscal years contribution verint segment consolidated total revenue may increase relative comverse segment’s contribution detailed discussion consolidated revenue see “results operationsfiscal year ended january 31 2011 compared fiscal year ended january 31 2010condensed consolidated resultstotal revenue” segment performance evaluate business assessing performance segments cti’s chief executive officer chief operating decision maker use segment performance defined primary basis assessing financial results segments allocation resources segment performance define accordance fasb’s guidance relating segment reporting necessarily comparable similarly titled captions companies segment performance defined management represents operating results segment without impact significant expenditures incurred segment connection efforts become current periodic reporting obligations federal securities laws certain noncash charges certain insignificant gains charges segment performance computed management loss income operations adjusted following stockbased compensation expense ii amortization acquisitionrelated intangibles iii compliancerelated professional fees iv compliancerelated compensation expenses v impairment charges vi litigation settlements related costs vii acquisitionrelated charges viii restructuring integration charges ix certain insignificant gains charges compliancerelated professional fees compliancerelated compensation expenses relate fees expenses incurred connection efforts complete current previously issued financial statements audits financial statements b efforts become current periodic reporting obligations federal securities laws additional information apply segment performance evaluate operating results segments fiscal years ended january 31 2011 2010 2009 see notes 1 23 consolidated financial statements included item 15 annual report evaluating segment’s performance management uses segment revenue consists revenue generated segment including intercompany revenue certain segment performance adjustments relate expenses included calculation loss income operations time certain segment performance adjustments may presented adjustments revenue calculating verint’s segment performance fiscal year ended january 31 2009 presentation segment revenue gives effect segment revenue adjustments represent impact fair value adjustments required fasb’s guidance relating acquired customer support contracts would otherwise recognized revenue standalone basis ii certain sales concession adjustments relating accounts receivable balances existed prior acquisition date case respect acquisition witness may 2007 verint segment revenue adjustment fiscal years ended january 31 2011 2010 calculation comverse’s segment performance fiscal years ended january 31 2010 2009 disclosed cti’s previously filed annual reports presentation segment revenue gave effect segment revenue adjustment attributable patent litigation settlement first quarter fiscal year ending january 31 2012 management ceased utilizing patent litigation segment revenue adjustment assessing financial results comverse segment allocation resources accordingly omitted segment revenue adjustment presentation comverse’s segment performance fiscal years presented annual report detailed presentation segment revenue see “results operations” note 23 consolidated financial statements included item 15 annual report following table presents fiscal years ended january 31 2011 2010 segment revenue segment performance segment performance margin reflecting segment performance percentage segment revenue segments discussion results segments see “results operations” segment business highlights trends comverse segment business overview comverse leading provider softwarebased products systems related services provide prepaid postpaid converged billing active customer management wireless wireline cable network operators referred business support systems bss delivering value proposition designed ensure timely efficient service monetization enable realtime offers made end users based relevant customer profile information ii enable wireless wireline including cable networkbased valueadded services vas comprised two categoriesvoice messagingand include voicemail call completion visual voicemail short messaging service sms text messaging texting multimedia picture video messaging internet protocol ip communications iii provide wireless users optimized access mobile internet websites content applications generate data usage revenue wireless operators comverse’s products services designed generate carrier voice data network traffic revenue customer loyalty monetize network operators’ services improve operational efficiency 450 wireless wireline network communication service provider customers 125 countries including majority world’s 100 largest wireless network operators key trends challenges uncertainties fiscal year ended january 31 2011 comverse segment materially affected following trends challenges global economy weakness global economy recent years materially adversely affected telecommunications industry many comverse’s customers experienced significant declines revenue profitability customers required reduce excessive debt levels response challenges many comverse’s customers implemented cost cutting measures including closely managing operating expenses capital investment budgets resulted reduced demand comverse’s products services solutions longer customer purchasing decisions pricing pressures fiscal year ended january 31 2011 global economy experienced gradual recovery resulting moderate increase levels spending customers increased overall demand comverse’s customer solutions particularly second half fiscal year believe global economic conditions continue improve existing potential telecommunication service provider customers likely increase spending levels could result enhanced demand comverse’s customer solutions however still significant uncertainty sustainability recovery market conditions regions yet experience significant improvement recovery global economy curtailed market conditions worsen existing potential customers could reduce spending turn could reduce demand comverse’s products services fiscal year ended january 31 2011 revenue geographic region impacted market conditions therein comverse’s revenue increased north america asia pacific apac regions general market conditions improved increase revenue north america primarily attributable number large deployments next generation voicemail products including visual voicemail customers connection launch new smart phones increasing use smart phones subscribers europe continued suffer significant weakness market conditions accordingly comverse’s european customers continued closely monitor costs maintain lower levels spending result comverse’s revenue european customers declined fiscal year ended january 31 2011 compared fiscal year ended january 31 2010 changes telecommunications industry increased competition telecommunications industry comverse operates undergone continues undergo significant changes adverse comverse include emergence new lowcost competitors emerging markets ii proliferation alternative messaging applications sms text messaging part attractive substitute voicemail usage iii maturation wireless services industry particularly relates voicebased services voicemail resulting decreasing rate growth subscriber base comverse’s telecommunication service provider customers capital spending budgets iv relative commoditization voice sms text message services v increased dependence growth emerging markets lower average revenue per user vi changes regulatory environment believe changes reduced demand comverse products services increased pricing pressures turn impacted revenue time global wireless subscriptions traffic continued grow emerging wireless segments data services internet browsing experienced rapid adoption trends support demand several products although comverse believes products services superior lowcost competitors emerging markets competition caused comverse evaluate cost structure view toward reducing costs providing products services improving margins mix revenue fiscal year ended january 31 2011 revenue comverse’s vas customer solutions increased 324 compared prior fiscal year revenue bss customer solutions declined 80 compared prior fiscal year increase revenue vas customer solutions primarily attributable number large deployments next generation voicemail products including visual voicemail customers connection launch new smart phones increasing use smart phones subscribers comverse’s vas customer solutions however continue adversely affected significant adverse conditions telecommunications industry see “changes telecommunications industry increased competition” comverse leading provider voicemail products despite changing nature market believe well positioned maintain market share respect upgrades installations next generation voicemail decrease revenue bss customer solutions primarily attributable increasing complexity project deployment resulting extended periods time required complete project milestones receive customer acceptance ii lower volume bss projects current fiscal year resulting reduced customer order activity recent years due global economic weakness despite decline bss revenue believe comverse’s bss customer solutions offer customers several advantages competitors’ solutions including faster time market lower total cost ownership provide comverse significant opportunities growth see “goingforward value drivers” fiscal year ended january 31 2011 proportion revenue generated professional services continued increase proportion revenue generated licensing continued decline continued trend attributable increase professional services required implement comverse’s increasing number complex projects trend negative impact comverse’s overall margins revenue professional services lower margins licensing revenue challenges relating legal proceedings efforts comply periodic reporting obligations discussed comverse operate ordinary business conditions fiscal year ended january 31 2011 fiscal year senior management required continue expend significant time financial resources connection various legal proceedings cti’s efforts become current periodic reporting obligations federal securities laws addition cti’s inability become current periodic reporting obligations federal securities laws fiscal year ended january 31 2011 limited information comverse able provide public interested parties including customers furthermore inability become current limited ability use equity incentives attract retain motivate comverse’s employees although subject quantification management believes factors adverse impact comverse’s business relationships reputation believe adversely affected performance phase ii business transformation previously disclosed fiscal year ended january 31 2011 commenced certain initiatives improve cash position including plan restructure operations comverse view towards aligning operating costs expenses anticipated revenue comverse successfully implemented first phase plan significantly reducing annualized operating costs first quarter fiscal year ending january 31 2012 comverse commenced implementation phase ii business transformation focuses process reengineering maximize business performance productivity operational efficiency one primary purposes phase ii business transformation solidify comverse’s leadership bss leverage growth mobile data usage maintaining leadership vas part phase ii business transformation comverse process creating new business units designed improve operational efficiency business performance comverse’s business units consist following • bss conducts comverse’s prepaid postpaid converged billing active management systems business includes groups engaged product management professional services research development product sales • vas conducts comverse’s value added services business includes groups engaged vas delivery voice product research development messaging product research development product sales • mobile internet responsible comverse’s mobile internet products includes groups engaged product management solution engineering delivery research development product sales • golive services dedicated business unit focused customer postdelivery services includes groups engaged support services bss vas mobile internet products services sales product management addition certain business operations conducted following global groups • customer facing group primarily engaged providing overall customer account management sales product lines • operations group provides centralized information technology procurement supply chain management global business operations services business units • business transformation group continues engage implementation phase ii business transformation initiative monitor execution • finance legal human resources groups continue support business operations comverse’s strategy several elements comverse’s strategy including • expand comverse’s presence market share bss market believe comverse’s bss solutions offer customers several advantages competitors’ solutions including faster time market lower total cost ownership intend focus expanding comverse’s position market especially engagements large established communication service providers • expand comverse’s presence market share certain mobile data mobile internet product categories believe growth mobile data internet applications usage continue foreseeable future presenting opportunities growth comverse’s mobile internet products • maintain comverse’s market leadership established voicebased services intend sustain comverse’s strong market leadership position voicebased services voicemail call completion part promotion advanced offerings visual voicemail call management • expand service offering comverse intends expand improve customer postdelivery services support offering dedicated resources golive services business unit • improve margins competitive position reducing delivery cost comverse intends continue seek improvement margins primarily productizing software enable significantly reduce product delivery support costs • grow acquisitions addition organic growth companies comverse’s markets continue consolidate comverse intends evaluate acquisition opportunities means add business scale technology enhance market leadership complement geographic presence expand adjacent markets goingforward value drivers believe comverse’s bss solutions offering potential become key driver growth going forward basis believe comverse build strength comverse one solution particularly converged billing segment bss market expected grow rapidly next years also expect growth mobile data traffic increase demand comverse’s mobile internet solutions integrating policy management enforcement deep packet inspection traffic management video optimization capabilities addition plan sustain market leading position voice services optimize vas solution portfolio improve profitability operating performance addition believe prolonged effort become current periodic reporting obligations adverse impact upon comverse’s business results operations cash flows financial condition believe become current periodic reporting obligations comverse’s business financial performance may improve primarily due ability management manage business operations execute strategies normal conditions anticipated significant decline professional fees addition cti becomes current customers potential customers may greater confidence levels comverse business verint segment business overview verint global leader actionable intelligence solutions valueadded services verint’s solutions enable organizations sizes make timely effective decisions improve enterprise performance enhance safety 10000 organizations 150 countriesincluding 85 fortune 100use verint’s actionable intelligence solutions capture distill analyze complex underused information sources voice video unstructured text enterprise market verint’s workforce optimization solutions help organizations enhance customer service operations contact centers branches backoffice environments increase customer satisfaction reduce operating costs identify revenue opportunities improve profitability security intelligence market verint’s video intelligence public safety communications intelligence solutions vital government commercial organizations efforts protect people property neutralize terrorism crime verint supports customers around globe directly extensive network selling support partners verint’s business verint serves two markets three product lines verint’s workforce optimization product line serves enterprise workforce optimization market video intelligence communications intelligence product lines serve security intelligence market verint leading provider enterprise workforce optimization software services verint’s solutions enable organizations extract analyze valuable information customer interactions related operational data order make effective proactive decisions optimizing performance customer service operations improving customer experience enhancing compliance key business technology trends driving solutions include growing interest unified workforce optimization suite sophisticated customer interaction analytics adoption workforce optimization solutions outside contact centers ongoing upgrade traditional timedivision multiplexing tdm voice systems voip telephony infrastructure verint leading provider networked ip video solutions designed optimize security enhance operations verint’s video intelligence solutions portfolio includes ip video management software services edge devices capturing digitizing transmitting video different types wired wireless networks video analytics networked video recorders physical security information management system key business technology trends video intelligence solutions include increased demand advanced security solutions due ongoing terrorism security threats around world transition relatively passive analog cctv video systems sophisticated networkbased ip video solutions verint also leading provider communications intelligence investigative solutions help law enforcement national security intelligence civilian government agencies effectively detect investigate neutralize criminal terrorist threats verint’s solutions designed handle massive amounts unstructured structured information different sources quickly make sense complex scenarios generate evidence intelligence key business technology trends solutions include demand innovative communications intelligence investigative solutions due terrorism criminal activities security threats expanding range communication information media increasing complexity communications networks growing network traffic legal compliance requirements verint’s strategy verint’s strategy enhance position leading provider enterprise workforce optimization security intelligence solutions worldwide includes following key elements • continue drive development actionable intelligence solutions unstructured data verint pioneer development solutions help businesses governmental organizations derive intelligence unstructured data verint intends continue drive adoption actionable intelligence solutions delivering solutions workforce optimization security intelligence markets designed provide high return investment • maintain market leadership innovation customer centricity verint believes compete successfully must continue introduce solutions better enable customers derive actionable intelligence unstructured data order verint intends continue make significant investments research development protect intellectual property patents means maintain regular dialog customers order understand business objectives requirements • continue expand verint’s market presence oem partner relationships verint expanded relationships oems channel partners verint believes relationships broaden market coverage intends continue expanding existing relationships creating new ones • augment verint’s organic growth acquisitions verint examines acquisition opportunities regularly means add technology increase geographic presence enhance market leadership expand adjacent markets historically verint engaged acquisitions purposes expects continue future strategic opportunities arise key trends developments verint’s business verint believes many factors affect ability sustain increase revenue profitability including • market acceptance actionable intelligence unstructured data particularly analytics verint early stage market value certain aspects products solutions still process market acceptance verint believes future growth depends part continued increasing acceptance value data analytics across product offerings • verint’s debt instruments may constrain investment growth verint subject various restrictive covenants new credit agreement well leverage ratio financial covenant result verint’s new credit agreement limits ability incur additional debt engage mergers acquisitions make certain investments business limitations may impede verint’s ability execute upon business strategy • information technology spending verint’s growth results depend part continued improvement economic environment pace growth information technology spending verint systems became current periodic reporting obligations federal securities laws shares common stock relisted nasdaq july 6 2010 segment fiscal years ended january 31 2011 2010 segment revenue 372 million 375 million respectively primarily generated starhome fiscal year ended january 31 2011 decrease segment revenue primarily attributable decrease starhome’s service revenue results operations following discussion provides analysis condensed consolidated results operations segments fiscal years presented fiscal year ended january 31 2011 compared fiscal year ended january 31 2010 condensed consolidated results total revenue total revenue 16234 million fiscal year ended january 31 2011 increase 895 million 58 compared fiscal year ended january 31 2010 increase primarily attributable • 672 million increase revenue comverse segment mainly attributable vas customer solutions revenue due number large deployments next generation voicemail products including visual voicemail customers connection launch new smart phones increasing use smart phones subscribers • 232 million increase revenue verint segment mainly attributable 358 million increase verint’s workforce optimization solutions revenue due increase customer installed base related support revenue generated customer base ii service revenue increase result verint’s growth professional services organization meet demand customer base iii increase product revenue result increased customer order activity increase partially offset 110 million reduction revenue verint’s video intelligence solutions primarily due reduction product deliveries major customer partially offset increase revenue customers loss operations loss operations 499 million fiscal year ended january 31 2011 decrease loss 1432 million 742 compared fiscal year ended january 31 2010 decrease primarily attributable • 895 million increase total revenue primarily attributable comverse verint segments • 415 million decrease due decline personnelrelated costs recorded selling general administrative expenses ii research development expenses primarily attributable cost saving initiatives implemented comverse • 219 million decrease total compliancerelated professional fees primarily attributable verint becoming current periodic reporting obligations federal securities laws june 2010 partially offset net increase compliancerelated professional fees attributable comverse cti • 177 million decrease agent employee sales commissions principally due decrease certain bookings respect comverse pays higher commissions sales agents lesser extent decrease sales commissions paid comverse employees • 175 million litigation settlement income fiscal year ended january 31 2011 comprised 165 million insurance proceeds received cti directors’ officers’ insurance policies 10 million received cti former directors officers case connection settlements consolidated shareholder derivative actions consolidated shareholder class action corresponding income recorded fiscal year ended january 31 2010 decreases partially offset • 153 million increase personnel personnelrelated expenses recorded selling general administrative expenses due increase salaries headcount attributable verint • 147 million increase restructuring charges due number restructuring initiatives commenced comverse • 127 million increase research development expenses primarily due increase headcount salary increases attributable verint interest income interest income 41 million fiscal year ended january 31 2011 decrease 30 million 418 compared fiscal year ended january 31 2010 decrease primarily attributable 13 million decrease interest income due lower principal value auction rate securities ars investments held compared prior fiscal year due sales redemptions 14 million decrease interest income comverse due lower cash equivalents fiscal year ended january 31 2011 compared prior fiscal year interest expense interest expense 308 million fiscal year ended january 31 2011 increase 54 million 214 compared fiscal year ended january 31 2010 increase primarily attributable 49 million increase interest expense due higher interest rate applicable verint’s borrowings pursuant amendment verint’s prior facility entered july 2010 income expense net income net 64 million fiscal year ended january 31 2011 change 232 million expense net 168 million fiscal year ended january 31 2010 change primarily attributable • 130 million increase net realized gains recognized investments • 105 million decrease net realized unrealized losses verint’s interest rate swap • 65 million decrease otherthantemporary impairment charges associated ars change partially offset • 23 million increase net realized unrealized losses derivatives • 19 million increase impairment charges relation costbasis investments • 15 million decrease dividend income tax provision benefit income tax provision 372 million fiscal year ended january 31 2011 compared income tax benefit 70 million fiscal year ended january 31 2010 change 443 million income tax primarily due • 553 million decrease tax benefit net loss us statutory rate 35 • 163 million decrease tax allocated continuing operations discontinued operations additional paidin capital comprehensive income • 157 million change tax arising due basis difference investment affiliates result sales shares affiliates • 117 million increase tax contingencies partially offset 391 million reduction us tax effects foreign operations 133 million change foreign tax rate differential benefit fiscal year ended january 31 2011 due operations foreign jurisdictions tax rates different us tax rate effective tax rate continuing operations 530 fiscal year ended january 31 2011 compared 31 fiscal year ended january 31 2010 negative effective tax rate fiscal year ended january 31 2011 resulted recording income tax expense consolidated pretax loss primarily attributable recording valuation allowance deferred tax assets recording income tax provision jurisdictions taxable income excluding impact valuation allowances effective tax rates fiscal years ended january 31 2011 2010 would 201 204 respectively lower us statutory tax rate fiscal year ended january 31 2011 significant differences impacting effective tax rate valuation allowance included impact discontinued operations tax contingencies us tax effect foreign earnings basis difference investment affiliates loss discontinued operations net tax loss discontinued operations net tax 110 million fiscal year ended january 31 2011 decrease loss 320 million 744 compared fiscal year ended january 31 2010 decrease due • 344 million decrease tax allocated continuing operations discontinued operations • 41 million gain sale discontinued operations recorded fiscal year ended january 31 2011 partially offset 65 million increase loss operations discontinued operation net tax due decline revenue increase income tax provision net income attributable noncontrolling interest net income attributable noncontrolling interest 138 million fiscal year ended january 31 2011 increase 60 million 776 compared fiscal year ended january 31 2010 increase primarily attributable increase verint’s net income fiscal year ended january 31 2011 compared fiscal year ended january 31 2010 net loss attributable comverse technology inc net loss attributable comverse technology inc 1323 million fiscal year ended january 31 2011 decrease loss 1397 million 514 compared fiscal year ended january 31 2010 due primarily reasons discussed segment results comverse revenue management analyzes comverse’s revenue generated customer solutions ii maintenance revenue generated customer solutions consists primarily licensing comverse’s bss vas customer solutions hardware related professional services training professional services primarily include installation customization consulting services revenue customer solutions 5292 million fiscal year ended january 31 2011 increase 634 million 136 compared fiscal year ended january 31 2010 increase attributable increased demand comverse’s customer solutions primarily comverse’s larger customers located regions general market conditions improved revenue vas customer solutions 3303 million fiscal year ended january 31 2011 increase 808 million 324 compared fiscal year ended january 31 2010 revenue bss customer solutions 1988 million fiscal year ended january 31 2011 decrease 173 million 80 compared fiscal year ended january 31 2010 increase revenue vas customer solutions primarily attributable number large deployments next generation voicemail products including visual voicemail customers connection launch new smart phones increasing use smart phones subscribers fiscal year ended january 31 2011 however revenue vas customer solutions continued adversely affected continuance weakness global economy certain regions resulting lower levels spending telecommunication service providers located regions ii continued proliferation alternative messaging applications sms text messaging part attractive substitute voicemail usage iii continued maturation wireless services industry particularly relates voicebased services voicemail resulting decreasing rate growth subscriber base comverse’s telecommunication service provider customers capital spending budgets iv increased competition certain product areas lowcost service providers particularly emerging markets included vas customer solutions revenue decrease revenue 73 million attributable comverse’s netcentrex reporting unit fiscal year ended january 31 2011 compared fiscal year ended january 31 2010 decline netcentrex’ revenue mainly due continued weakness market conditions increased competition lowcost service providers resulting pricing pressures significant reductions orders key customer decrease revenue bss customer solutions primarily attributable increasing complexity project deployment resulting extended periods time required complete project milestones receive customer acceptance ii lower volume bss projects current fiscal year resulting reduced customer order activity recent years due global economic weakness maintenance revenue consists primarily postcontract customer support pcs including technical software support services unspecified software updates upgrades customers whenandifavailable basis maintenance revenue typically less susceptible changes market conditions generally represents stable revenue stream recurring renewals contracts comverse’s existing customer base maintenance revenue 3311 million fiscal year ended january 31 2011 increase 38 million 12 compared fiscal year ended january 31 2010 increase primarily attributable increase installed base bss customer solutions revenue geographic region revenue americas europe middle east africa emea apac represented approximately 33 44 23 comverse’s revenue respectively fiscal year ended january 31 2011 compared approximately 27 54 19 comverse’s revenue respectively fiscal year ended january 31 2010 presentation revenue geographic region based location customers fiscal year ended january 31 2011 revenue geographic region impacted market conditions therein comverse’s revenue increased north america apac regions general market conditions improved increase revenue north america primarily attributable number large deployments next generation voicemail products including visual voicemail customers connection launch new smart phones increasing use smart phones subscribers europe continued suffer significant weakness market conditions accordingly comverse’s european customers continued closely monitor costs maintain lower levels spending result comverse’s revenue european customers declined fiscal year ended january 31 2011 compared fiscal year ended january 31 2010 environmental disasters may adversely affect comverse’s business regions impacted disasters march 2011 japan suffered earthquake tsunami subsequent nuclear power reactor failure although events currently expected material impact comverse’s revenue japan elsewhere ultimate impact remains uncertain foreign currency impact revenue functional currency financial reporting purposes us dollar majority comverse’s revenue fiscal year ended january 31 2011 derived transactions denominated us dollars revenue derived transactions denominated various foreign currencies primarily euro fluctuations us dollar relative foreign currencies comverse conducted business fiscal year ended january 31 2011 compared fiscal year ended january 31 2010 unfavorably impacted revenue 33 million intercompany revenue intercompany revenue generated sales affiliates primarily starhome intercompany revenue 26 million fiscal year ended january 31 2011 increase 08 million compared fiscal year ended january 31 2010 foreign currency impact costs significant portion comverse’s expenses principally personnelrelated costs incurred new israeli shekels nis whereas functional currency financial reporting purposes us dollar strengthening nis us dollar would increase us dollar value comverse’s expenses israel comverse enters foreign currency forward contracts mitigate risk attributable foreign currency exchange rate fluctuations cost revenue cost revenue consists primarily hardware software material costs compensation related expenses personnel involved customization comverse’s products customer delivery contractor costs maintenance professional services installation costs training royalties license fees depreciation equipment used operations amortization capitalized software costs certain purchased intangible assets related overhead costs cost revenue 4729 million fiscal year ended january 31 2011 increase 21 million 05 compared fiscal year ended january 31 2010 increase primarily attributable • 242 million increase material costs overhead primarily result increased revenue • 56 million increase costs associated research development activities result larger number customization projects specified customers fiscal year ended january 31 2011 increases partially offset • 71 million decrease general administrative expense related cost revenue • 65 million decrease contractor costs due project completion increased use company employees lieu use contractors part cost saving initiatives • 58 million decrease costs including travel entertainment communications costs result cost saving initiatives • 52 million decrease depreciation amortization primarily due decline depreciable assets result reduced capital expenditures writeoff assets longer use impairment intangible assets fiscal year ended january 31 2010 • 29 million decrease personnelrelated costs principally due workforce reductions associated restructuring initiatives decline compensation levels fluctuations foreign currency exchange rates unfavorable impact personnelrelated costs approximately 24 million fiscal year ended january 31 2011 selling general administrative selling general administrative expenses consist primarily compensation related expenses personnel professional services sales marketing expenses facility costs unallocated overhead expenses selling general administrative expenses 2700 million fiscal year ended january 31 2011 decrease 713 million 209 compared fiscal year ended january 31 2010 decrease primarily attributable • 312 million decrease compliancerelated professional fees due completion adjustments historical financial statements evaluations application generally accepted accounting principles resulting filing sec comprehensive form 10k fiscal years ended january 31 2009 2008 2007 2006 october 4 2010 annual report form 10k fiscal year ended january 31 2010 january 25 2011 continue incur significant compliancerelated professional fees comverse cti due continued efforts become current periodic reporting obligations federal securities laws • 177 million decrease agent employee sales commissions principally due decrease bookings generated certain projects certain geographic locations respect comverse pays higher commissions sales agents lesser extent decrease sales commissions paid employees principally due shift product project mix fiscal year ended january 31 2011 products projects respect comverse pays lower sales commissions compared fiscal year ended january 31 2010 • 144 million decrease personnelrelated costs primarily due workforce reductions associated restructuring initiatives decline compensation levels fluctuations foreign currency exchange rates unfavorable impact personnelrelated costs approximately 12 million fiscal year ended january 31 2011 research development net research development expenses primarily consist personnelrelated costs involved product development net reimbursement government programs research development expenses also include thirdparty development programming costs amortization purchased software code services content used research development activities research development expenses net 1488 million fiscal year ended january 31 2011 decrease 271 million 154 compared fiscal year ended january 31 2010 decrease primarily attributable • 138 million decrease personnelrelated costs primarily due workforce reductions associated restructuring initiatives decline compensation levels fluctuations foreign currency exchange rates unfavorable impact personnelrelated costs approximately 08 million fiscal year ended january 31 2011 • 44 million decrease general administrative expenses relating research development • 43 million decrease depreciation expense due decline depreciable assets result reduced capital expenditures writeoff assets longer use • 26 million decrease costs associated use contractors expenses related vas products accounted 1049 million research development expenses net fiscal year ended january 31 2011 research development expenses incurred connection variety different research development projects 284 million related voice mobile internet products enable operators quickly launch costeffective innovative massmarket voicerelated services 255 million related developing messaging browsing products assure efficient communications help maximize call completion messaging traffic 131 million related developing netcentrex ip communication products provide ipbased voice video messaging solutions addition 261 million spent shared software applications allow vas products systems offered variety sizes configurations well within many different environments expenses related bss products accounted 439 million research development expenses net fiscal year ended january 31 2011 amount spent primarily related enhancement comverse one operating expenses operating expenses 299 million fiscal year ended january 31 2011 increase 113 million 607 compared fiscal year ended january 31 2010 increase primarily attributable 147 million increase restructuring charges due number restructuring initiatives commenced comverse including netcentrex reporting unit fiscal year ended january 31 2011 eliminate staff positions close certain facilities order align operating costs expenses anticipated revenue increase partially offset reduction charges impairment intangibles assets 34 million comverse recorded fiscal year ended january 31 2010 corresponding charges recorded fiscal year ended january 31 2011 loss operations loss operations 598 million fiscal year ended january 31 2011 decrease loss 1544 million 721 compared fiscal year ended january 31 2010 due primarily reasons described segment performance comverse’s segment performance 740 million fiscal year ended january 31 2011 based segment revenue 8628 million representing segment performance margin 86 percentage segment revenue segment performance 418 million loss fiscal year ended january 31 2010 based segment revenue 7948 million representing segment performance margin 53 percentage segment revenue increase segment performance margin primarily attributable increase revenue lower segment expenses fiscal year ended january 31 2011 verint revenue verint’s product revenue consists sale hardware software products product revenue 3752 million fiscal year ended january 31 2011 increase 09 million compared fiscal year ended january 31 2010 increase primarily attributable increase product revenue related verint’s workforce optimization solutions due increase customer order activity increase verint’s communication intelligence solutions result higher volume projects completed fiscal year ended january 31 2011 increases partially offset decrease revenue verint’s video intelligence solutions due reduction deliveries major customer partially offset increase revenue customers verint’s service support revenue consists primarily revenue installation consulting training services postcontract customer support service support revenue 3516 million fiscal year ended january 31 2011 increase 223 million 68 compared fiscal year ended january 31 2010 increase primarily attributable increase verint’s workforce optimization solutions higher support revenue due increase customer installed base growth verint’s professional services organization meet demand verint’s customer base increasing professional services revenue associated installation consulting training revenue geographic region revenue americas emea apac represented approximately 53 26 21 verint’s revenue respectively fiscal year ended january 31 2011 compared approximately 55 25 20 respectively fiscal year ended january 31 2010 cost revenue cost revenue consists product costs service costs amortization acquired technology verint’s product costs primarily consist hardware material costs royalties due third parties software components embedded software applications amortization capitalized software development costs charges impairments intangible assets personnelrelated costs associated verint’s global operations contractor consulting expenses facility costs allocated overhead expenses product cost revenue 1211 million fiscal year ended january 31 2011 decrease 99 million 76 compared fiscal year ended january 31 2010 verint’s overall product margins increased fiscal year ended january 31 2011 compared fiscal year ended january 31 2010 due slight increase product revenue combined decline product costs favorable change product mix higher margin software revenue accounted larger portion overall product mix product costs fiscal years ended january 31 2011 2010 included amortization acquired technology 91 million 80 million respectively service cost revenue primarily consists personnelrelated costs contractor costs stockbased compensation expenses facility costs travel expenses relating installation training consulting maintenance services overhead expenses service costs 1173 million fiscal year ended january 31 2011 increase 83 million 76 compared fiscal year ended january 31 2010 increase primarily attributable 80 million increase personnelrelated expenses due increase employee headcount required support increased implementation services salary increases verint’s overall service margins remained constant fiscal year ended january 31 2011 selling general administrative verint’s selling general administrative expenses consist primarily personnel costs related expenses professional fees sales marketing expenses including travel sales commissions sales referral fees facility costs communication expenses administrative expenses amortization acquired intangible assets selling general administrative expenses 3188 million fiscal year ended january 31 2011 increase 47 million 15 compared fiscal year ended january 31 2010 increase primarily attributable • 118 million increase personnel costs due increase headcount salary increases • 35 million increase personnelrelated expenses including travel entertainment recruitment expenses result increase headcount • 31 million increase stockbased compensation expense primarily related increase verint’s stock price impacting certain stockbased compensation arrangements accounted liability awards • 20 million increase sales commissions due increase headcount customer orders received fiscal year ended january 31 2011 • 12 million increase expenses • 07 million increase marketing expenses due verint’s global brand awareness campaign increases partially offset 171 million decrease professional fees primarily due verint becoming current periodic reporting obligations federal securities laws june 2010 research development net verint’s research development expenses primarily consist personnel subcontracting expenses facility costs allocated overhead net certain software development costs capitalized well reimbursements government programs software development costs capitalized upon establishment technological feasibility related products available general release customers research development net 965 million fiscal year ended january 31 2011 increase 127 million 152 compared fiscal year ended january 31 2010 increase primarily attributable 156 million increase personnelrelated costs due increase employee headcount salary increases ii increase costs result higher portion employees’ time devoted generic product development rather specific customization work iii impact weakening us dollar nis canadian dollar research development wages verint’s israeli canadian research development facilities increases partially offset 14 million increase research development reimbursements government programs due new programs approved ocs 10 million decrease contractor costs operating expenses operating expenses 01 million fiscal year ended january 31 2010 due restructuring costs related severance personnelrelated costs headcount reductions corresponding expenses fiscal year ended january 31 2011 income operations income operations 731 million fiscal year ended january 31 2011 increase 74 million compared fiscal year ended january 31 2010 due primarily reasons described foreign currency effect operating results fiscal year ended january 31 2011 compared fiscal year ended january 31 2010 fluctuations value us dollar relative major currencies used verint’s business resulted decrease verint’s revenue increase cost revenue operating expenses foreign exchange rates remained constant periods verint’s revenue would approximately 10 million higher operating expenses cost revenue would approximately 60 million lower would resulted approximately 70 million higher income operations fiscal year ended january 31 2011 segment performance segment performance 1846 million fiscal year ended january 31 2011 based segment revenue 7268 million representing segment performance margin 254 percentage segment revenue segment performance 1956 million fiscal year ended january 31 2010 based segment revenue 7036 million representing segment performance margin 278 percentage segment revenue decrease segment performance margin primarily attributable increase segment expenses due increase personnelrelated costs partially offset increase segment revenue fiscal years generated primarily starhome’s product revenue consists sale hardware software products professional services including managed services pcs revenue 364 million fiscal year ended january 31 2011 decrease 09 million 24 compared fiscal year ended january 31 2010 decrease primarily due decrease starhome’s service revenue cost revenue substantially cost revenue fiscal years attributable starhome’s cost revenue primarily consists material costs personnelrelated costs associated customization products providing maintenance professional services cost revenue 80 million fiscal year ended january 31 2011 decrease 11 million 125 compared fiscal year ended january 31 2010 primarily attributable reduction starhome’s service revenue selling general administrative selling general administrative expenses include expenses incurred starhome cti’s holding company operations insignificant subsidiaries selling general administrative expenses entire segment 1005 million fiscal year ended january 31 2011 increase 341 million 514 compared fiscal year ended january 31 2010 increase primarily attributable increase compliancerelated professional fees cti connection filing cti’s annual reports fiscal year ended january 31 2011 fiscal years ended january 31 2011 2010 selling general administrative expenses attributable starhome 158 million 169 million respectively research development net substantially research development expenses fiscal years related starhome research development expenses net 77 million fiscal year ended january 31 2011 increase 03 million 38 compared fiscal year ended january 31 2010 operating income expense operating income 175 million fiscal year ended january 31 2011 change 176 million operating expense 01 million fiscal year ended january 31 2010 change primarily attributable 175 million litigation settlement income fiscal year ended january 31 2011 comprised 165 million insurance proceeds received cti directors’ officers’ insurance policies 10 million received cti former directors officers case connection settlements consolidated shareholder derivative actions consolidated shareholder class action corresponding income recorded fiscal year ended january 31 2010 loss operations loss operations 645 million fiscal year ended january 31 2011 increase loss 170 million 357 compared fiscal year ended january 31 2010 due primarily reasons described fiscal years ended january 31 2011 2010 starhome income operations 27 million 19 million respectively segment performance segment performance 196 million loss fiscal year ended january 31 2011 increase loss 21 million 122 compared loss fiscal year ended january 31 2010 fiscal year ended january 31 2010 compared fiscal year ended january 31 2009 condensed consolidated results total revenue total revenue 15339 million fiscal year ended january 31 2010 decrease 947 million 58 compared fiscal year ended january 31 2009 decrease primarily attributable decline revenue comverse segment 1247 million compared prior fiscal year mainly attributable continuance weakness global economy resulting lower levels spending telecommunication service providers ii continued proliferation alternative messaging applications sms text messaging part attractive substitute voicemail usage iii continued maturation wireless services industry particularly relates voicebased services voicemail resulting decreasing rate growth subscriber base comverse’s telecommunication service provider customers capital spending budgets iv increased competition certain product areas lowcost service providers particularly emerging markets v decrease maintenance revenue primarily due pricing pressures maintenance services voicebased products decrease revenue partially offset increase revenue 341 million verint segment primarily attributable increase product service support revenue related verint’s video intelligence workforce optimization solutions loss operations loss operations 1931 million fiscal year ended january 31 2010 decrease 07 million compared fiscal year ended january 31 2009 decrease primarily attributable • 591 million decrease research development expenses due restructuring cost saving initiatives implemented comverse verint • 450 million decrease charges impairment goodwill intangible assets relating netcentrex reporting unit comverse segment • 165 million decrease personnelrelated costs recorded selling general administrative related restructuring initiatives implemented comverse • 136 million decrease selling general administrative expenses due costsaving initiatives implemented verint • 131 million decrease professional fees compliancerelated professional fees primarily attributable reduction legal expenses related patent litigation comverse settled fiscal year ended january 31 2009 corresponding professional fees incurred fiscal year ended january 31 2010 • 88 million decrease integration restructuring costs primarily related witness acquisition attributable verint decreases partially offset • 947 million decrease total revenue partially offset related decrease cost revenue 536 million primarily attributable comverse verint segments • 1068 million increase compliancerelated professional fees incurred comverse verint interest income interest income 71 million fiscal year ended january 31 2010 decrease 221 million 758 compared fiscal year ended january 31 2009 decrease primarily attributable lower average cash investment balances lower yields ars due declines index rates underlying variable interest rates fiscal year ended january 31 2010 compared fiscal year ended january 31 2009 interest expense interest expense 254 million fiscal year ended january 31 2010 decrease 204 million 446 compared fiscal year ended january 31 2009 decrease primarily attributable 122 million decline verint’s interest expense due lower interest rates outstanding borrowings prior facility fiscal year ended january 31 2010 73 million amortization remaining debt discount debt issuance costs related cti’s convertible debt obligations recorded fiscal year ended january 31 2009 corresponding debt discount debt issuance cost amortization recorded fiscal year ended january 31 2010 expense net expense net 168 million fiscal year ended january 31 2010 decrease 753 million 818 compared fiscal year ended january 31 2009 decrease primarily attributable 796 million decrease impairment charges associated ars 95 million increase net realized gains investments recorded impairment charges related ars 69 million fiscal year ended january 31 2010 compared 865 million recorded fiscal year ended january 31 2009 decreases partially offset 205 million change unrealized gain 136 million fiscal year ended january 31 2009 69 million impairment charge fiscal year ended january 31 2010 case attributable ubs put entered november 2008 definition discussion relating ubs put see “liquidity capital resourcessources liquidityinvestments securities portfolioubs put” income tax benefit provision income tax benefit 70 million fiscal year ended january 31 2010 compared income tax provision 488 million fiscal year ended january 31 2009 change 558 million income tax primarily due 667 million decrease relating valuation allowances 369 million tax benefit due allocation tax continuing operations discontinued operations additional paidin capital comprehensive income fiscal year ended january 31 2010 corresponding allocation fiscal year ended january 31 2009 partially offset 500 million increase us tax effects foreign operations effective tax rate continuing operations 31 fiscal year ended january 31 2010 compared 161 fiscal year ended january 31 2009 negative effective tax rate fiscal year ended january 31 2009 resulted recording income tax expense consolidated pretax loss primarily attributable recording valuation allowance deferred tax assets recording income tax provision jurisdictions taxable income excluding impact valuation allowances effective tax rates fiscal years ended january 31 2010 2009 would 204 190 respectively lower us statutory tax rate fiscal year ended january 31 2010 significant differences impacting effective tax rate valuation allowance included impact discontinued operations withholding taxes tax contingencies dividend received deduction difference us federal statutory rate rates foreign jurisdictions us tax effect foreign earnings taxes penalties associated deemed dividends israel us loss discontinued operations net tax loss discontinued operations net tax 431 million fiscal year ended january 31 2010 increase 357 million compared fiscal year ended january 31 2009 increase due 356 million tax allocated continuing operations discontinued operations fiscal year ended january 31 2010 corresponding allocation fiscal year ended january 31 2009 net income loss attributable noncontrolling interest net income attributable noncontrolling interest 78 million fiscal year ended january 31 2010 change 413 million compared net loss attributable noncontrolling interest 335 million fiscal year ended january 31 2009 change primarily attributable change verint’s results reflecting net income fiscal year ended january 31 2010 compared net loss fiscal year ended january 31 2009 net loss attributable comverse technology inc net loss attributable comverse technology inc 2720 million fiscal year ended january 31 2010 decrease 532 million loss 164 compared fiscal year ended january 31 2009 due primarily reasons discussed segment results comverse revenue customer solutions 4657 million fiscal year ended january 31 2010 decrease 920 million 165 compared fiscal year ended january 31 2009 revenue vas customer solutions 2496 million fiscal year ended january 31 2010 decrease 754 million 232 compared fiscal year ended january 31 2009 revenue bss customer solutions 2162 million fiscal year ended january 31 2010 decrease 166 million 71 compared fiscal year ended january 31 2009 decrease revenue vas customer solutions primarily attributable continuance weakness global economy resulting lower levels spending telecommunication service providers ii continued proliferation alternative messaging applications sms text messaging part attractive substitute voicemail usage iii continued maturation wireless services industry particularly relates voicebased services voicemail resulting decreasing rate growth subscriber base comverse’s telecommunication service provider customers capital spending budgets iv increased competition certain product areas lowcost service providers particularly emerging markets included vas customer solutions revenue decrease decline revenue 366 million attributable comverse’s netcentrex reporting unit fiscal year ended january 31 2010 compared fiscal year ended january 31 2009 decline netcentrex’ revenue mainly due weakness market conditions increased competition lowcost service providers resulting pricing pressures significant reductions orders key customer decrease revenue bss customer solutions primarily attributable reduction spending telecommunication service providers maintenance revenue 3273 million fiscal year ended january 31 2010 decrease 328 million 91 compared fiscal year ended january 31 2009 decrease primarily attributable pricing pressures maintenance services voicerelated products revenue geographic region revenue americas emea apac represented approximately 27 54 19 comverse’s revenue respectively fiscal year ended january 31 2010 compared approximately 28 57 15 comverse’s revenue respectively fiscal year ended january 31 2009 presentation revenue geographic region based location customers changes presented attributable identifiable trend foreign currency impact revenue majority comverse’s revenue fiscal year ended january 31 2010 derived transactions denominated us dollars revenue derived transactions denominated various foreign currencies primarily euro fluctuations us dollar relative foreign currencies comverse conducted business fiscal year ended january 31 2010 compared fiscal year ended january 31 2009 unfavorably impacted revenue 34 million intercompany revenue intercompany revenue generated sales affiliates primarily starhome intercompany revenue 18 million fiscal year ended january 31 2010 decrease 11 million compared fiscal year ended january 31 2009 cost revenue cost revenue 4707 million fiscal year ended january 31 2010 decrease 326 million 65 compared fiscal year ended january 31 2009 decrease primarily attributable • 197 million decrease material costs overhead result lower revenue • 190 million decrease personnelrelated costs principally due reduction employee workforce related restructuring initiatives implemented fiscal years ended january 31 2010 2009 fluctuations foreign currency exchange rates favorable impact personnelrelated costs approximately 81 million fiscal year ended january 31 2010 • 54 million decrease travel entertainment expenses • 50 million decrease costs associated research development activities result fewer customization projects specified customers fiscal year ended january 31 2010 • 30 million decrease amortization intangible assets capitalized software decreases partially offset 234 million increase costs associated use contractors selling general administrative selling general administrative expenses 3413 million fiscal year ended january 31 2010 increase 560 million 196 compared fiscal year ended january 31 2009 increase primarily attributable • 810 million increase compliancerelated professional fees due continued efforts become current periodic reporting obligations federal securities laws • 81 million increase agent employee sales commissions principally due increase bookings generated certain projects respect comverse pays higher commissions sales agents lesser extent increase sales commissions paid employees principally due shift product project mix fiscal year ended january 31 2010 products projects respect comverse pays higher sales commissions compared fiscal year ended january 31 2009 increases partially offset 165 million decrease personnelrelated costs related restructuring initiatives 131 million decrease professional fees compliancerelated professional fees primarily attributable reduction legal expenses related patent litigation settled fiscal year ended january 31 2009 corresponding professional fees incurred fiscal year ended january 31 2010 fluctuations foreign currency exchange rates favorable impact personnelrelated costs approximately 63 million fiscal year ended january 31 2010 research development net research development expenses net 1759 million fiscal year ended january 31 2010 decrease 547 million 237 compared fiscal year ended january 31 2009 decrease primarily attributable • 329 million decrease personnelrelated costs resulting restructuring initiatives prior years involving workforce reductions reduced research development activities fluctuations foreign currency exchange rates favorable impact personnelrelated costs approximately 59 million fiscal year ended january 31 2010 • 137 million decrease general administrative expenses relating research development • 41 million decrease contractor costs • 14 million decrease travel entertainment expenses related vas products accounted 1235 million research development expenses net fiscal year ended january 31 2010 research development expenses incurred connection variety different research development projects 344 million related voice mobile internet products enable operators quickly launch costeffective innovative massmarket voicerelated services 303 million related developing messaging browsing products assure efficient communications help maximize call completion messaging traffic 164 million related developing netcentrex ip communication products provide ipbased voice video messaging solutions addition 307 million spent shared software applications allow vas products systems offered variety sizes configurations well within many different environments expenses related bss products accounted 471 million research development expenses net fiscal year ended january 31 2010 amount spent primarily related enhancement comverse one operating expenses operating expenses 186 million fiscal year ended january 31 2010 decrease 386 million 674 compared fiscal year ended january 31 2009 decrease primarily attributable 450 million reduction charges impairment goodwill intangible assets related netcentrex reporting unit decrease partially offset 65 million increase restructuring charges comverse recorded 153 million restructuring charges fiscal year ended january 31 2010 compared 88 million fiscal year ended january 31 2009 loss operations loss operations 2142 million fiscal year ended january 31 2010 increase 540 million loss 337 compared fiscal year ended january 31 2009 due primarily reasons described segment performance comverse’s segment performance 418 million loss fiscal year ended january 31 2010 based segment revenue 7948 million representing segment performance margin 53 percentage segment revenue segment performance 252 million loss fiscal year ended january 31 2009 based segment revenue 9206 million representing segment performance margin 27 percentage segment revenue decrease segment performance margin primarily attributable decline revenue fiscal year ended january 31 2010 partially offset lower segment expenses verint revenue product revenue 3743 million fiscal year ended january 31 2010 increase 88 million 24 compared fiscal year ended january 31 2009 increase primarily attributable 169 million increase product revenue related verint’s video intelligence solutions almost entirely due product delivery order major customer ii 89 million increase product revenue related verint’s workforce optimization solutions primarily due completion multisite installation major customer revenue recognized upon final customer acceptance increases offset decrease 170 million revenue verint’s communications intelligence solutions service support revenue 3294 million fiscal year ended january 31 2010 increase 253 million 83 compared fiscal year ended january 31 2009 increase primarily attributable 136 million increase service revenue associated verint’s workforce optimization solutions combined increase 117 million service revenue associated verint’s video intelligence communications intelligence solutions increase workforce optimization solutions partially due increase maintenance renewal revenue recognized full value result elimination impact purchase accounting adjustments reflect obligations assumed witness acquisition verint recorded adjustment reducing support obligations assumed witness acquisition estimated fair value acquisition date result required business combination accounting rules revenue related maintenance contracts amount 52 million would otherwise recorded witness independent entity recognized fiscal year ended january 31 2009 revenue geographic region revenue americas emea apac represented approximately 55 25 20 verint’s revenue respectively fiscal year ended january 31 2010 compared approximately 52 32 16 respectively fiscal year ended january 31 2009 cost revenue product cost revenue 1310 million fiscal year ended january 31 2010 decrease 32 million 24 compared fiscal year ended january 31 2009 verint’s overall product margins increased fiscal year ended january 31 2010 fiscal year ended january 31 2009 result increase revenue combined slight decline product costs favorable change product mix higher margin software revenue accounted larger portion overall product mix increase partially offset lower profitability certain projects recognized fiscal year ended january 31 2010 compared fiscal year ended january 31 2009 product costs fiscal years ended january 31 2010 2009 included amortization acquired technology 80 million 90 million respectively service cost revenue 1090 million fiscal year ended january 31 2010 decrease 151 million 122 compared fiscal year ended january 31 2009 decrease primarily attributable costsaving initiatives included • 49 million decrease employee compensation related expenses • 34 million decrease travel lodging expenses • 17 million decrease stockbased compensation expense contractor costs personnel communication expenses • 21 million decrease expenses verint’s overall service margins increased fiscal year ended january 31 2010 due increases service revenue decrease service cost revenue described selling general administrative selling general administrative expenses 3141 million fiscal year ended january 31 2010 increase 68 million 22 compared fiscal year ended january 31 2009 increase primarily attributable increase compliancerelated professional fees partially offset decrease selling general administrative expenses compliancerelated professional fees related expenses increased 257 million 545 million fiscal year ended january 31 2010 288 million fiscal year ended january 31 2009 increase partially offset decreases expenses due costsaving initiatives resulting • 52 million decrease employee compensation related expenses • 40 million decrease travel expenses • 17 million decrease communication expenses • 14 million reduction expenses • 13 million decrease personnel expenses addition agent commissions decreased 27 million due decreased revenue verint’s communications intelligence solutions amortization acquired intangible assets decreased 30 million primarily due weakening british pound verint’s intangible assets denominated research development net research development net 838 million fiscal year ended january 31 2010 decrease 44 million 50 compared fiscal year ended january 31 2009 decrease primarily attributable costsaving initiatives expenses contractor consultant fees decreased 40 million employee compensation related expenses decreased 16 million decreases partially offset increase stockbased compensation 11 million operating expenses operating expenses 01 million fiscal year ended january 31 2010 decrease 45 million 970 compared fiscal year ended january 31 2009 decrease attributable 88 million decrease integration restructuring costs primarily related witness acquisition partially offset net recovery 43 million due gain settlement legal matter net legal fees recorded fiscal year ended january 31 2009 income operations income operations 657 million fiscal year ended january 31 2010 increase 545 million compared fiscal year ended january 31 2009 due primarily reasons described foreign currency effect operating results fiscal year ended january 31 2010 compared fiscal year ended january 31 2009 fluctuations value us dollar relative major currencies used verint’s business affected operating results foreign exchange rates remained constant periods excluding impact foreign currency hedges verint’s revenue would approximately 120 million higher operating expenses cost revenue would approximately 150 million higher net unfavorable constant us dollar impact approximately 30 million operating income fiscal year ended january 31 2010 segment performance segment performance 1956 million fiscal year ended january 31 2010 based segment revenue 7036 million representing segment performance margin 278 percentage segment revenue segment performance 1204 million fiscal year ended january 31 2009 based segment revenue 6754 million representing segment performance margin 178 percentage segment revenue increase segment performance margin attributable increases revenue benefits costsaving initiatives revenue fiscal years generated primarily starhome revenue 373 million fiscal year ended january 31 2010 decrease 40 million 98 compared fiscal year ended january 31 2009 decrease due primarily decreased revenue starhome’s products services cost revenue substantially cost revenue fiscal years attributable starhome cost revenue 92 million fiscal year ended january 31 2010 decrease 30 million 245 compared fiscal year ended january 31 2009 primarily attributable reduction revenue starhome’s products services selling general administrative selling general administrative expenses entire segment 663 million fiscal year ended january 31 2010 increase 13 million 20 compared fiscal year ended january 31 2009 increase primarily attributable increase compliancerelated professional fees cti fiscal years ended january 31 2010 2009 selling general administrative expenses attributable starhome 169 million 197 million respectively research development net research development expenses net 75 million fiscal year ended january 31 2010 decrease 28 million 273 compared fiscal year ended january 31 2009 substantially research development expenses fiscal years related starhome operating expenses operating expenses 01 million fiscal year ended january 31 2010 decrease 09 million 872 compared fiscal year ended january 31 2009 decrease due primarily decrease restructuring activities starhome loss operations loss operations 475 million fiscal year ended january 31 2010 decrease loss 17 million 34 compared fiscal year ended january 31 2009 due primarily reasons described fiscal years ended january 31 2010 2009 starhome income operations 19 million loss operations 38 million respectively segment performance segment performance 175 million loss fiscal year ended january 31 2010 decrease loss 62 million 261 compared loss fiscal year ended january 31 2009 decrease primarily attributable decline segment expenses due reductions selling general administrative expenses research development expenses starhome partially offset decrease segment revenue liquidity capital resources overview principal sources liquidity historically consisted cash equivalents cash flows operations including changes working capital borrowings term loans revolving credit facilities proceeds issuance convertible debt obligations sale investments assets receipt dividends subsidiaries believe future sources liquidity would include cash equivalents proceeds sales investments including ars new borrowings cash generated asset divestitures proceeds issuance equity debt securities fiscal year ended january 31 2011 principal uses liquidity fund operating expenses make capital expenditures repay indebtedness service debt obligations pay significant professional fees expenses connection efforts become current periodic reporting obligations federal securities laws addition expended resources made investments improve internal control financial reporting hiring additional experienced finance accounting personnel redesigning processes implementing accounting finance systems performing additional business analytics expect expenses decline significantly subsequent fiscal years become current periodic reporting obligations federal securities laws improve internal controls expand financial reporting analysis capabilities financial condition cti comverse cash equivalents january 31 2011 cti comverse cash equivalents bank time deposits restricted cash approximately 4576 million compared approximately 4464 million january 31 2010 fiscal year ended january 31 2011 cti comverse made following significant disbursements • approximately 1498 million paid primarily professional fees connection cti’s efforts become current periodic reporting obligations federal securities laws lesser extent remediate material weaknesses internal control financial reporting • approximately 293 million restructuring payments including workforce reduction initiatives comverse • approximately 273 million paid cti connection settlements consolidated shareholder class action consolidated shareholder derivative actions • approximately 81 million paid special retention bonuses addition fiscal year ended january 31 2011 comverse cti’s holding company operations experienced negative cash flows operations increase cash equivalents primarily attributable • net proceeds approximately 765 million received sale 23 million shares verint systems’ common stock secondary public offering • proceeds approximately 573 million received sales redemptions ars • cash proceeds approximately 556 million result cti’s receipt dividend sale shares common stock ulticom inc • proceeds approximately 271 million received comverse sale land ra’anana israel • insurance proceeds 165 million received cti directors’ officers’ insurance policies connection settlements consolidated shareholder derivative actions consolidated shareholder class action • 60 million borrowings comverse ltd existing line credit part efforts improve cash position cti comverse commenced certain initiatives including plan restructure operations comverse view towards aligning operating costs expenses anticipated revenue comverse successfully implemented first phase plan significantly reducing annualized operating costs first quarter fiscal year ending january 31 2012 comverse commenced implementation phase ii business transformation focuses process reengineering maximize business performance productivity operational efficiency part phase ii business transformation comverse process creating new business units designed improve operational efficiency business performance comprehensive discussion relating phase ii business transformation see “overviewsegment business highlights trendscomverse segmentphase ii business transformation” comverse also evaluating initiatives improve focus core business maintain ability face intense competitive pressures markets part initiatives comverse pursuing wind continues evaluate strategic options netcentrex business restricted cash restricted cash aggregated 679 million january 31 2011 compared 834 million january 31 2010 restricted cash includes compensating cash balances related existing lines credit deposits pledged collateral restricted use settle specified creditrelated bank instruments pending tax judgments proceeds received sales redemptions ars including interest thereon restricted terms consolidated shareholder class action settlement agreement january 31 2011 2010 cti 334 million 261 million respectively restricted cash received sales redemptions ars including interest thereon restricted terms settlement agreement ars cash equivalents bank time deposits restricted cash excludes ars january 31 2011 cti 944 million aggregate principal amount ars valued date 724 million noted proceeds sales redemptions ars including interest thereon restricted terms consolidated shareholder class action settlement agreement liquidity forecast currently forecast available cash equivalents sufficient meet liquidity needs including capital expenditures cti comverse least next 12 months enhance cash position cti comverse continue evaluate capital raising alternatives management’s current forecast described based upon number assumptions including among others improved operating performance comverse segment due among things implementation phase ii business transformation continued reduced operating costs attributable first phase comverse’s restructuring plan restricted cash bank time deposits amounts consistent historical levels slight reductions unrestricted cash levels required support working capital needs business reductions compliancerelated costs sales redemptions substantially cti’s remaining ars proceeds consistent carrying value january 31 2011 intraquarter working capital fluctuations consistent historical trends use shares cti’s common stock satisfy 825 million 1125 million payment obligation consolidated shareholder class action settlement agreement due november 15 2011 management believes abovenoted assumptions reasonable however one assumptions prove incorrect one risks uncertainties described item 1a “risk factors” materialize cti comverse may experience shortfall cash required support working capital needs cti’s ability use shares common stock satisfy 825 million payment obligations consolidated shareholder class action settlement conditioned upon listing cti’s common stock national securities exchange payment date november 15 2011 financial condition cti’s majorityowned subsidiaries based past performance current expectations believe cash equivalents cash generated operations majorityowned subsidiaries sufficient meet respective anticipated operating costs working capital needs capital expenditures research development spending commitments respect verint required payments principal interest least next 12 months liquidity cti’s majorityowned subsidiaries could negatively impacted decrease demand products service support including impact changes customer buying behavior due weakness global economy event cti’s majorityowned subsidiaries determines make acquisitions otherwise require additional funds may need raise additional capital could involve issuance equity debt securities assurance subsidiary would able raise additional equity debt private public markets terms favorable verint incurred significant professional fees related expenses past several fiscal years including fiscal year ended january 31 2011 connection efforts become current periodic reporting obligations federal securities laws june 2010 verint filed sec annual reports required fiscal years quarterly reports certain fiscal quarters previously filed reports resumed making timely periodic filings sec verint expects future professional fees related expenses decline amounts incurred prior periods sources liquidity following discussion highlights primary sources liquidity cash equivalents changes amounts due operations financing investing activities cash flows fiscal year ended january 31 2011 compared fiscal year ended january 31 2010 1 consists investments recorded within “other assets” consolidated balance sheets consolidated financial statements included item 15 annual report operating cash flows operating cash flows vary significantly year based timing collections accounts receivable receipts deposits workinprocess achievement milestones fiscal year ended january 31 2011 used net cash 1229 million operating activities net cash used operating activities primarily attributable 1608 million decrease deferred revenue 558 million decrease accounts payable accrued expenses 109 million decrease accounts receivable compared fiscal year ended january 31 2010 partially offset 635 million net income noncash charges addback 440 million decrease deferred cost revenue investing cash flows fiscal year ended january 31 2011 cash provided investing activities 908 million net cash provided investing activities primarily attributable 765 million sale shares verint systems’ common stock january 2011 573 million sales maturities investments 273 million asset sales mainly attributable sale land ra’anana israel increases partially offset 335 million cash used settle derivative financial instruments designed hedges 229 million cash used capital expenditures including capitalization software development costs 235 million cash used verint’s acquisition iontas payments contingent consideration associated business combinations consummated prior periods investments 732 million january 31 2011 decrease 442 million compared january 31 2010 decrease primarily attributable sales maturities investments financing cash flows fiscal year ended january 31 2011 cash used financing activities 28 million primarily attributable 442 million cash used repay bank loans longterm debt financing obligations 40 million cash paid relating debt issuance costs 22 million dividends paid verint’s joint venture noncontrolling stockholders 19 million cash paid acquire treasury shares outflows partially offset 366 million net proceeds issuance common stock subsidiaries principally due exercises verint stock options result termination prohibition option exercises verint became current periodic reporting obligations federal securities laws june 2010 120 million proceeds new borrowings line credit cash flows discontinued operations fiscal year ended january 31 2011 net cash provided discontinued operations 388 million net cash provided discontinued operations primarily attributable 650 million sales maturities investments net purchases partially offset 217 million cash used discontinued operations payment dividend minority shareholders effects exchange rates cash equivalents majority cash equivalents denominated us dollar however due nature global business also hold cash denominated currencies primarily euro nis british pound sterling fiscal year ended january 31 2011 fluctuation foreign currency exchange rates favorable impact 27 million cash equivalents primarily due weakening us dollar relative major foreign currencies held fiscal year liquidity investments fiscal year ended january 31 2011 market liquidity ars exhibited improvement although price markets certain classes ars holdings continued decline accordingly recorded otherthantemporary impairment charges 04 million fiscal year ended january 31 2011 january 31 2011 carrying amount 944 million principal amount ars 724 million additional information see “critical accounting estimates judgmentsvaluation otherthantemporary impairments” january 31 2010 investments ars held cti date restricted cti prohibited using proceeds sales ars pursuant terms settlement agreement consolidated shareholder class action cti entered december 16 2009 information restrictions see “investments securities portfoliorestrictions use ars sales proceeds” terms original settlement agreement consolidated shareholder class action prior amendment june 19 2010 cti agreed exercise ubs put june 30 2010 ii within 48 hours receipt payment pay plaintiff class proceeds received subsequent date settlement agreement sales ars held account ubs including proceeds received result exercise ubs put would reduce amount 515 million payment payable august 15 2010 part amendment settlement agreement payment schedule settlement agreement revised payment due august 15 2010 reduced 179 million representing agreed 215 million payment less holdback 36 million respect anticipated optout credit certain applicable provisions settlement agreement remained unchanged amendment pursuant amendment cti continued obligated exercise ubs put june 30 2010 required pay reduced payment using proceeds received sales ars held account ubs additional proceeds remain cti ubs purchased approximately 416 million aggregate principal amount ars cti prior june 30 2010 effective june 30 2010 cti exercised ubs put balance 100 million aggregate principal amount ars subject ubs put july 2010 cti paid 179 million plaintiff class required settlement agreement amended january 31 2011 investments ars held cti date restricted cti prohibited using proceeds sales ars pursuant terms settlement agreement consolidated shareholder class action cti entered december 16 2009 amended june 19 2010 information restrictions see “investments securities portfoliorestrictions use ars sales proceeds” fiscal year ended january 31 2010 compared fiscal year ended january 31 2009 1 consists investments recorded within “other assets” consolidated balance sheets consolidated financial statements included item 15 annual report operating cash flows fiscal year ended january 31 2010 used net cash 936 million operating activities net cash used operating activities primarily attributable net loss noncash charges addback 699 million decrease 428 million accounts payable accrued expenses 98 million increase prepaid expense current assets 77 million increase inventories decrease 67 million deferred revenue compared fiscal year ended january 31 2009 partially offset change 284 million assets liabilities 141 million decrease deferred cost revenue compared fiscal year ended january 31 2009 investing cash flows fiscal year ended january 31 2010 cash provided investing activities 712 million net cash provided investing activities primarily attributable 1752 million sales maturities investments partially offset 262 million cash used capital expenditures including capitalization software development costs 191 million cash used settle derivative financial instruments designed hedges 588 million reclassified cash equivalents restricted cash bank time deposits primarily attributable requirement maintain 450 million compensating cash balances terms lines credit comverse ltd banks january 31 2010 compared 200 million one line credit comverse ltd bank january 31 2009 ii proceeds 261 million received sales redemptions ars including interest thereon restricted terms consolidated shareholder class action settlement agreement cti entered december 16 2009 investments 1174 million january 31 2010 decrease 1536 million compared january 31 2009 decrease primarily attributable sales maturities investments generated proceeds 1752 million financing cash flows fiscal year ended january 31 2010 cash used financing activities 4281 million primarily attributable 4173 million cash used repurchase convertible debt obligations cash flows discontinued operations fiscal year ended january 31 2010 cash used discontinued operations 614 million net cash used discontinued operations primarily attributable 644 million cash used discontinued operations payment dividend minority shareholders effects exchange rates cash equivalents fiscal year ended january 31 2010 fluctuation foreign currency exchange rates favorable impact 79 million cash equivalents primarily due weakening us dollar relative major foreign currencies held fiscal year liquidity investments fiscal year ended january 31 2010 market liquidity ars exhibited improvement although prices markets certain classes ars holdings continued decline accordingly recorded otherthantemporary impairment charges 69 million respect cti’s holdings specific ars january 31 2010 carrying amount 2066 million principal amount ars 1147 million additional information see “critical accounting estimates judgmentsvaluation otherthantemporary impairments” january 31 2010 investments ars held cti date restricted cti prohibited using proceeds sales ars pursuant terms settlement agreement consolidated shareholder class action cti entered december 16 2009 information restrictions see “investments securities portfoliorestrictions use ars sales proceeds” investments securities portfolio hold ars supported corporate issuers student loans ars longterm stated maturities august 2010 began forecast sell remaining ars fourth quarter fiscal year ending january 31 2012 expiration restrictions sales ars use proceeds sales thereof following final payment settlement agreement consolidated shareholder class action due november 15 2011 ubs put november 2008 cti accepted offer ubs ag referred ubs providing rights related 516 million aggregate principal amount ars held account ubs referred ubs put terms ubs put cti right obligation sell eligible ars par value ubs time period june 30 2010 july 2 2012 additionally ubs right discretion time july 2 2012 purchase ars cti par value defined price equal principal amount ars plus accrued unpaid dividends interest terms settlement agreement consolidated shareholder class action cti required exercise ubs put june 30 2010 apply proceeds exercise toward amounts payable settlement effective june 30 2010 cti exercised ubs put balance ars subject ubs put ubs purchased cti pursuant purchase right upon exercise ubs put cti approximately 426 million 90 million aggregate principal amount ars fiscal years ended january 31 2011 2010 respectively fiscal year ended january 31 2009 recorded ubs put fair value 136 million “other assets” corresponding gain recorded “other income expense net” elect fair value option fasb’s guidance consequently ubs put carried historical cost assessed impairment evaluated ubs put impairment based redemptions changes fair value related ars subject ubs put fiscal years ended january 31 2011 2010 recorded 67 million 69 million respectively pretax impairment charges classified “other income expense net” due exercise june 30 2010 recorded amounts connection ubs put january 31 2011 january 31 2010 ubs put’s carrying value 67 million recorded “prepaid expenses current assets” fair value related ars 358 million consideration ubs put corresponding principal amount 426 million additional information relating ars ubs put see note 3 consolidated financial statements included item 15 annual report otherthantemporary impairment ars determined could assert intended hold ars fair value recovered amortized cost recorded otherthantemporary impairment charges 04 million 69 million 865 million pretax basis fiscal years ended january 31 2011 2010 2009 respectively additionally fiscal year ended january 31 2011 1122 million aggregate principal amount ars carrying value 334 million sold redeemed proceeds 573 million amounts included 426 million aggregate principal amount ars subject ubs put 326 million aggregate principal amount ars purchased ubs cti pursuant purchase right prior june 30 2010 100 million aggregate principal amount ars purchased ubs upon exercise cti ubs put effective june 30 2010 restrictions use ars sales proceeds part settlement agreement consolidated shareholder class action amended cti granted security interest benefit plaintiff class account cti holds ars held account ubs proceeds sales thereof restricting cti’s ability use proceeds sales ars amounts payable settlement agreement paid full addition terms settlement agreement consolidated shareholder class action cti receives net cash proceeds sale certain ars held aggregate amount excess 500 million cti required use 500 million proceeds prepay settlement amounts settlement agreement cti receives net cash proceeds sale ars aggregate amount excess 1000 million cti required use additional 500 million proceeds prepay settlement amounts settlement agreement january 31 2011 2010 cti 334 million 171 million restricted cash received sales redemptions ars including interest thereon provisions settlement agreement apply respectively january 31 2011 2010 cti held 944 million 1640 million aggregate principal amount ars carrying value 724 million 788 million respectively restrictions apply addition january 31 2010 cti held 90 million received sales ars held ubs terms settlement agreement consolidated shareholder class action cti required apply towards amounts payable settlement agreement indebtedness verint credit facilities may 25 2007 verint entered credit agreement group banks fund portion acquisition witness april 29 2011 verint entered credit agreement referred new credit agreement group lenders credit suisse ag administrative agent collateral agent lenders referred capacities agent ii terminated credit agreement dated may 25 2007 referred prior facility prior facility prior facility provided 6500 million term loan 250 million revolving credit facility 250 million revolving credit facility effectively reduced 150 million september 2008 connection bankruptcy lehman brothers one lenders related subsequent termination revolving commitment prior facility june 2009 later increased 750 million july 2010 also july 2010 verint amended prior facility among things change method calculation applicable interest rate margin based consolidated leverage ratio time ii add 150 london interbank offered rate libor floor iii increase aggregate amount incremental revolving commitment term loan increases permitted prior facility 500 million 2000 million iv make certain changes negative covenants including providing covenant relief respect permitted consolidated leverage ratio term loan revolving credit facility scheduled mature may 25 2014 may 25 2013 respectively verint’s obligations prior facility guaranteed certain domestic subsidiaries including witness secured substantially assets verint systems subsidiaries prior facility guaranteed cti secured assets january 31 2011 2010 verint’s outstanding term loan balance prior facility approximately 5832 million 6059 million respectively verint borrowed 150 million revolving credit facility november 2008 repaid full december 2010 accordingly verint 750 million available borrowing revolving credit facility january 31 2011 verint’s ability borrow revolving credit facility dependent upon certain conditions including absence material adverse effect change verint’s business defined prior facility commitment fee unused capacity revolving credit facility increased 050 075 per annum part amendment prior facility july 2010 prior facility required mandatory payments term loan net cash proceeds certain asset sales extent net cash proceeds otherwise reinvested assets useful verint’s business annual basis percentage excess cash flow ranged 0 50 depending verint’s consolidated leverage ratio defined prior facility also required periodic amortization payments term loan verint made excess cash flow prepayment term loan 221 million may 2010 respect fiscal year ended january 31 2010 amortization payment 06 million february 2010 mandatory excess cash flow prepayment required respect fiscal year ended january 31 2011 prior facility contained one financial covenant required verint exceed certain consolidated leverage ratio fiscal quarter end respect applicable trailing twelve months consolidated leverage ratio defined verint’s consolidated net total debt divided consolidated ebitda trailing four quarters ebitda defined prior facility net income loss plus income tax expense interest expense depreciation amortization intangibles losses related hedge agreements extraordinary unusual nonrecurring expenses losses noncash charges expenses incurred taken prior april 30 2008 connection acquisition witness minus interest income extraordinary unusual nonrecurring income gains related hedge agreements noncash income prior facility quarterly periods ended january 31 april 30 july 31 october 31 2009 consolidated leverage ratio permitted exceed 4501 quarterly periods ended january 31 april 30 july 31 october 31 2010 consolidated leverage ratio permitted exceed 3501 verint compliance requirements dates january 31 2011 verint’s consolidated leverage ratio approximately 2501 compared permitted consolidated leverage ratio 3501 verint’s ebitda twelvemonth period ended exceeded requirement covenant least 500 million quarterly period ended april 30 2011 quarterly periods ending july 31 october 31 2011 consolidated leverage ratio permitted exceed 3501 quarterly periods ending january 31 2012 thereafter consolidated leverage ratio permitted exceed 3001 addition verint subject number restrictive covenants prior facility including limitations ability incur indebtedness create liens make fundamental business changes dispose property make restricted payments including dividends make significant investments enter sale leaseback transactions enter new lines business provide negative pledges enter transactions related parties enter speculative hedges although limited exceptions covenants accordingly prior facility precluded verint systems paying cash dividends limited ability make asset distributions stockholders including cti prior facility also contained number affirmative covenants including requirement verint submit consolidated financial statements lenders within certain periods fiscal year quarter april 2010 verint entered amendment prior facility extend due date delivery audited consolidated financial statements related documentation fiscal year ended january 31 2010 consideration amendment verint paid approximately 09 million prior amendment verint’s prior facility july 2010 applicable interest rate margin loans determined reference corporate ratings twice increased time 25 basis points due verint’s previous failure deliver certain audited financial statements lack corporate ratings resulting continued delay filing periodic reports applicable margin accordingly reduced 50 basis points june 2010 verint delivered required financial statements obtained corporate ratings entered amendment prior facility july 2010 applicable margin determined prior facility reference verint’s consolidated leverage ratio january 31 2011 interest rate term loan 525 interest rate term loan revolving line credit borrowings 349 january 31 2010 higher interest rate january 31 2011 reflected among things impact july 2010 amendments discussed information verint’s prior facility see item 7a “quantitative qualitative disclosures market riskinterest rate risk indebtedness” note 12 consolidated financial statements included item 15 annual report termination interest rate swap agreement may 25 2007 concurrently entry prior facility verint entered payfixedreceivevariable interest rate swap agreement multinational financial institution notional amount 4500 million mitigate portion risk associated variable interest rates term loan original term interest rate swap extended may 2011 however july 2010 verint terminated interest rate swap exchange payment 217 million counterparty made august 2010 representing approximate present value expected remaining quarterly settlement payments verint otherwise would owed swap agreement information verint’s interest rate swap agreement see item 7a “quantitative qualitative disclosures market risksinterest rate risk indebtedness” notes 12 13 consolidated financial statements included item 15 annual report new credit agreement new credit agreement provides 7700 million secured senior credit facilities comprised 6000 million term loan maturing october 2017 referred new term loan facility 1700 million revolving credit facility maturing april 2016 referred new revolving credit facility subject increase maximum increase 3000 million reduction time according terms new credit agreement april 30 2011 verint outstanding borrowings new revolving credit facility loans new credit agreement bear interest payable quarterly case eurodollar loans interest period three months shorter end interest period per annum rate verint’s election • case eurodollar loans adjusted libo rate plus 325 verint’s corporate ratings least bb ba3 better 300 “adjusted libo rate” greater 125 per annum ii product libo rate statutory reserves defined new credit agreement • case base rate loans base rate plus 225 verint’s corporate ratings least bb ba3 better 200 “base rate” greatest agent’s prime rate ii federal funds effective rate defined new credit agreement plus 050 iii adjusted libo rate one month interest period plus 100 verint agreed pay commitment fee respect undrawn availability new revolving credit facility payable quarterly rate 050 per annum customary administrative agent fees respect letters credit new credit agreement requires verint make term loan principal payments 15 million per quarter august 2017 beginning august 2011 remaining balance due october 2017 optional prepayments loan permitted without premium penalty customary breakage costs associated prepayment loans bearing interest based libo rates 10 premium applicable event repricing transaction defined new credit agreement prior april 30 2012 loans also subject mandatory prepayment requirements respect certain asset sales excess cash flow defined new credit agreement certain events prepayments applied first eight immediately following scheduled term loan principal payments pro rata remaining scheduled term loan principal payments verint’s obligations new credit agreement guaranteed similar prior facility substantially verint’s domestic subsidiaries secured similar prior facility security interest substantially assets verint guarantor subsidiaries subject certain exceptions verint’s obligations new credit agreement guaranteed cti secured cti’s assets new credit agreement contains customary affirmative negative covenants credit facilities type similar prior facility including limitations verint subsidiaries respect indebtedness liens nature business investments loans distributions acquisitions dispositions assets saleleaseback transactions affiliates accordingly new credit agreement similar prior facility precludes verint systems paying cash dividends limits ability make asset distributions stockholders including cti new credit agreement also contains financial covenant requires verint maintain consolidated total debt consolidated ebitda defined new credit agreement leverage ratio july 31 2013 greater 500 100 thereafter greater 450 100 limitations imposed covenants subject certain exceptions new credit agreement provides customary events default corresponding grace periods similar prior facility including failure pay principal interest new credit agreement due failure comply covenants representation warranty made verint proving inaccurate material respect defaults certain indebtedness verint subsidiaries change control defined new credit agreement verint certain insolvency receivership events affecting verint significant subsidiaries upon event default obligations verint owing new credit agreement may declared immediately due payable lenders’ commitments make loans new credit agreement may terminated information verint’s new credit agreement see note 28 consolidated financial statements included item 15 annual report convertible debt obligations may 2003 cti issued 4200 million aggregate principal amount convertible debt obligations referred existing convertible debt obligations january 26 2005 cti completed offer holders outstanding existing convertible debt obligations exchange existing convertible debt obligations new convertible debt obligations referred new convertible debt obligations 4200 million aggregate principal amount existing convertible debt obligations outstanding prior exchange offer approximately 4177 million aggregate principal amount representing approximately 995 original issue existing convertible debt obligations validly tendered exchange equal principal amount new convertible debt obligations convertible debt obligations mature may 15 2023 bear interest convertible debt obligations secured assets guaranteed cti’s subsidiaries terms indenture governing new convertible debt obligations cti obligation offer purchase cash new convertible debt obligations may 15 2009 meet obligations indenture cti commenced tender offer april 17 2009 upon completion tender offer may 15 2009 cti purchased using available cash 4173 million aggregate principal amount new convertible debt obligations following repurchase new convertible debt obligations january 31 2011 2010 cti 22 million aggregate principal amount outstanding convertible debt obligations respectively dates included 01 million aggregate principal amount outstanding new convertible debt obligations august 2010 standard poor’s discontinued rating convertible debt obligations time became convertible additional information relating convertible debt obligations see note 12 consolidated financial statements included item 15 annual report comverse ltd lines credit january 31 2010 comverse ltd whollyowned israeli subsidiary comverse inc 250 million line credit bank used various performance guarantees customers vendors letters credit foreign currency transactions ordinary course business line credit available borrowings line credit bears interest subject renewal annual basis comverse ltd required maintain cash balances bank less capacity line credit times regardless amounts utilized line credit june 2010 line credit decreased 150 million corresponding decrease cash balances comverse ltd required maintain bank 150 million december 2010 line credit decreased 100 million corresponding decrease cash balances comverse ltd required maintain bank 100 million january 31 2011 2010 comverse ltd utilized 40 million 77 million respectively capacity line credit guarantees foreign currency transactions january 31 2010 comverse ltd additional line credit bank 200 million used borrowings various performance guarantees customers vendors letters credit foreign currency transactions ordinary course business line credit bears interest borrowings thereunder subject renewal annual basis borrowings line credit bear interest annual rate libor plus variable margin determined based bank’s underlying cost capital comverse ltd required maintain cash balances bank less capacity line credit times regardless amounts borrowed utilized line credit june 2010 line credit decreased 150 million corresponding decrease cash balances comverse ltd required maintain bank 150 million january 31 2010 comverse ltd outstanding borrowings line credit december 2010 comverse ltd borrowed repaid 60 million line credit january 2011 comverse ltd borrowed 60 million line credit remained outstanding january 31 2011 weightedaverage interest rate outstanding borrowings fiscal year ended january 31 2011 1425 fiscal quarter ended april 30 2011 comverse ltd repaid full borrowings line credit january 31 2011 2010 comverse ltd utilized 73 million 98 million respectively capacity line credit guarantees foreign currency transactions comverse ltd’s requirement maintain cash balances banks disclosed lines credit financial covenant provisions settlements shareholder class derivative actions december 16 2009 december 17 2009 cti entered agreements settle consolidated shareholder class action consolidated shareholder derivative actions respectively agreement settle consolidated shareholder class action amended june 19 2010 pursuant amendment cti agreed waive certain rights terminate settlement exchange deferral timing scheduled payments settlement consideration optout credit respect portion settlement funds would payable class member elected participate bound settlement discussion actions additional terms settlement see item 3 “legal proceedings” part settlement consolidated shareholder class action amended cti agreed make payments class action settlement fund aggregate amount 1650 million paid remain payable follows • 10 million paid following signing settlement agreement december 2009 • 179 million paid july 2010 representing agreed 215 million payment less holdback 36 million respect anticipated optout credit holdback required paid cti optout credit less • 300 million paid may 2011 • 1125 million less amount optout credit exceeds holdback discussed payable november 15 2011 1125 million due november 15 2011 825 million payable cash cti’s election shares cti’s common stock valued using tenday average closing prices cti’s common stock prior election provided cti’s common stock listed national securities exchange payment date shares delivered one time aggregate value least 275 million payment 300 million made may 2011 could also paid shares cti’s common stock prior thereto cti met conditions using shares payment consideration cti receives net cash proceeds sale certain ars held aggregate amount excess 500 million cti required use 500 million proceeds prepay settlement amounts referred cti receives net cash proceeds sale ars aggregate amount excess 1000 million cti required use additional 500 million proceeds prepay settlement amounts referred addition cti granted security interest benefit plaintiff class account cti holds ars held account ubs proceeds sales thereof restricting cti’s ability use proceeds sales ars amounts payable settlement agreement paid full part settlement shareholder derivative actions cti paid october 2010 94 million cover legal fees expenses plaintiffs september 2010 cti received insurance proceeds 165 million directors’ officers’ insurance policies connection settlements shareholder derivative actions consolidated shareholder class action agreement settle consolidated shareholder class action amended approved court action pending june 23 2010 agreement settle federal state derivative actions approved courts actions pending july 1 2010 september 23 2010 respectively expect fund cash payments make settlement consolidated shareholder class action using cash hand insufficient proceeds sale investments including ars new borrowings cash generated asset divestitures proceeds issuance equity debt securities restructuring initiatives review business manage costs align resources market demand conjunction various acquisitions result taken several actions reduce fixed costs eliminate redundancies strengthen operational focus better position us respond market pressures unfavorable economic conditions restructuring initiatives expected positive impact operating cash flows long term also led lead charges first quarter 2010 restructuring initiative first quarter fiscal year ended january 31 2011 comverse’s management approved restructuring plan eliminate staff positions close certain facilities order streamline comverse’s activities aggregate cost plan 70 million recorded fiscal year ended january 31 2011 severancerelated facilitiesrelated costs 60 million 09 million respectively paid fiscal year ended january 31 2011 remaining costs 01 million expected substantially paid january 31 2012 third quarter 2010 restructuring initiative third quarter fiscal year ended january 31 2011 commenced first phase plan restructure operations comverse view towards aligning operating costs expenses anticipated revenue first phase plan includes termination certain employees located primarily israel us apac united kingdom relation first phase comverse recorded severancerelated costs 116 million facilitiesrelated costs 02 million fiscal year ended january 31 2011 severancerelated facilitiesrelated costs 91 million 01 million respectively paid fiscal year ended january 31 2011 remaining costs 25 million expected substantially paid january 31 2012 first quarter fiscal year ending january 31 2012 comverse commenced implementation phase ii business transformation focuses process reengineering maximize business performance productivity operational efficiency comprehensive discussion see “overviewsegment business highlights trendscomverse segmentphase ii business transformation” netcentrex 2010 initiative fiscal year ended january 31 2011 comverse’s management part initiatives improve focus core business maintain ability face intense competitive pressures markets began pursuing wind netcentrex business connection wind comverse’s management approved first phase restructuring plan eliminate staff positions primarily located france relation first phase recorded severancerelated costs 109 million paid 80 million costs fiscal year ended january 31 2011 remaining costs first phase 29 million expected substantially paid january 31 2012 alternative wind management continues evaluate strategic options netcentrex business guarantees restrictions access subsidiary cash guarantees provide certain customers ordinary course business financial performance guarantees certain cases backed standby letters credit surety bonds majority cash collateralized accounted restricted cash bank time deposits liable amounts guarantees event nonperformance would permit customer exercise guarantee january 31 2011 2010 believe compliance performance obligations contracts financial performance guarantee liabilities arising connection guarantees material adverse effect consolidated results operations financial position cash flows also obtained bank guarantees primarily provide customer assurance relating performance certain obligations required customer agreements guarantee certain payment obligations guarantees aggregated 476 million january 31 2011 generally scheduled released upon performance specified contract milestones majority scheduled completed various dates january 31 2012 dividends subsidiaries ability israeli subsidiaries pay dividends governed israeli law provides dividends may paid israeli corporation earnings defined accordance israeli companies law 1999 provided reasonable concern payment cause subsidiary fail meet current expected liabilities come due cash dividends paid israeli corporation united states resident corporate parents subject provisions convention avoidance double taxation israel united states referred convention terms convention dividends subject taxation israel united states case israel dividends distributed income derived respect period israeli company entitled reduced tax rate applicable approved enterprise generally subject withholding israeli income tax source rate 15 addition case dividend distributed tax exempted income derived period company entitled tax exempt income accordance encouragement law company subject tax year dividend distributed corporate tax grossed transferred amounts according corporate tax rate income subject approved enterprise program 10 tax addition 15 withholding tax applicable dividends distributed income subject regular corporate income tax rates included benefit tax rate income exempted income encouragement law subject withholding tax 125 terms convention operate business internationally significant portion cash equivalents held outside united states various foreign subsidiaries cash equivalents held outside united states distributed united states resident corporate parents form dividends otherwise may subject additional us income taxes subject adjustment foreign tax credits foreign withholding taxes may incur substantial withholding taxes repatriate cash certain foreign subsidiaries addition verint party credit agreement contains certain restrictive covenants among things preclude verint systems paying cash dividends limit ability make asset distributions stockholders including cti also pursuant investment agreements starhome bv precluded paying cash dividends shareholders without approval certain minority shareholders investment verint systems’ preferred stock may 25 2007 connection verint’s acquisition witness cti entered securities purchase agreement verint referred securities purchase agreement whereby cti purchased cash aggregate 293000 shares verint’s series convertible perpetual preferred stock referred preferred stock represents verint’s outstanding preferred stock aggregate purchase price 2930 million proceeds issuance preferred stock used partially finance acquisition preferred stock eliminated consolidation originally preferred stock confer cti voting rights convertible verint systems’ common stock october 5 2010 verint systems’ stockholders approved special stockholders meeting issuance verint systems’ common stock underlying preferred stock accordingly date preferred stock became voting convertible verint systems’ common stock ranking preferred stock issued purchase price 1000 per share ranks senior verint systems’ common stock liquidation preferred stock initial liquidation preference equal purchase price preferred stock 1000 per share event voluntary involuntary liquidation dissolution windingup verint cti entitled receive assets available distribution verint’s stockholders distribution assets holders verint systems’ common stock amount equal thencurrent liquidation preference includes accrued unpaid dividends january 31 2011 2010 liquidation preference preferred stock 3387 million 3259 million respectively dividends cash dividends preferred stock cumulative calculated quarterly specified dividend rate liquidation preference effect time dividends paid declared verint’s board directors dividend rate 3875 per annum verint determines prohibited paying cash dividends preferred stock terms credit agreement debt instruments may elect make dividend payments shares common stock common stock valued 95 volume weightedaverage price common stock five consecutive trading days ending second trading day immediately prior record date dividend verint’s prior facility contained new credit agreement contains restrictive covenant limits ability pay dividends preferred stock verint’s ability pay dividends common stock ranks junior preferred stock respect payment dividends limited declared dividend payment regularly scheduled dividend payment date preferred stock date hereof dividends declared paid preferred stock january 31 2011 january 31 2010 cumulative undeclared dividends preferred stock 457 million 329 million respectively voting share preferred stock entitled number votes equal number shares common stock share preferred stock convertible using conversion rate effect upon issuance preferred stock may 2007 matters voted upon verint systems’ common stockholders initial conversion rate set 306185 shares common stock share preferred stock conversion share preferred stock convertible option cti number shares verint systems’ common stock equal liquidation preference effect divided conversion price effect initially set 3266 remained unchanged january 31 2011 conversion price subject periodic adjustment upon occurrence certain dilutive events liquidation preference equal issue price 1000 per share plus sum accrued unpaid dividends whether declared january 31 2011 2010 preferred stock could converted approximately 104 million 100 million shares verint systems’ common stock respectively time verint may force conversion less preferred stock common stock option closing sale price common stock immediately prior conversion equals exceeds conversion price effect 135 special rights upon fundamental change terms preferred stock also provide upon fundamental change defined certificate designation preferred stock cti would right require verint repurchase preferred stock 100 liquidation preference effect fundamental change events include sale substantially verint’s assets certain changes beneficial ownership board directors’ representation business reorganizations verint fails repurchase preferred stock required upon fundamental change number directors constituting board directors increased two cti right elect two directors fill vacancies upon repurchase preferred stock subject fundamental change repurchase right cti longer right elect additional directors term office additional director terminate immediately upon repurchase number directors without action reduced two addition event fundamental change conversion rate increased provide additional shares common stock issuable cti upon conversion based sliding scale depending acquisition price defined certificate designation preferred stock ranging zero 37 additional shares common stock every share preferred stock converted common stock transfer registration rights cti right sell preferred stock since november 25 2007 either private public transactions pursuant registration rights agreement cti verint entered concurrently securities purchase agreement referred new registration rights agreement subject certain conditions satisfied cti entitled two demands require verint register preferred stock andor shares common stock underlying preferred stock resale securities act 1933 amended securities act resales may made underwritten offerings upon cti’s request new registration rights agreement also provides cti unlimited piggyback registration rights certain securities act registrations filed verint behalf verint stockholders cti’s rights new registration rights agreement addition rights previous registration rights agreement cti entered verint shortly verint’s initial public offering 2002 registration rights agreement referred original registration rights agreement covers shares common stock held cti additional shares common stock acquired cti later dates original registration rights agreement cti entitled unlimited demand registrations shares registration statements form s3 long verint eligible use registration statement form s3 cti also entitled one demand registration statement form s1 effective july 15 2010 cti made demand pursuant original registration rights agreement 28 million shares verint systems’ common stock registered registration statement form s1 january 14 2011 completed sale 23 million shares verint systems’ common stock secondary public offering addition similar new registration rights agreement original registration rights agreement also provides cti unlimited piggyback registration rights liquidation preference starhome bv event liquidation merger sale starhome bv first 200 million proceeds would distributed certain minority shareholders thereafter cti would entitled greater 410 million remaining proceeds less certain amounts 11 million payable cti founders starhome ii pro rata share remaining proceeds asconverted basis offbalance sheet arrangements material offbalance sheet arrangements performance guarantees previously discussed see “liquidity capital resourcesguarantees restrictions access subsidiary cash” contractual obligations following table presents contractual obligations january 31 2011 1 purchase obligations include agreements purchase goods services enforceable legally binding specify significant terms including fixed minimum quantities purchased fixed minimum variable price provisions approximate timing transaction purchase obligations exclude agreements cancelable without penalty 2 includes 300 million paid cti may 2011 pursuant settlement agreement consolidated shareholder class action amended ii cti’s remaining payment obligation settlement agreement due november 2011 3 consolidated balance sheet january 31 2011 includes 1519 million noncurrent tax liabilities uncertain tax positions specific timing cash payments relating obligation cannot projected reasonable certainty therefore amounts obligation included table set forth longterm debt obligations reflected include projected interest payments scheduled term debt assuming interest rates 525 interest rate effect verint’s term loan borrowings prior facility january 31 2011 interest rate term loan revolving credit facility prior facility variable prior facility terminated april 29 2011 verint entered new credit agreement detailed discussion interest borrowings prior facility new credit agreement see item 7a “quantitative qualitative disclosures market riskinterest rate risk indebtedness” critical accounting estimates judgments accounting estimates judgments discussed section consider critical understand consolidated financial statements financial statements involve significant judgments uncertainties specifically accounting estimates judgments outlined critical materially affect operating results financial condition inasmuch require management make difficult subjective judgments regarding uncertainties many estimates include determinations fair value estimates reflect best judgment current estimates future economic market conditions effects based information available us date accompanying financial statements result accuracy estimates likelihood future changes depend range possible outcomes number underlying variables beyond control see also note 1 consolidated financial statements included item 15 annual report additional information significant accounting estimates judgments underlying financial results disclosed consolidated financial statements please note following discussion critical accounting estimates judgments contains references fasb’s guidance effect applicable consolidated financial statements january 31 2011 end recent fiscal year covered annual report revenue recognition report revenue two categories product revenue including hardware software products ii service revenue including revenue professional services training services postcontract customer support pcs professional services primarily include installation customization consulting services vast majority revenue accounted accordance fasb’s guidance relating revenue recognition software arrangements software component multiple element arrangements incidental products sold applying fasb’s guidance exercise judgment use estimates determination revenue recognized accounting period arrangements require significant modification customization underlying software recognize revenue persuasive evidence arrangement product shipped services provided customer sales price fixed determinable collectability probable pertinent criteria met required fasb’s guidance majority software license arrangements contain multiple elements including perpetual software licenses hardware pcs training professional services allocate revenue delivered elements arrangement using residual method whereby revenue allocated undelivered elements based vendor specific objective evidence vsoe fair value undelivered elements remaining arrangement fee allocated delivered elements recognized revenue assuming revenue recognition criteria met unable establish vsoe fair value undelivered elements arrangement revenue recognition deferred entire arrangement elements arrangement delivered however undelivered element pcs recognize arrangement fee ratably pcs period timing recognition revenue transactions involves numerous judgments estimates policy determinations significant summarized follows pcs revenue derived primarily providing technical software support services unspecified software updates upgrades customers available basis pcs revenue recognized ratably term pcs period pcs included within multiple element arrangement primarily utilize substantive renewal rate establish vsoe fair value pcs much lesser extent bellshaped curve approach used certain verint arrangements depending upon geographical region product line using substantive renewal rate method may unable establish vsoe fair value pcs renewal rate deemed nonsubstantive contractuallystated renewal rates stated renewal rate nonsubstantive entire arrangement fee recognized ratably estimated economic life product five eight years beginning upon delivery elements pcs believe estimated economic life product best estimate long customer renew pcs contractually stated renewal rate entire arrangement fee recognized ratably relevant contractual pcs term beginning upon delivery elements pcs arrangements include stated renewal rate determining whether actual renewal rate substantive matter judgment group products stratify customers based size installed base geographic location customer based historical negotiations contract experience believe customers behave differently perceive different values pcs based two main factors bellshaped curve approach establishing vsoe fair value verint performs vsoe fair value compliance test ensure substantial majority 75 actual pcs renewals within narrow range plus minus 15 median pricing evaluate many factors determining estimated economic life products including support period product technological obsolescence average time new product releases upgrade activity customers concluded estimated economic lives key software products range five eight years policy establishing vsoe fair value professional services training based upon analysis separate sales services compared fees charged elements included multiple element arrangement comverse yet established vsoe fair value element pcs certain multiple element arrangements obligated provide training services customers related operation software products comverse training services either provided customer “defined” basis limited specified number days training classes “asrequested” basis unlimited training contractual period multiple element arrangements containing asrequested training obligations recognize total arrangement consideration ratably contractual period required “stand ready” perform training provided criteria revenue recognition met multiple element arrangements containing defined training obligations training services typically provided customer prior completion installation services situations revenue recognition commence completion installation defined training obligations impact timing recognition revenue certain circumstances training provided end installation period commence revenue recognition upon completion training provided criteria revenue recognition met arrangements require significant customization product meet particular requirements customer arrangements revenue recognized accordance fasb’s guidance longterm construction type contracts using percentageofcompletion poc method determination whether services entail significant customization requires judgment primarily based alterations features functionality standard release complex unusual interfaces well amount hours necessary complete customization solution relative size contract revenue arrangements recognized poc method based ratio total hours incurred date compared estimated total hours complete contract required make judgments estimate total estimated costs progress completion changes estimates impact timing revenue recognition period use historical experience project plans assessment risks uncertainties inherent arrangement establish estimates uncertainties arrangements include implementation delays performance issues may within control level profitability assured related revenue costs cannot reasonably estimated revenue recognized extent costs incurred time project’s profitability estimated services completed vsoe fair value pcs exist revenues recognized equal extent costs incurred services completed provided able make reliable cost estimates level profitability assured services completed remaining unrecognized portion arrangement fee recognized ratably remaining pcs period situations able make reliable estimates level profitability assured revenue deferred completion professional services recognized ratably respective pcs period determine based estimates costs exceed sales price entire amount estimated loss accrued period losses become evident revenue recognized multiple periods accordance revenue recognition policies material cost including hardware thirdparty software license fees deferred amortized period product revenue recognized costs recognized “deferred cost revenue” consolidated balance sheets however made accounting policy election whereby cost installation service costs expensed incurred except arrangements recognized accordance fasb’s guidance longterm construction type contracts consolidated statements operations classify revenue product revenue service revenue prescribed sec rules regulations multiple element arrangements include product service elements unable determine vsoe fair value elements arrangement management evaluates various available indicators fair value applies judgment reasonably classify arrangement fee product revenue service revenue amount multiple element arrangement fees classified product service revenue based management estimates fair value vsoe fair value elements arrangement exist could differ amounts classified product service revenue vsoe fair value elements existed allocation multiple element arrangement fees product revenue service revenue vsoe fair value elements exist consolidated financial statement presentation purposes affect timing amount revenue recognized determining amount multiple element arrangement fee classified product revenue service revenue comverse first allocates arrangement fee product revenue pcs classified service revenue based management’s estimate fair value elements remainder arrangement fee comprised service elements allocated service revenue estimate fair value product element based primarily management’s evaluation direct costs reasonable profit margins products determined appropriate methodology comverse historically product oriented respect pricing policies facilitates evaluation product costs related margins arriving reasonable estimate product element fair value management’s estimate reasonable profit margins requires significant judgment consideration various factors impact economic environment margins complexity projects stability product profit margins nature products estimate fair value pcs based management’s evaluation weighted average pcs rates arrangements vsoe fair value pcs exists determining classification revenue products services verint reviews vsoe fair value training installation pcs services similar transactions stand alone services arrangements compares peers order determine reasonable consistent approximations fair values service revenue remaining amount allocated product revenue sales resellers original equipment manufacturers oems purchase verint’s products resale generally recognized products shipped referred sellin basis reseller oem policy predicated verint’s ability estimate sales returns customers among criteria verint also required evaluate whether resellers oems ability honor commitment make fixed determinable payments regardless whether collect payment customers verint change assumptions judgments could cause material change reported revenue particular period verint historically experienced insignificant product returns resellers oems payment terms customers similar granted endusers reseller oem develops pattern payment delinquency seeks payment terms longer generally accepted verint defers recognition revenue receipt cash extended payment terms one critical judgments make related revenue recognition assessment collectability probable recognition revenue based assessment probability collecting related accounts receivable balance onset sales arrangement certain comverse’s arrangements include payment terms depart customary practice situations customer adequate history abiding contractual payment terms without concessions sales price considered fixed determinable revenue recognized upon collection provided revenue recognition criteria met consider payment terms 5 arrangement fees due 120 days customer acceptance extended arrangement new customer payment terms extended evidence collecting original payment terms without making concessions therefore presumption fee fixed determinable cannot overcome arrangement existing customer evaluation customer’s payment history take place determine fee fixed determinable stockbased compensation account sharebased payment awards including employee stock options restricted stock deferred stock units employee stock purchases made employees directors accordance fasb’s guidance sharebased payment related interpretative guidance requires measurement recognition compensation expense awards based estimated fair value options granted cti well verint starhome subsidiaries granted ulticom prior sale cti december 3 2010 required estimate fair value sharebased payment awards date grant using optionpricing model fasb’s guidance stockbased compensation expense measured grant date based fair value award cost recognized expense ratably award’s vesting period use blackscholes optionpricing model measure fair value stock option awards black scholes model requires us make judgments regarding assumptions used within model significant stock price volatility assumption term awards expected life option award based actual projected employee stock option behaviors inputs noted factored option valuation model use measure fair value stock awards subjective estimates changes estimates could cause fair value stock awards related stockbased compensation expenses vary materially except noted following key assumptions used stockbased compensation awards • riskfree interest rate assumption use based upon us treasury interest rates appropriate expected life awards • cti prospectively changed expected volatility assumption historical implied volatility effective august 1 2005 change based availability traded options cti’s stock assessment implied volatility better indicator expected volatility historical volatility implied volatility available may due lack trading cti utilize historical volatility • majorityowned subsidiaries including publiclytraded subsidiaries use historical volatility measuring volatility stock options • order determine estimated period time expect employees hold stock options analyzed historical exercise rates case modifications related additional time exercise afforded certain terminated employees affected restricted period estimated holding period based projected date compliance periodic reporting obligations federal securities laws restricted period resulted cti’s verint’s inability remain current periodic reporting obligations exchange act since april 2006 cti verint ineligible use registration statements form s8 offer sale equity securities including exercise stock options employees verint became current periodic reporting obligations federal securities laws june 2010 • expected dividend rate zero since currently pay cash dividends common stock anticipate foreseeable future also required estimate expected forfeitures stockbased awards grant date recognize compensation cost awards expected vest although estimate forfeitures based historical experience future expectation actual forfeitures may differ forfeiture assumption adjusted actual forfeitures occur fiscal years ended january 31 2011 2010 2009 consolidated stockbased compensation expense 574 million 577 million 533 million respectively business combinations acquire business allocate fair value consideration transferred business combination estimated fair value acquisition date tangible intangible assets acquired liabilities assumed noncontrolling interest intangible assets consist primarily acquired technology customer relationships time engage independent thirdparty appraisal firms assist management considering determinations fair values significant net assets acquired residual purchase price recorded goodwill purchase price allocation process requires us make significant estimates assumptions especially acquisition date respect intangible assets estimated restructuring liabilities preacquisition contingencies although believe assumptions estimates made past reasonable appropriate based part historical experience information obtained management acquired companies result inherent level uncertainty key critical estimates valuing certain intangible assets include limited • future expected cash flows generated acquired technology customer relationships • expected costs develop inprocess research development commercially viable products estimated cash flows projects completed • acquired company’s brand competitive position well assumptions period time acquired brand continue used • weighted average cost capital discount rates • estimating useful lives acquired assets well pattern manner assets amortize make significant judgments related business combinations including evaluating contingent consideration agreements review contingent consideration agreements ensure represent compensation ongoing activities business consider reasons contingent consideration provisions terms employment agreements mix employee selling shareholders nonemployee selling shareholders making determination whether contingent consideration accounted adjustment purchase price compensation services also estimate fair value contractual support obligations deferred revenue assuming acquired business estimated fair value support obligations determined utilizing cost buildup approach determines fair value estimating costs related fulfilling obligations plus reasonable profit margin estimated costs fulfill support obligations based historical direct costs related providing support services sum costs operating profit represents approximation amount would required pay third party assume support obligations unanticipated events circumstances may occur affect accuracy validity assumptions estimates actual results recoverability goodwill represents excess fair value consideration transferred business combination fair value tangible intangible assets acquired net fair value liabilities assumed fair value noncontrolling interest acquiree indefinitelived intangible assets goodwill january 31 2011 2010 2009 accordance fasb’s guidance goodwill intangible assets review assets impairment annually november 1 whenever events circumstances indicate carrying value may recoverable carrying value goodwill exceeds implied fair value impairment loss recognized goodwill impairment analysis comprised two steps first step first compare fair value reporting unit carrying value consider incomebased approach using projected discounted cash flows marketbased approach using multiples comparable companies determine fair value estimate fair value reporting unit based number subjective factors including appropriate weighting valuation approaches incomebased approach marketbased approach ii estimates future revenue cash flows iii discount rate estimated cash flows iv selection peer group companies marketbased approach v required level working capital vi assumed terminal value vii time horizon cash flow forecasts viii control premium carrying value net assets assigned reporting unit exceeds fair value perform second step determine implied fair value reporting unit’s goodwill use work independent thirdparty appraisal firm assist us considering determination implied fair value goodwill fair values calculated using income approach market approach based comparable companies income approach commonly known discounted cash flow approach estimates fair value based cash flows asset expected generate useful life carrying value reporting unit’s goodwill exceeds implied fair value impairment charge equal difference recorded assumptions estimates future values reporting units implied goodwill complex subjective affected variety factors including external factors industry economic trends internal factors changes business strategy internal forecasts although believe historical assumptions estimates made reasonable appropriate different assumptions estimates could materially impact reported financial results incur impairment goodwill fiscal years ended january 31 2011 2010 second quarter fiscal year ended january 31 2009 performed interim impairment test longlived assets goodwill netcentrex reporting unit due significant reduction orders key customer reporting unit result test recorded pretax goodwill impairment charge fiscal year ended january 31 2009 214 million fully write remaining goodwill netcentrex reporting unit impairment longlived assets review recoverability longlived assets property equipment intangible assets finite lives whenever events changes circumstances occur indicate carrying value asset may recoverable impairment assets must considered prior impairment review goodwill assessment impairment based ability recover carrying value asset analyzing expected future undiscounted pretax cash flows specific asset group circumstances could trigger review include limited significant decreases market price asset significant adverse changes business climate legal factors accumulation costs significantly excess amount expected acquisition longlived asset current period negative cash flow operating losses combined history losses forecast continuing losses associated use asset assess recoverability carrying value longlived assets lowest level identifiable cash flows largely independent cash flows assets liabilities undiscounted cash flows less carrying value asset group impairment loss measured based difference estimated fair value carrying value assets disposed writtendown greater fair value salvage value estimated fair values based assumptions regarding amount timing estimated future cash flows appropriate discount rates reflect varying degrees perceived risk significant management judgment involved estimating factors include inherent uncertainties measurement recoverability assets dependent upon accuracy assumptions used making estimates well estimates compare eventual future operating performance specific reporting unit assets attributed connection testing goodwill netcentrex reporting unit recorded charges 34 million 270 million relating finitelived intangible assets fiscal year ended january 31 2010 2009 respectively writedowns reflect impairment reporting unit’s intangible assets allowance doubtful accounts estimate collectability accounts receivable balances accounting period adjust allowance doubtful accounts accordingly exercise judgment assessing collectability accounts receivable including consideration current economic conditions creditworthiness customers collection history related aging past due receivables balances evaluate specific accounts become aware customer may experiencing deterioration financial condition due lower credit ratings bankruptcy factors may affect customer’s ability meet payment obligation management used available information subsequent balance sheet date evaluate reasonableness estimates charge uncollectible trade receivables collection efforts exhausted believe amount collected january 31 2011 2010 accounts receivable balance 3196 million 3102 million net allowance doubtful accounts 132 million 169 million respectively unanticipated events circumstances may occur affect accuracy validity assumptions estimates actual results valuation otherthantemporary impairments account investments accordance fasb’s guidance accounting certain investments debt equity securities designated debt equity securities availableforsale purchased accordingly report fair value fair value determined using quoted market prices active markets identical investments available valuation methodology used ars includes certain assumptions supported prices observable current market transactions instruments based observable market data quoted market prices active markets identical investments available estimate assistance independent thirdparty appraisal firm applicable fair value based underlying structure security ii present value future principal interest payment discounted rates considered reflect current market conditions iii considerations probabilities default auction failure interest rates reset zero maximum rate repurchase par period iv estimates recovery rates event default security prices recently traded securities also reviewed available estimated fair values could change significantly based inherent variability aforementioned market factors ars valuations also vary significantly across various classes securities depending number factors including creditworthiness issuer guarantors quality sufficiency collateral example student loan auction rate securities slars substantially guaranteed federal government federal family education loan program ffelp liquidity slars severely constrained consistent ars market overall government guarantee results slars generally maintaining higher valuation ars issues guarantors lesser quality supported guarantee approximately 88 724 million 84 1147 million ars carrying amount january 31 2011 january 31 2010 comprises slars respectively valuations across slars issues also vary depending ranking securities within capital structure relevant trust issue less subordinated within given capital structure reflected security’s relative credit rating rate return time issuance greater degree subordination greater risk given security might fully redeemed event applicable trust liquidated prior maturity securities issued liquidation scenario assets trust would first applied redeem ars ranking highest capital structure applied subsequent layers descending rank order essentially slars carried initial credit ratings reflecting senior positions within capital structures various trusts thereby greatly reducing risk issues might redeemed respective par values liquidation event review investments indications impairment value quarterly basis consider investment impaired fair value less carrying value amortized cost evaluated impaired investment individually determine whether investment otherthantemporarily impaired debt securities consider whether intent sell security ii likely required sell security recovery fair value amortized cost iii credit loss exists measured difference amortized cost basis security present value projected future cash flows expected collected debt securities intend sell security likely required sell security recovery fair value amortized cost portion otherthantemporary impairment attributable credit loss recognized current earnings remaining portion recognized component comprehensive income determined could assert intended hold ars fair value recovered amortized cost accordingly recorded otherthantemporary impairment charges 04 million 69 million 865 million pretax basis fiscal years ended january 31 2011 2010 2009 respectively carrying amounts ars january 31 2011 2010 724 million corresponding par value 944 million 1147 million corresponding par value 2066 million respectively august 2010 began forecast sell remaining ars fourth quarter fiscal year ending january 31 2012 expiration restrictions sales ars use proceeds sales thereof following final payment settlement agreement consolidated shareholder class action due november 15 2011 accordingly ars classified current assets january 31 2011 short interest rate reset period historically recorded ars current assets fiscal year ended january 31 2008 certain auctions related ars began fail fiscal year ended january 31 2009 auctions failed classified ars longterm assets january 31 2010 continued classify ars longterm investments except ars subject ubs put required exercised settlement agreement consolidated shareholder class action june 30 2010 exercised cti date additional information relating ars ubs put see note 3 consolidated financial statements included item 15 annual report income taxes account income taxes accordance fasb’s guidance relating income taxes income taxes provided using asset liability method income taxes ie deferred tax assets deferred tax liabilities taxes currently payablerefunds receivable tax expensebenefit recorded based amounts refundable payable current year include results difference us gaap tax reporting deferred income taxes reflect tax effect net operating losses capital losses general business credit carryforwards net tax effects temporary differences carrying amount assets liabilities financial statement income tax purposes determined enacted tax laws rates valuation allowances established management determines morelikelythannot portion deferred tax asset realized financial effect changes tax laws rates accounted period enactment subsequent realization net operating loss general business credit carryforwards acquired acquisitions accounted using acquisition method accounting recognized consolidated statement operations research development credits recorded based amount benefit believe morelikelythannot earned additionally required recognize consolidated financial statements tax positions determined morelikelythannot sustained upon examination based technical merits positions time engage transactions tax consequences may subject uncertainty examples transactions include business acquisitions dispositions certain financing transactions significant judgment required assessing estimating tax consequences transactions prepare file tax returns based interpretation tax laws regulations normal course business tax returns subject examination various taxing authorities examinations may result future tax interest assessments taxing authorities determining tax provision financial reporting purposes establish reserve uncertain tax positions unless positions determined morelikelythannot sustained upon examination based technical merits financial reporting purposes recognize tax benefits taken tax return believe morelikelythannot sustained considerable judgment involved determining whether positions taken tax return morelikelythannot sustained adjust tax reserve estimates periodically ongoing examinations settlements various taxing authorities well changes tax laws regulations interpretations consolidated tax provision given year includes adjustments prior year income tax accruals considered appropriate related estimated interest policy recognize applicable interest penalties uncertain tax positions part income tax expense information see note 22 consolidated financial statements included item 15 annual report part accounting business combinations purchase price allocated goodwill intangible assets impairment charges associated goodwill generally tax deductible result increased effective income tax rate quarter impairment recorded amortization expenses associated acquired intangible assets generally tax deductible pursuant existing tax structure however deferred taxes recorded nondeductible amortization expenses part purchase price allocation process taken account allocation identified intangibles among different taxing jurisdictions including nominal zero percent tax rates establishing related deferred tax liabilities income tax contingencies existing acquisition dates acquired companies evaluated quarterly adjustments recorded adjustments goodwill fasb’s guidance tax benefit future release acquisition date valuation allowances reflected tax provision rather adjustment purchase price allocation litigation contingencies nature relate uncertainties require management exercise judgment assessing likelihood liability incurred well estimating amount potential loss accrue costs relating litigation claims contingent matters liabilities become probable reasonably estimable expense legal fees associated consultations outside counsel defense lawsuits incurred estimates may based advice third parties solely management’s judgment appropriate actual amounts paid may differ materially amounts estimated differences charged operations period final determination liability made time receive notices products processes may infringing patent intellectual property rights others notices shareholder litigation notices lawsuits claims us assess matter order determine contingent liability recorded making determination management may depending nature matter consult internal external legal counsel based information obtained combined management’s judgment regarding facts circumstances matter determine whether contingent loss probable whether amount loss estimated loss probable estimable record contingent loss judgments estimates made management coincide future events judicial action us expected merit part party bringing action us may need record additional contingent losses could materially adversely impact results operations alternatively judgments estimates made management incorrect particular contingent loss occur contingent loss recorded would reversed thereby favorably impacting results operations fiscal year ended january 31 2007 recorded 1744 million pretax charge settlement amounts payable settlement agreements consolidated shareholder class action federal state derivative actions agreements approved courts actions pending june 23 2010 july 1 2010 september 23 2010 respectively amounts payable settlements consisted aggregate 1650 million payable settlement consolidated shareholder class action settlement 94 million legal fees expenses plaintiffs settlement shareholder derivative actions amount charge determined based actual amount settlement reflected charges fiscal year ended january 31 2007 fiscal period actions commenced fiscal period lawsuits settled financial statements fiscal year ended january 31 2007 issued upon entering settlement agreement consolidated shareholder class action december 2009 cti paid 10 million plaintiff class fiscal year january 31 2011 cti paid 179 million 94 million agreements settle consolidated shareholder class action consolidated shareholder derivative actions respectively recent accounting pronouncements standards implemented june 2009 fasb issued guidance modifies approach determining primary beneficiary variable interest entity vie modified approach enterprise required make qualitative assessment whether power direct activities vie significantly impact entity’s economic performance ii obligation absorb losses vie right receive benefits vie could potentially significant vie enterprise characteristics enterprise considered primary beneficiary must consolidate vie modified approach determining primary beneficiary vie effective us commencing february 1 2010 application guidance material impact consolidated financial statements january 2010 fasb issued guidance amend disclosure requirements related recurring nonrecurring fair value measurements guidance requires new disclosures transfers assets liabilities level 1 quoted prices active market identical assets liabilities level 2 significant observable inputs fair value measurement hierarchy including reasons timing transfers additionally guidance requires gross presentation activity within level 3 significant unobservable inputs roll forward presenting information purchases sales issuance settlements separately guidance effective us interim annual periods commenced february 1 2010 except gross presentation level 3 roll forward became effective us interim annual periods commenced february 1 2011 adoption guidance resulted additional disclosures anticipated result additional disclosures gross presentation level 3 roll forward effective standards implemented september 2009 fasb issued revenue recognition guidance applicable multipledeliverable arrangements • applies multipledeliverable revenue arrangements contain software hardware elements focusing determining revenue arrangements within scope software revenue guidance • addresses separate consideration multipledeliverable arrangements excluding software arrangements establishes hierarchy determining selling price deliverable also eliminates residual method allocation requiring arrangement consideration allocated inception arrangement deliverables using relative selling price method also significantly expands disclosure requirements elected early adopt guidance result effective prospective basis revenue arrangements entered materially modified february 1 2011 subsequent adoption portion multipledeliverable arrangements contain hardware longer included within scope software revenue guidance generally results accelerated revenue recognition comparison historical treatment primarily relates arrangements multiple product deliverables well arrangements recognized ratably pcs period due absence vsoe fair value adoption guidance material impact consolidated financial statements fiscal quarter ended april 30 2011 believe could materially increase revenue fiscal year ending january 31 2012 december 2010 fasb issued guidance amend disclosure requirements related reporting pro forma revenue earnings business combinations amended guidance requires acquiring entity report revenue earnings pro forma information combined entity though business combination occurred current year occurred beginning comparable prior annual reporting period addition amended guidance also expands supplemental pro forma disclosures include description nature amount material nonrecurring pro forma adjustments directly attributable business combination included reported pro forma revenue earnings elected early adopt guidance result effective us prospective basis business combinations entered february 1 2011 business combinations material individual aggregate basis entered february 1 2011 adoption guidance anticipated result additional disclosures december 2010 fasb issued guidance perform step two goodwill impairment test reporting units zero negative carrying amounts upon adoption carrying value reporting unit zero negative reporting entity must perform step two goodwill impairment test likely goodwill impaired date adoption determining likely goodwill impairment exists entity consider whether adverse qualitative factors indicating impairment may exist goodwill impairment recognized upon adoption guidance presented cumulativeeffect adjustment opening retained earnings adoption date reflecting change accounting principle guidance effective us interim annual periods commencing february 1 2011 assessing impact adoption guidance consolidated financial statements fiscal year ending january 31 2012 based carrying value comverse reporting unit negative february 1 2011 qualitative factors step two goodwill impairment test performed date performance impairment test ongoing believe adoption guidance lead material impairment goodwill consolidated financial statements fiscal year ending january 31 2012 item 7aitem 7 managements discussion analysis financial condition results operations results operations introduction july 2000 comverse acquired outstanding stock loronix information systems inc nevada corporation loronix transaction accounted pooling interests companys financial statements years ended january 31 2000 1999 include operations loronix years ended december 31 1999 1998 respectively cost sales include material costs subcontractor costs salary related benefits operations service departments depreciation amortization equipment used operations service departments amortization capitalized software costs travel costs overhead allocation research development costs include salary related benefits well travel depreciation amortization research development equipment overhead allocation well costs associated research development activities selling general administrative costs include salary related benefits travel depreciation amortization marketing promotional materials recruiting expenses professional fees facility costs well costs associated sales marketing finance administrative departments year ended january 31 2001 compared year ended january 31 2000 sales fiscal year ended january 31 2001 fiscal 2000 increased approximately 3154 million 35 compared year ended january 31 2000 fiscal 1999 increase primarily attributable increase sales esp products approximately 2772 million increase principally due increased sales european american customers addition sales business intelligence recording products service enabling network software products increased approximately 238 million 187 million respectively cost sales cost sales fiscal 2000 increased approximately 1079 million 31 compared fiscal 1999 increase cost sales primarily attributable increased materials production costs approximately 623 million due increase sales ii increased personnelrelated costs approximately 303 million due hiring additional personnel increased compensation benefits existing personnel iii increased travelrelated costs approximately 71 million iv increase depreciation amortization costs approximately 43 million gross margins increased approximately 61 fiscal 1999 approximately 62 fiscal 2000 selling general administrative expenses selling general administrative expenses fiscal 2000 increased approximately 656 million 34 compared fiscal 1999 percentage sales approximately 21 fiscal 1999 fiscal 2000 increase primarily due hiring additional personnel increased compensation benefits existing personnel support increased level sales fiscal 2000 22 research development net research development expenses fiscal 2000 increased approximately 624 million 37 compared fiscal 1999 due overall growth research development operations initiation significant new research development projects increase primarily due hiring additional personnel increased compensation benefits existing personnel support higher volume research development activities royalties license fees royalties license fees fiscal 2000 increased approximately 32 million 17 compared fiscal 1999 increase primarily result growth sales royalty bearing products merger expenses february 1999 company acquired outstanding stock amarex technology inc company develops softwarebased applications telephone network operator call center markets august 1999 company acquired outstanding stock intouch systems inc company develops markets suite intelligent voicecontrolled software applications july 2000 company acquired outstanding stock loronix company develops softwarebased digital video recording management systems outstanding stock syborg informationsysteme gmbh company develops softwarebased digital voice internet recording workforce management systems august 2000 company acquired outstanding stock gaya software industries ltd company specializing softwarebased intelligent ip gateways voiceoverip technology outstanding stock exalink ltd company specializing protocol gateways applications software delivery internetbased services types wireless devices business combinations accounted pooling interests connection acquisitions company charged operations approximately 20 million 160 million fiscal 1999 fiscal 2000 respectively merger related charges relate following asset writedowns impairments connection acquisitions fiscal 2000 certain assets became impaired due existence duplicative technology property equipment inventory merged companies accordingly assets written net realizable value time mergers charge approximately 74 million charged operations professional fees direct merger expenses connection acquisitions fiscal 1999 fiscal 2000 company recorded charge approximately 20 million 86 million respectively professional fees lawyers investment bankers accountants well direct merger costs connection mergers printing costs filing fees 23 interest income net interest income net fiscal 2000 increased approximately 167 million compared fiscal 1999 principal reasons increase increased interest dividend income approximately 267 million change foreign currency gainslosses approximately 88 million decrease interest expense approximately 14 million increases partially offset increase net realized losses writedowns companys investments equity earnings affiliates approximately 207 million november december 2000 company issued 600 million convertible senior debentures interest income earned proceeds debentures adding increase interest dividend income fiscal 2000 decrease interest expense primarily result inclusion fiscal 1999 companys 534 convertible subordinated debentures redeemed october 1999 income tax provision income taxes increased fiscal 1999 fiscal 2000 approximately 31 million 20 due increased pretax income companys overall effective tax rate decreased approximately 8 fiscal 1999 approximately 7 fiscal 2000 companys overall rate tax reduced significantly tax benefits associated qualified activities certain israeli subsidiaries entitled favorable income tax rates program israeli government approved enterprise investments country net income net income increased approximately 760 million 44 fiscal 2000 compared fiscal 1999 percentage sales increased approximately 19 fiscal 1999 approximately 20 fiscal 2000 increase resulted primarily factors described year ended january 31 2000 compared year ended january 31 1999 sales fiscal 1999 increased approximately 2009 million 28 compared fiscal year ended january 31 1999 fiscal 1998 increase primarily attributable increase sales esp products approximately 1615 million increase principally due increased sales european customers addition sales business intelligence recording products service enabling network software products increased approximately 313 million 63 million respectively cost sales cost sales fiscal 1999 increased approximately 646 million 22 compared fiscal 1998 increase cost sales primarily attributable increased materials production costs approximately 40 million due increase sales increased personnelrelated costs approximately 23 million due hiring additional personnel increased compensation benefits existing personnel gross margins increased approximately 59 fiscal 1998 approximately 61 fiscal 1999 selling general administrative expenses selling general administrative expenses fiscal 1999 increased approximately 369 million 23 compared fiscal 1998 percentage sales decreased approximately 22 fiscal 1998 approximately 21 fiscal 1999 increase primarily due hiring additional 24 personnel increased compensation benefits existing personnel support increased level sales fiscal 1999 research development net research development expenses fiscal 1999 increased approximately 356 million 27 compared fiscal 1998 due overall growth research development operations initiation significant new research development projects increase primarily due hiring additional personnel increased compensation benefits existing personnel support higher volume research development activities royalties license fees royalties license fees fiscal 1999 increased approximately 23 million 14 compared fiscal 1998 increase primarily result growth sales royalty bearing products interest income net interest income net fiscal 1999 increased approximately 83 million compared fiscal 1998 principal reasons increase increased interest dividend income approximately 113 million increased realized gains companys investments approximately 112 million increases partially offset increased interest expense approximately 33 million change foreign currency gainslosses approximately 123 million increase interest dividend income interest expense primarily result inclusion full year fiscal 1999 companys 300 million convertible subordinated debentures issued june 1998 income tax provision income taxes increased fiscal 1998 fiscal 1999 approximately 39 million 33 due increased pretax income companys overall effective tax rate decreased approximately 10 fiscal 1998 approximately 8 fiscal 1999 companys overall rate tax reduced significantly tax benefits associated qualified activities certain israeli subsidiaries entitled favorable income tax rates program israeli government approved enterprise investments country net income net income increased approximately 638 million 58 fiscal 1999 compared fiscal 1998 percentage sales increased approximately 15 fiscal 1998 approximately 19 fiscal 1999 increase resulted primarily factors described liquidity capital resources companys working capital january 31 2001 2000 approximately 18604 million 8583 million respectively operations fiscal 2000 fiscal 1999 fiscal 1998 adding back noncash items provided cash approximately 3097 million 2081 million 1315 million respectively years changes working capital used cash approximately 652 million 25 308 million 278 million respectively resulting cash provided operating activities approximately 2445 million 1774 million 1036 million respectively investment activities fiscal 2000 fiscal 1999 fiscal 1998 used cash approximately 2073 million 4757 million 105 million respectively amounts include additions property plant equipment fiscal 2000 fiscal 1999 fiscal 1998 approximately 973 million 856 million 256 million respectively ii maturities sales purchases bank time deposits investments net approximately 945 million 3776 million 243 million respectively iii capitalization software development costs approximately 155 million 125 million 91 million respectively property additions fiscal 2000 fiscal 1999 include increase companys fixtures equipment result growth company fiscal 1999 purchase land company approximately 258 million future construction purposes addition fiscal 2000 fiscal 1999 company increased amount bank time deposits investments better utilize net proceeds 2000 1998 issuances convertible debentures financing activities fiscal 2000 fiscal 1999 fiscal 1998 provided cash approximately 8941 million 536 million 3083 million respectively amounts include net proceeds issuance convertible debentures fiscal 2000 fiscal 1998 approximately 5884 million 2927 million respectively ii proceeds issuance common stock connection exercise stock options warrants employee stock purchase plan approximately 1114 million 506 million 362 million respectively iii net proceeds repayments bank loans debt approximately 09 million 31 million 206 million respectively iv net proceeds issuance common stock subsidiary connection public offerings fiscal 2000 approximately 1952 million november 2000 company issued 500 million aggregate principal amount 150 convertible senior debentures due december 2005 december 2000 company issued additional 100 million aggregate principal amount 150 convertible senior debentures due december 2005 result initial purchaser exercising full overallotment option january 31 2001 company outstanding convertible debentures 900 million company believes existing working capital together funds generated operations sufficient provide planned operations foreseeable future company regularly examines opportunities strategic acquisitions companies lines business anticipates may time issue additional debt andor equity securities either direct consideration acquisitions raise additional funds used whole part payment acquired securities assets issuance securities could expected dilutive impact companys shareholders 26 assurance whether acquired business would contribute positive operating results commensurate associated investment companys liquidity capital resources anticipated materially affected restrictions pertaining ability foreign subsidiaries pay dividends withholding taxes associated dividend payments certain trends uncertainties companys future operating results financial condition may adversely affected current conditions general economic weakness continue revenues companys business intelligence products currently adversely affected reductions capital expenditures endusers companys revenues telecommunications systems software may adversely affected slowdown infrastructure purchases telecommunications services providers exhibited recent periods declines technology expenditures general conditions continue addition severe recent decline public trading prices equity securities particularly technology telecommunications sectors potential corresponding decline values privatelyheld companies venture capital funds company invested may adversely affect companys financial results costs operations company benefited growth business capital base past several years make significant investment operations infrastructure development new products technologies expansion new lines business intended enhance opportunities future growth profitability company intends continue make significant investment growth business examine opportunities additional growth acquisitions strategic investments activities involve significant expenditures obligations cannot readily curtailed reduced anticipated growth demand associated products materialize delayed impact decisions future profitability cannot predicted assurance companys commitment growth may increase vulnerability downturns markets technology changes shifts competitive conditions telecommunications industry particularly affected worldwide conditions economic weakness telecommunications services providers announced reductions actual planned future expenditures expand replace infrastructure equipment delays reductions deployment services large number telecommunications equipment providers announced reductions projected revenues deterioration projected operating results companys revenues net income continued grow recent periods continuation andor exacerbation conditions may adverse effect companys future results addition loss potential revenue weakness telecommunications industry may affect companys business increasing risks credit business failures suppliers customers distributors customer requirements vendor financing delays customer payments price reductions instituted competitors retain market share 27 telecommunications industry subject rapid technological change introduction new technologies telecommunications market new alternatives delivery services expected continue profound effect competitive conditions market success market participants including company companys continued success depend ability correctly anticipate technological trends industries react quickly effectively trends enhance existing products introduce new products timely costeffective basis companys products involve sophisticated hardware software technology performs critical functions highly demanding standards assurance companys current future products develop operational problems could material adverse effect company telecommunications industry undergoing significant change result deregulation privatization worldwide reducing restrictions competition industry unforeseen changes regulatory environment may impact companys revenues andor costs given part world worldwide esp system industry already highly competitive company expects competition intensify company believes existing competitors continue present substantial competition companies many considerably greater financial marketing sales resources company may enter esp system markets moreover company enters new markets result research development efforts acquisitions likely encounter new competitors market telecommunications monitoring systems also period significant transition budgetary constraints uncertainties resulting introduction new technologies telecommunications environment shifts pattern government expenditures resulting geopolitical events increased uncertainties market resulting certain instances attenuation government procurement programs beyond originally expected performance periods increased incidence delay cancellation reduction planned projects sales companys business intelligence systems customers private sector may continue affected general economic conditions delays planned capital expenditures enterprise customers competitive conditions sector also affected increasing use certain potential government customers internal development resources rather outside vendors provide certain technical solutions addition number established government contractors particularly developers integrators technology products taken steps redirect marketing strategies product plans reaction cutbacks traditional areas focus resulting increase number competitors range products offered response particular requests proposals lack predictability timing scope government procurements similarly made planning decisions difficult increased associated risks company historically derived significant portion sales operating profit contracts large system installations major customers company continues emphasize large capacity systems product development marketing 28 strategies contracts large installations typically involve lengthy complex bidding selection process ability company obtain particular contracts inherently difficult predict company believes opportunities large installations continue grow commercial government markets intends continue expand research development manufacturing sales marketing product support capabilities anticipation growth however timing scope opportunities pricing margins associated eventual contract award difficult forecast may vary substantially transaction companys future operating results may accordingly exhibit higher degree volatility operating results companies industries adopted different strategies company experienced prior periods degree dependence company large system orders investment required enable company perform orders without assurance continuing order flow customers predictability gross margins future orders increase risk associated business company significantly increased expenditures areas operations recent periods including areas research development marketing sales companys costs operations affected increases cost operations israel resulting appreciation israeli shekel relative united states dollar certain periods devaluation israeli shekel rates insufficient offset cost increases others increases cost attracting retaining qualified scientific engineering technical personnel israel demand personnel grown rapidly expansion high technology industries country continuation trends could material adverse effect companys future results operations significant portion companys research development manufacturing operations located israel companys historical operating results reflect substantial benefits received programs sponsored israeli government support research development well tax moratoriums favorable tax rates associated investments approved projects approved enterprises israel eligible programs tax benefits company must continue meet conditions including making specified investments fixed assets financing percentage investments share capital company fails meet conditions future tax benefits would canceled company could required refund tax benefits already received programs tax benefits may continued future current levels level availability benefits may affected budgetary constraints resulting adverse economic conditions israeli government reduced benefits available programs recent years israeli government authorities indicated government may reduce eliminate benefits future company currently pays royalties 3 5 6 certain circumstances associated product revenues including service related revenues government israel repayment benefits received conditional grant program administered office chief scientist ministry industry trade program company regularly participated continues 29 receive significant benefits reimbursement 50 qualified research development expenditures royalty payments required made government reimbursed amounts received company plus amounts received projects approved office chief scientist january 1 1999 interest amount rate equal 12month libor rate effect time approval addition permission government israel required company manufacture outside israel products resulting research development activities funded programs transfer outside israel related technology rights order obtain permission company may required increase royalties applicable funding agencies andor repay certain amounts received reimbursement research development costs israeli authorities also indicated funding program reduced significantly eliminated future particularly larger companies company termination reduction programs could adversely affect companys operating results israeli government also shortened period tax moratorium applicable approved enterprises four years two years although change affected tax status companys projects eligible moratorium prior 1997 applies subsequent approved enterprise projects recently government announced proposal impose additional limitations tax benefits associated approved enterprise projects certain categories taxpayers would include company although submitted legislation israeli parliament changes law government policies regarding programs result termination adverse modification company become unable participate take advantage programs cost companys operations israel would increase could material adverse effect companys operations financial results extent company increases activities outside israel could result among things future acquisitions increased activities eligible programs sponsored israel company currently derives significant portion total sales customers outside united states international transactions involve particular risks including political decisions affecting tariffs trade conditions rapid unforeseen changes economic conditions individual countries turbulence foreign currency credit markets increased costs resulting lack proximity customer volatility international currency exchange rates may significant impact companys operating results risk currency instability increased prevailing conditions economic weakness number world markets potential recession company anticipates continue receive significant contracts denominated foreign primarily western european currencies result unpredictable timing purchase orders payments contracts factors often practicable company effectively hedge risk significant changes currency rates contract period since companys practice hedge exchange rate risks associated contracts denominated foreign currencies limited extent operating results may future negatively affected material extent impact currency fluctuations operating results may also affected cost hedging activities company undertake 30 company holds large proportion net assets cash equivalents shortterm investments including variety public private debt equity instruments made significant venture capital investments directly private investment funds investments subject company risks inherent capital markets generally performance businesses direct control given relatively high proportion companys liquid assets relative overall size results operations future reflect greater extent past results companys capital management investment activities risks associated activities declines public equity markets caused may expected continue cause company experience realized unrealized investment losses addition companys interest income benefited positive spread fixed interest pays outstanding indebtedness interest earned investment cash balances reduction prevailing interest rates due economic conditions government policies expected adverse impact companys results operations company benefited longterm rise public trading price shares various ways including ability use equity incentive arrangements means attracting retaining highly qualified employees necessary growth business ability raise capital relatively attractive conditions recent decline price companys shares overall decline equity prices generally shares technology companies particular expected make difficult company rely equity incentive arrangements means recruit retain talented employees may limit ability company raise capital terms advantageous company past trading price companys shares may affected factors noted well prevailing economic financial trends conditions public securities markets share prices companies technologyrelated industries company tend exhibit high degree volatility announcement financial results fall short results anticipated public markets could immediate significant effect trading price companys shares given period shortfalls may result events beyond companys immediate control unpredictable since significant proportion companys sales fiscal quarter tend occur latter stages quarter may discernible end financial reporting period factors may contribute volatility trading value shares regardless companys longterm prospects trading price companys shares may also affected developments including reported financial results fluctuations trading prices shares publiclyheld companies telecommunications equipment industry general companys business segments particular may direct relationship companys business prospects 31 effect new accounting pronouncements 1998 financial accounting standards board issued statement financial accounting standards sfas 133 accounting derivative instruments hedging activities subsequently amended sfas nos 137 138 collectively sfas 133 sfas 133 establishes accounting reporting standards derivative instruments including certain derivatives embedded contracts hedging activities requires entity recognize derivatives either assets liabilities measure instruments fair value sfas 133 certain contracts formerly considered derivatives may meet definition derivative sfas 133 effective fiscal quarters fiscal years beginning june 15 2000 company adopt sfas 133 effective february 1 2001 adoption sfas 133 material effect companys operations financial position forwardlooking statements time company makes forwardlooking statements forwardlooking statements include financial projections statements plans objectives future operations statements future economic performance statements assumptions relating thereto company may include forwardlooking statements periodic reports securities exchange commission forms 10k 10q 8k annual report shareholders proxy statements press releases written materials statements made employees analysts investors representatives media others nature forwardlooking statements subject uncertainties general specific risks exist predictions forecasts projections forwardlooking statements achieved actual results may differ materially due variety factors including without limitation discussed certain trends uncertainties elsewhere report investors others carefully consider uncertainties events whether statements described forwardlooking statements made company intended apply time made unless explicitly stated contrary moreover whether stated connection forwardlooking statement company undertakes obligation correct update forwardlooking statement company later become aware likely achieved company particular instance update correct forwardlooking statement investors others conclude company make additional updates corrections thereafter 32 item 7aitem 7 managements discussion analysis financial condition results operations significant accounting policies preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates revenue generally recognized time shipment sales systems require significant customization performed company collection resulting receivable deemed probable company companys systems generally bundled hardware software solution shipped together company generally obligations customers date products shipped except product warranties company generally warranties products one year sale provision estimated warranty costs recorded time sale customers may also purchase separate maintenance contracts generally consist bugfixing telephone access company technical personnel certain circumstances may also include right receive unspecified product updates upgrades enhancements revenue services recognized ratably contract period revenues certain development contracts recognized percentageofcompletion method basis physical completion date using actual costs incurred total expected costs contract revisions estimates costs profits reflected accounting period facts require revision become known time loss contract known entire amount estimated loss accrued amounts received customers excess revenues earned percentageofcompletion method recorded advance payments customers accounts receivable generally diversified due number commercial government entities comprising companys customer base dispersion across many geographical regions end accounting period company records reserve bad debts included accounts receivable based upon current historical collection history cost sales include material costs subcontractor costs salary related benefits operations service departments depreciation amortization equipment used operations service departments amortization capitalized software costs royalties license fee costs travel costs overhead allocation research development costs include salary related benefits well travel depreciation amortization research development equipment overhead allocation well costs associated research development activities selling general administrative costs include salary related benefits travel depreciation amortization marketing promotional materials recruiting expenses professional fees facility costs well costs associated sales marketing finance administrative departments software development costs capitalized upon establishment technological feasibility amortized estimated useful life software date four years less amortization begins period related product available general release customers company reviews impairment longlived assets certain identifiable intangibles whenever events changes circumstances indicate carrying amount asset may recoverable impairment loss would recognized estimated future undiscounted cash flows expected result use asset proceeds eventual disposition less carrying amount impairment measured fair value july 2000 cti acquired outstanding stock loronix transaction accounted pooling interests companys financial statements year ended january 31 2000 include operations loronix year ended december 31 1999 results operations year ended january 31 2002 compared year ended january 31 2001 sales fiscal year ended january 31 2002 fiscal 2001 increased approximately 452 million 4 compared fiscal year ended january 31 2001 fiscal 2000 increase primarily attributable increase sales ess products approximately 487 million increase principally due increased sales american customers addition sales security business intelligence recording products service enabling signaling software products increased decreased approximately 80 million 93 million respectively cost sales cost sales fiscal 2001 increased approximately 428 million 9 compared fiscal 2000 increase cost sales primarily attributable increased materials production costs approximately 218 million due increase sales increased personnelrelated costs approximately 232 million due hiring additional personnel increased compensation benefits existing personnel gross margins decreased approximately 606 fiscal 2000 approximately 586 fiscal 2001 selling general administrative expenses selling general administrative expenses fiscal 2001 increased approximately 634 million 24 compared fiscal 2000 percentage sales increased approximately 212 fiscal 2000 approximately 254 fiscal 2001 increase primarily due hiring additional personnel increased compensation benefits existing personnel support increased level sales first half fiscal 2001 research development net research development expenses fiscal 2001 increased approximately 611 million 26 compared fiscal 2000 due overall growth research development operations initiation significant new research development projects increase primarily due hiring additional personnel increased compensation benefits existing personnel approximately 329 million lower reimbursements research development projects submitted funding ocs approximately 115 million increase depreciation amortization costs approximately 63 million increase overhead allocation approximately 36 million acquisition expenses workforce reduction restructuring charges 2001 fiscal year company took steps better align cost structure current business environment improve efficiency operations better position company realize emerging opportunities steps included reduction workforce announced april 2001 restructuring plan announced december 2001 connection implementation actions company incurred charges approximately 636 million cover costs severance elimination excess facilities related leasehold improvements writeoff certain inventory property equipment capitalized software restructuring related charges professional fees company expects pay approximately 119 million severance related charges year ended january 31 2003 approximately 243 million lease related obligations various dates january 2011 july 2000 company acquired outstanding stock loronix company develops softwarebased digital video recording management systems outstanding stock syborg informationsysteme gmbh company develops softwarebased digital voice internet recording workforce management systems august 2000 company acquired outstanding stock gaya software industries ltd company specializing softwarebased intelligent ip gateways voip technology outstanding stock exalink ltd company specializing protocol gateways applications software delivery internetbased services types wireless devices business combinations accounted pooling interests connection acquisitions company charged operations approximately 160 million fiscal 2000 merger related charges relate following asset writedowns impairments connection acquisitions fiscal 2000 certain assets became impaired due existence duplicative technology property equipment inventory merged companies accordingly assets written net realizable value time mergers charge approximately 74 million charged operations professional fees direct merger expenses connection acquisitions fiscal 2000 company recorded charge approximately 86 million professional fees lawyers investment bankers accountants well direct merger costs connection mergers printing costs filing fees interest income expense net interest income expense net fiscal 2001 decreased approximately 391 million compared fiscal 2000 principal reasons decrease increased net realized losses writedowns companys investments decreased equity earnings affiliates approximately 221 million increased interest expense approximately 03 million change foreign currency gainslosses approximately 201 million decreases partially offset increased interest dividend income approximately 76 million increase interest dividend income primarily result inclusion proceeds full year fiscal 2001 companys 600 million 150 convertible debentures issued november december 2000 partially offset decrease interest rates fiscal 2001 income tax provision income taxes decreased fiscal 2000 fiscal 2001 approximately 144 million 76 due decreased pretax income companys overall effective tax rate increased approximately 70 fiscal 2000 approximately 75 fiscal 2001 companys overall rate tax reduced significantly tax benefits associated qualified activities certain israeli subsidiaries entitled favorable income tax rates program israeli government approved enterprise investments country net income net income decreased approximately 1945 million 78 fiscal 2001 compared fiscal 2000 percentage sales decreased approximately 203 fiscal 2000 approximately 43 fiscal 2001 decrease resulted primarily factors described year ended january 31 2001 compared year ended january 31 2000 sales fiscal 2000 increased approximately 3154 million 35 compared year ended january 31 2000 fiscal 1999 increase primarily attributable increase sales ess products approximately 2772 million increase principally due increased sales european american customers addition sales security business intelligence recording products service enabling signaling software products increased approximately 238 million 187 million respectively cost sales cost sales fiscal 2000 increased approximately 1111 million 30 compared fiscal 1999 increase cost sales primarily attributable increased materials production costs approximately 623 million due increase sales ii increased personnelrelated costs approximately 303 million due hiring additional personnel increased compensation benefits existing personnel iii increased travelrelated costs approximately 71 million iv increase depreciation amortization costs approximately 43 million gross margins increased approximately 592 fiscal 1999 approximately 606 fiscal 2000 selling general administrative expenses selling general administrative expenses fiscal 2000 increased approximately 656 million 34 compared fiscal 1999 percentage sales approximately 21 fiscal 1999 fiscal 2000 increase primarily due hiring additional personnel increased compensation benefits existing personnel support increased level sales fiscal 2000 research development net research development expenses fiscal 2000 increased approximately 624 million 37 compared fiscal 1999 due overall growth research development operations initiation significant new research development projects increase primarily due hiring additional personnel increased compensation benefits existing personnel support higher volume research development activities acquisition expenses february 1999 company acquired outstanding stock amarex technology inc company develops softwarebased applications telephone network operator call center markets august 1999 company acquired outstanding stock intouch systems inc company develops markets suite intelligent voicecontrolled software applications july 2000 company acquired outstanding stock loronix company develops softwarebased digital video recording management systems outstanding stock syborg informationsysteme gmbh company develops softwarebased digital voice internet recording workforce management systems august 2000 company acquired outstanding stock gaya software industries ltd company specializing softwarebased intelligent ip gateways voiceoverip technology outstanding stock exalink ltd company specializing protocol gateways applications software delivery internetbased services types wireless devices business combinations accounted pooling interests connection acquisitions company charged operations approximately 20 million 160 million fiscal 1999 fiscal 2000 respectively merger related charges relate following asset writedowns impairments connection acquisitions fiscal 2000 certain assets became impaired due existence duplicative technology property equipment inventory merged companies accordingly assets written net realizable value time mergers charge approximately 74 million charged operations professional fees direct merger expenses connection acquisitions fiscal 1999 fiscal 2000 company recorded charge approximately 20 million 86 million respectively professional fees lawyers investment bankers accountants well direct merger costs connection mergers printing costs filing fees interest income net interest income net fiscal 2000 increased approximately 167 million compared fiscal 1999 principal reasons increase increased interest dividend income approximately 267 million change foreign currency gainslosses approximately 88 million decrease interest expense approximately 14 million increases partially offset increase net realized losses writedowns companys investments equity earnings affiliates approximately 207 million november december 2000 company issued 600 million convertible senior debentures interest income earned proceeds debentures adding increase interest dividend income fiscal 2000 decrease interest expense primarily result inclusion fiscal 1999 companys 534 convertible subordinated debentures redeemed october 1999 income tax provision income taxes increased fiscal 1999 fiscal 2000 approximately 31 million 20 due increased pretax income companys overall effective tax rate decreased approximately 8 fiscal 1999 approximately 7 fiscal 2000 companys overall rate tax reduced significantly tax benefits associated qualified activities certain israeli subsidiaries entitled favorable income tax rates program israeli government approved enterprise investments country net income net income increased approximately 760 million 44 fiscal 2000 compared fiscal 1999 percentage sales increased approximately 19 fiscal 1999 approximately 20 fiscal 2000 increase resulted primarily factors described liquidity capital resources companys working capital january 31 2002 2001 approximately 20303 million 18604 million respectively operations fiscal 2001 fiscal 2000 fiscal 1999 adding back noncash items provided cash approximately 1300 million 3097 million 2081 million respectively years changes working capital provided used cash approximately 122 million 652 million 308 million respectively resulting cash provided operating activities approximately 1422 million 2445 million 1774 million respectively investment activities fiscal 2001 fiscal 2000 fiscal 1999 used cash approximately 1224 million 2073 million 4757 million respectively amounts include additions property plant equipment fiscal 2001 fiscal 2000 fiscal 1999 approximately 546 million 973 million 856 million respectively ii maturities sales purchases bank time deposits investments net approximately 448 million 945 million 3776 million respectively iii capitalization software development costs approximately 230 million 155 million 125 million respectively property additions fiscal 2001 2000 1999 include increase companys fixtures equipment fiscal 1999 purchase land company approximately 258 million potential future construction purposes addition fiscal 2001 2000 1999 company increased amount bank time deposits investments better utilize net proceeds 2000 1998 issuances convertible debentures financing activities fiscal 2001 fiscal 2000 fiscal 1999 provided cash approximately 670 million 8941 million 536 million respectively amounts include net proceeds issuance convertible debentures fiscal 2000 approximately 5884 million ii proceeds issuance common stock connection exercise stock options warrants employee stock purchase plan approximately 288 million 1114 million 506 million respectively iii net proceeds repayments bank loans debt approximately 382 million 09 million 31 million respectively iv net proceeds issuance common stock subsidiary connection public offerings fiscal 2000 approximately 1952 million november 2000 company issued 500 million aggregate principal amount 150 convertible senior debentures due december 2005 december 2000 company issued additional 100 million aggregate principal amount 150 convertible senior debentures due december 2005 result initial purchaser exercising full overallotment option january 31 2002 company outstanding convertible debentures 600 million january 2002 verint took longterm bank loan amount 42 million loan matures february 2003 bears interest libor plus 055 may prepaid without penalty loan guaranteed cti company obtained bank guaranties primarily performance certain obligations contracts customers guaranties aggregated approximately 234 million january 31 2002 released companys performance specified contract milestones scheduled completed primarily 2002 company leases office manufacturing warehouse space noncancelable operating leases january 31 2002 minimum annual rent obligations company approximately follows twelve months ended january 31 amount thousands 2003 34007 2004 30234 2005 20253 2006 18981 2007 thereafter 33666 137141 february 1 2002 verint acquired digital video recording business lanex llc lanex business provides digital video recording solutions security surveillance applications primarily north american banks purchase price consisted 95 million cash 22 million convertible note noninterest bearing matures february 1 2004 holder note may elect convert note whole part shares verints common stock conversion price 1606 per share time completion initial public offering verint note guaranteed cti pro forma results operations presented effects acquisition material company believes existing working capital together funds generated operations sufficient provide planned operations foreseeable future company regularly examines opportunities strategic acquisitions companies lines business anticipates may time issue additional debt andor equity securities either direct consideration acquisitions raise additional funds used whole part payment acquired securities assets issuance securities could expected dilutive impact companys shareholders assurance whether acquired business would contribute positive operating results commensurate associated investment companys liquidity capital resources anticipated materially affected restrictions pertaining ability foreign subsidiaries pay dividends withholding taxes associated dividend payments certain trends uncertainties company derives majority revenue telecommunications industry facing unprecedented recession resulted significant reduction capital expenditures made tsps companys operating results financial condition continue adversely affected severe decline technology purchases capital expenditures tsps worldwide unfavorable global economic conditions consequently companys operating results deteriorated significantly recent periods may continue deteriorate future periods conditions remain effect reasons risk factors outlined continues difficult company accurately forecast future revenues operating results companys business particularly dependent strength telecommunications industry telecommunications industry general company particular negatively affected among factors high costs large debt positions incurred tsps expand capacity enable provision future services corresponding risks associated development marketing adoption services discussed including cost acquisitions licenses provide future broadband services reductions tsps actual projected revenues deterioration actual projected operating results accordingly tsps significantly reduced actual planned expenditures expand replace equipment delayed reduced deployment services number tsps including certain customers company indicated existence conditions excess capacity certain markets addition tsps delayed planned introduction new services broadband mobile telephone services would supported certain companys products certain companys customers also implemented changes procurement practices procedures including limitations purchases anticipation estimated future capacity requirements management use networks adverse affect companys sales order backlog also made difficult company project future sales continuation andor exacerbation trends adverse effect companys future results addition loss revenue weakness telecommunications industry affected continue affect companys business increasing risks credit business failures suppliers customers distributors customer requirements vendor financing delays defaults customer distributor payments price reductions instituted competitors retain acquire market share companys current plan operations predicated part recovery capital expenditures customers absence improvement company would experience deterioration operating results may determine modify plan future operations accordingly may include among things additional reductions workforce company intends continue make significant investments business examine opportunities growth acquisitions strategic investments activities may involve significant expenditures obligations cannot readily curtailed reduced anticipated demand associated products materialize delayed impact decisions future financial results cannot predicated assurance companys commitment growth may increase vulnerability downturns markets technology changes shifts competitive conditions company also may able identify future suitable merger acquisition candidates even company identify suitable candidates may able make transactions commercially acceptable terms company make acquisitions may able successfully incorporate personnel operations customers companies companys business addition company may fail achieve anticipated synergies combined businesses including marketing product integration distribution product development synergies integration process may strain companys existing financial managerial controls reporting systems procedures may result diversion management financial resources companys core business objectives addition acquisition merger may require company utilize cash reserves incur debt issue equity securities may result dilution existing stockholders company may negatively impacted assumption liabilities merged acquired company due rapidly changing market conditions company may find value acquired technologies related intangible assets goodwill recorded companys financial statements impaired resulting charges operations company may also fail retain acquired merged companies key employees customers company made future may continue make strategic investments companies investments made future investments likely made immature businesses unproven track records technologies investments high degree risk possibility company may lose total amount investments company may able identify suitable investment candidates even company may able make investments acceptable terms addition even company makes investments may gain strategic benefits investments telecommunications industry subject rapid technological change introduction new technologies telecommunications market new alternatives delivery services expected continue profound effect competitive conditions market success market participants including company companys continued success depend ability correctly anticipate technological trends industries react quickly effectively trends enhance existing products introduce new products timely costeffective basis result life cycle companys products difficult estimate addition changing industry market conditions may dictate strategic decisions restructure business units discontinue others discontinuing business unit product line may result company recording accrued liabilities special charges costs associated reduction work force strategic decisions could result changes determinations regarding products useful life recoverability carrying basis certain assets companys products involve sophisticated hardware software technology performs critical functions highly demanding standards assurance companys current future products develop operational problems could material adverse effect company relies limited number suppliers manufacturers specific components may able find alternate manufacturers meet requirements existing alternative sources may available favorable terms conditions thus shortage supply components company may experience interruption product supply addition loss third party software licensing would materially adversely affect companys business financial condition results operations telecommunications industry continues undergo significant change result deregulation privatization worldwide reducing restrictions competition industry unforeseen changes regulatory environment also may impact companys revenues andor costs given part world worldwide ess system industry already highly competitive company expects competition intensify company believes existing competitors continue present substantial competition companies many considerably greater financial marketing sales resources company may enter ess system markets moreover company enters new markets result research development efforts acquisitions likely encounter new competitors market companys digital security surveillance enterprise business intelligence products also affected weakness general economic conditions delays reductions customers purchases capital equipment uncertainties relating government expenditure programs budgetary constraints uncertainties resulting introduction new technologies shifts pattern government expenditures resulting increased uncertainties market monitoring systems resulting certain instances attenuation government procurement programs beyond originally expected performance periods increased incidence delay cancellation reduction planned projects competitive conditions sector also affected increasing use certain potential government customers internal development resources rather outside vendors provide certain technical solutions addition number established government contractors particularly developers integrators technology products taken steps redirect marketing strategies product plans reaction cutbacks traditional areas focus resulting increase number competitors range products offered response particular requests proposals lack predictability timing scope government procurements similarly made planning decisions difficult increased associated risks company historically derived significant portion sales operating profit contracts large system installations major customers company continues emphasize large capacity systems product development marketing strategies contracts large installations typically involve lengthy complex bidding selection process ability company obtain particular contracts inherently difficult predict timing scope opportunities pricing margins associated eventual contract award difficult forecast may vary substantially transaction companys future operating results may accordingly exhibit higher degree volatility operating results companies industries adopted different strategies also may volatile company experienced prior periods degree dependence company large system orders investment required enable company perform orders without assurance continuing order flow customers predictability gross margins future orders increase risk associated business companys gross margins also may adversely affected increases material labor costs obsolescence charges price competition changes channels distribution mix products sold political economic military conditions israel directly affect companys operations since establishment state israel 1948 number armed conflicts taken place israel arab neighbors continued state hostility varying degree intensity led security economic problems israel since october 2000 significant increase violence primarily west bank gaza strip recently israel experienced terrorist incidents within borders result negotiations israel representatives palestinian authority sporadic failed result peace company could adversely affected hostilities involving israel interruption curtailment trade israel trading partners significant downturn economic financial condition israel addition sale products manufactured israel may adversely affected certain countries restrictive laws policies practices directed toward israel companies operations israel continuation exacerbation violent conflicts involving israel nations may impede companys ability sell products certain countries addition companys employees israel subject called upon perform military service israel absence may adverse effect upon companys operations generally unless exempt male adult citizens permanent residents israel age 54 obligated perform 36 days military reserve duty annually additionally residents subject called active duty time emergency circumstances conditions could disrupt companys operations israel business financial condition results operations could adversely affected companys costs operations times affected changes cost operations israel resulting changes value israeli shekel relative united states dollar difficulties attracting retaining qualified scientific engineering technical personnel israel availability personnel times severely limited changes cost factors time significant difficult predict could future material adverse effect companys results operations companys historical operating results reflect substantial benefits received programs sponsored israeli government support research development well tax moratoriums favorable tax rates associated investments approved projects approved enterprises israel programs tax benefits ceased others may continued future availability benefits company may affected number factors including budgetary constraints resulting adverse economic conditions government policies companys ability satisfy eligibility criteria israeli government reduced benefits available programs recent years israeli government authorities indicated government may reduce eliminate benefits future company regularly participated conditional grant program administered ocs received significant benefits reimbursement 50 qualified research development expenditures verint currently pays royalties 3 5 6 certain circumstances associated product revenues including service related revenues government israel repayment benefits received program royalty payments verint currently required made government reimbursed amounts received company plus amounts received projects approved ocs january 1 1999 interest amount rate equal 12month libor rate effect january 1 year approval obtained fiscal 2001 comverse entered arrangement ocs whereby comverse agreed pay lump sum royalty amount past amounts received ocs addition comverse receive lower amounts ocs historically received pay royalty amounts future grants amount reimbursement received company program reduced significantly company expect receive significant reimbursement program future addition permission government israel required company manufacture outside israel products resulting research development activities funded programs transfer outside israel related technology rights order obtain permission company may required increase royalties applicable funding agencies andor repay certain amounts received reimbursement research development costs continued reduction benefits received company program termination eligibility receive benefits future could adversely affect companys operating results companys overall effective tax rate benefits tax moratorium provided government israel approved enterprises undertaken country companys effective tax rate may increase due among factors increased proportion taxable income associated activities higher tax jurisdictions relative ages companys eligible investments israel tax moratorium income companys approved enterprise investments made prior 1997 four years whereas subsequent approved enterprise projects eligible moratorium two years reduced tax rates apply case certain periods thereafter eligible tax benefits company must continue meet conditions including making specified investments fixed assets financing percentage investments share capital company fails meet conditions future tax benefits would canceled company could required refund tax benefits already received israeli authorities indicated additional limitations tax benefits associated approved enterprise projects may imposed certain categories taxpayers would include company changes law government policies regarding programs result termination adverse modification company become unable participate take advantage programs cost companys operations israel would increase could material adverse effect companys operations financial results companys success dependent recruiting retaining key management highly skilled technical managerial sales marketing personnel competition highly skilled personnel remains competitive despite current economic conditions companys ability attract retain employees also may affected recent cost control actions including reductions companys workforce associated reorganization operations occurrence perception security breaches within company could harm companys business financial condition operating results company implements sophisticated security measures third parties may attempt breach companys security computer viruses electronic breakins disruptions successful confidential information including passwords financial information personal information may improperly obtained company may subject lawsuits liability even company held liable security breach could harm companys reputation even perception security risks whether valid could inhibit market acceptance companys products company currently derives significant portion total sales customers outside united states international transactions involve particular risks including political decisions affecting tariffs trade conditions rapid unforeseen changes economic conditions individual countries turbulence foreign currency credit markets increased costs resulting lack proximity customer company required obtain export licenses authorizations applicable governmental authorities certain countries within conducts business failure receive required license authorization would hinder companys ability sell products could adversely affect companys business financial condition results operations addition legal uncertainties regarding liability compliance local laws regulations labor laws employee benefits currency restrictions difficulty accounts receivable collection longer collection periods requirements may negative impact companys operating results volatility international currency exchange rates may significant impact companys operating results risk currency instability increased prevailing conditions economic weakness number world markets potential recession company anticipates continue receive significant contracts denominated foreign currencies particularly euro result unpredictable timing purchase orders payments contracts factors often practicable company effectively hedge risk significant changes currency rates contract period company may experience risk associated failure hedge exchange rate risks associated contracts denominated foreign currencies operating results may continue negatively affected material extent impact currency fluctuations operating results may also affected cost hedging activities company undertake company generally requires employees independent contractors consultants execute noncompetition confidentiality agreements companys intellectual property proprietary rights could infringed misappropriated could result expensive protracted litigation company relies combination patent copyright trade secret trademark law protect technology despite companys efforts protect intellectual property proprietary rights unauthorized parties may attempt copy otherwise obtain use products technology effectively policing unauthorized use companys products timeconsuming costly assurance steps taken company prevent misappropriation technology particularly foreign countries many instances local laws legal systems offer level protection united states others claim companys products infringe intellectual property rights company may forced seek expensive licenses reengineer products engage expensive timeconsuming litigation stop marketing products company attempts avoid infringing known proprietary rights third parties product development efforts company regularly conduct comprehensive patent searches determine whether technology used products infringes patents held third parties however many issued patents well patent applications fields company engaged patent applications united states publicly disclosed patent issued applications may filed relate companys software products company discover products violated potentially violated thirdparty proprietary rights might able obtain licenses continue offering products without substantial reengineering effort may successful company certain licenses would available commercially reasonable terms substantial litigation regarding intellectual property rights exists telecommunications industry company expects products may increasingly subject thirdparty infringement claims number competitors industry segments grows functionality software products different industry segments overlaps addition company agreed indemnify customers certain situations determined products infringe proprietary rights third parties thirdparty infringement claims could time consuming defend result costly litigation divert managements attention resources cause product service delays require company enter royalty licensing agreements royalty licensing arrangements required may available terms acceptable company successful claim infringement company failure inability license infringed similar technology could material adverse effect business financial condition results operations company holds large proportion net assets cash equivalents shortterm investments including variety public private debt equity instruments made significant venture capital investments directly private investment funds investments subject company risks inherent capital markets generally performance businesses direct control given relatively high proportion companys liquid assets relative overall size results operations materially affected results companys capital management investment activities risks associated activities declines public equity markets caused may expected continue cause company experience realized unrealized investment losses addition companys interest income benefited positive spread fixed interest pays outstanding indebtedness interest earned investment cash balances reduction prevailing interest rates due economic conditions government policies may continue adverse impact companys results operations severe decline public trading prices equity securities particularly technology telecommunications sectors corresponding decline values privatelyheld companies venture capital funds company invested may continue adverse impact companys financial results costs operations company past benefited longterm rise public trading price shares various ways including ability use equity incentive arrangements means attracting retaining highly qualified employees necessary growth business ability raise capital relatively attractive conditions decline price companys shares overall decline equity prices generally shares technology companies particular expected make difficult company rely equity incentive arrangements means recruit retain talented employees negatively impacted ability company raise capital terms advantageous company past trading price companys shares affected factors disclosed herein well prevailing economic financial trends conditions public securities markets share prices companies technologyrelated industries company tend exhibit high degree volatility announcement financial results fall short results anticipated public markets could immediate significant negative effect trading price companys shares given period shortfalls may result events beyond companys immediate control unpredictable since significant proportion companys sales fiscal quarter tend occur latter stages quarter may discernible end financial reporting period factors may contribute volatility trading value shares regardless companys longterm prospects trading price companys shares may also affected developments including reported financial results fluctuations trading prices shares publiclyheld companies telecommunications equipment industry general companys business segments particular may direct relationship companys business prospects effect new accounting pronouncements 1998 financial accounting standards board fasb issued statement financial accounting standards sfas 133 accounting derivative instruments hedging activities subsequently amended sfas nos 137 138 collectively sfas 133 sfas 133 establishes accounting reporting standards derivative instruments including certain derivatives embedded contracts hedging activities requires entity recognize derivatives either assets liabilities measure instruments fair value sfas 133 certain contracts formerly considered derivatives may meet definition derivative sfas 133 effective fiscal quarters fiscal years beginning june 15 2000 company adopted sfas 133 effective february 1 2001 adoption sfas 133 material effect companys consolidated financial statements june 2001 fasb issued sfas 141 business combinations sfas 141 applies prospectively business combinations initiated june 30 2001 business combinations accounted using purchase method date acquisition july 1 2001 later statement requires business combinations accounted using one method purchase method previously existing accounting rules business combinations accounted using one two methods poolingofinterests method purchase method adoption sfas 141 expected material effect companys consolidated financial statements june 2001 fasb issued sfas 142 goodwill intangible assets sfas 142 addresses financial accounting reporting acquired goodwill intangible assets sfas 142 goodwill intangible assets longer amortized rather reviewed impairment periodic basis provisions statement required applied starting fiscal years beginning december 15 2001 statement required applied beginning companys fiscal year applied goodwill intangible assets recognized financial statements date impairment losses goodwill certain intangible assets arise due initial application statement reported resulting change accounting principle goodwill intangible assets acquired june 30 2001 subject immediately provisions statement adoption sfas 142 expected material effect companys consolidated financial statements august 2001 fasb issued sfas 143 accounting asset retirement obligations sfas 143 establishes accounting standards recognition measurement liability asset retirement obligation associated asset retirement cost sfas 143 applies legal obligations associated retirement tangible longlived asset result acquisition construction development andor normal operation longlived asset statement effective fiscal years beginning june 15 2002 however early adoption encouraged adoption sfas 143 expected material effect companys consolidated financial statements october 2001 fasb issued sfas 144 accounting impairment disposal longlived assets sfas 144 addresses financial accounting reporting impairment disposal longlived assets sfas 144 supercedes certain provisions sfas 121 accounting impairment longlived assets disposed accounting principles board opinion 30 reporting results operationsreporting effects disposal segment business extraordinary unusual infrequently occurring events transactions sfas 144 effective financial statements issued fiscal years beginning december 15 2001 interim periods within fiscal years however early adoption encouraged company currently evaluating impact sfas 144 consolidated financial statements forwardlooking statements time company makes forwardlooking statements forwardlooking statements include financial projections statements plans objectives future operations statements future economic performance statements assumptions relating thereto company may include forwardlooking statements periodic reports securities exchange commission forms 10k 10q 8k annual report shareholders proxy statements press releases written materials statements made employees analysts investors representatives media others nature forwardlooking statements subject uncertainties general specific risks exist predictions forecasts projections forwardlooking statements achieved actual results may differ materially due variety factors including without limitation discussed certain trends uncertainties elsewhere report investors others carefully consider uncertainties events whether statements described forwardlooking statements made company intended apply time made unless explicitly stated contrary moreover whether stated connection forwardlooking statement company undertakes obligation correct update forwardlooking statement company later become aware likely achieved company particular instance update correct forwardlooking statement investors others conclude company make additional updates corrections thereafter item 7aitem 7 managements discussion analysis financial condition results operations following discussion analysis financial condition results operations read together item 1 “business” item 6 “selected financial data” consolidated financial statements related notes included item 15 annual report discussion analysis contains forwardlooking statements based current expectations relating future events future financial performance involve risks uncertainties see “forwardlooking statements” page ii annual report actual results may differ materially anticipated forwardlooking statements result many factors including set forth item 1a “risk factors” elsewhere annual report unless otherwise stated discussion analysis relates financial data january 31 2012 2011 fiscal years ended january 31 2012 2011 2010 derived consolidated financial statements included item 15 annual report percentages amounts within section may calculate precisely due rounding differences discussion analysis includes following sections • overview summarizes structure management significant events fiscal year financial highlights key trends challenges uncertainties business segments • results operations provides comparative discussion analysis consolidated results operations management views analyzes business segments discussion analysis results operations segments case fiscal year ended january 31 2012 compared fiscal year ended january 31 2011 fiscal year ended january 31 2011 compared fiscal year ended january 31 2010 addition discuss trends events uncertainties management currently believes reasonably likely material effect future operational results • liquidity capital resources provides overview recent liquidity developments sources liquidity cash uses matters relating liquidity capital resources • offbalance sheet arrangements discloses certain material offbalance sheet arrangements • contractual obligations discusses longterm debt longterm shortterm contractual obligations january 31 2012 • critical accounting estimates judgments discusses accounting policies require significant management judgment assumptions estimates • recent accounting pronouncements describes accounting standards implemented fiscal year may required implement future overview structure management cti subsidiaries cti holding company conducts business subsidiaries principally whollyowned subsidiary comverse inc majorityowned subsidiaries verint systems starhome bv result phase ii business transformation changed reportable segments fiscal year ended january 31 2012 reportable segments fiscal year • comverse bss comprised comverses bss operating segment • comverse vas comprised comverses vas operating segment • verint comprised verint systems subsidiaries results operations including comverse mi operating segment comverses netcentrex operations comverses global corporate functions support business units starhome bv subsidiaries miscellaneous operations ctis holding company operations included column captioned “all other” part business segment presentation ctis management directly responsible daytoday operations comverse reports ctis board directors cti views two majorityowned subsidiaries operations separate independent comverse accordingly verint systems starhome bv separate management responsible daytoday operations certain ctis officers directors serve members boards directors subsidiaries ctis consolidated balance sheets reflect cash equivalents held majorityowned subsidiaries indebtedness incurred subsidiaries cti however view majorityowned subsidiaries cash equivalents readily accessible guarantee indebtedness addition cti expect receive cash dividends majorityowned subsidiaries verint systems precluded paying cash dividends cti new credit agreement starhome bv may pay cash dividends without approval certain minority shareholders investment agreements comverse share distribution previously disclosed cti intends distribute 100 shares comverse inc ctis shareholders pro rata basis referred comverse share distribution cti currently exploring expects finalize announce structure result efficient method distribution comverse share distribution expected occur second half fiscal year ending january 31 2013 addition cti exploring alternatives eliminate holding company structure either simultaneous shortly distribution comverse inc shares comverse share distribution subject number conditions including final approval transaction ctis board filings completion review process sec approval cti shareholders final approval certain material agreements boards cti comverse share distribution may also conditioned upon receipt favorable ruling irs regarding certain tax aspects distribution upon completion proposed comverse share distribution prior effect transaction would eliminate cti holding company structure cti shareholders time distribution would continue hold equity cti well 100 equity comverse inc connection proposed comverse share distribution begun expect continue incur significant expenses including financial advisory accounting tax consulting legal fees verint strategic alternative exploration previously disclosed cti exploring options maximize value equity interests verint benefit shareholders cti verint ultimate execution alternative take account number considerations including without limitation tax efficiency depending upon circumstances separate recommendation verints directors officers cti significant events fiscal year ended january 31 2012 subsequent thereto following significant events occurred timely filing periodic reports resolution sec section 12j administrative proceeding second quarter fiscal year ended january 31 2012 cti completed filing sec delinquent periodic reports required filed settlement sec september 2011 cti resumed timely filing periodic reports commencing filing quarterly report form 10q fiscal quarter ended july 31 2011 filing delinquent reports timely filing quarterly report form 10q fiscal quarter ended july 31 2011 cti satisfied terms settlement sec resolved administrative proceeding instituted sec pursuant section 12j exchange act revoke suspend registration ctis common stock ctis failure file certain periodic reports accordingly september 2011 sec ordered termination administrative proceeding expenses accounting tax legal fees incurred fiscal year ended january 31 2012 connection filing periodic reports remediation material weaknesses internal control financial reporting declined compared fiscal year ended january 31 2011 continued significant fiscal year ended january 31 2012 expenses aggregated 372 million 362 million incurred cti comverse 10 million incurred verint expect expenses continue decline particularly complete remediation remaining material weaknesses internal control financial reporting eliminated time enhance internal finance accounting personnel replace external consultants currently assisting us preparation periodic reports relisting nasdaq september 2011 nasdaq approved ctis application relisting common stock nasdaq global select market trading exchange resumed september 23 2011 implementation phase ii business transformation fiscal year ended january 31 2012 comverse implemented phase ii business transformation focuses process reengineering maximize business performance productivity operational efficiency part efforts solidify leadership bss leverage growth mobile data usage maintaining leading market position vas implementing cost savings operational efficiencies strategic focus information see item 1 “businesscomversephase ii business transformation” item 7 “managements discussion analysis financial condition results operationsliquidity capital resourcesrestructuring initiativesbusiness transformation” note 11 consolidated financial statements included item 15 annual report final payments consolidated shareholder class action settlement agreement release ars december 2009 cti entered agreement amended june 2010 settle consolidated shareholder class action fiscal year ended january 31 2012 cti paid remaining amounts payable settlement agreement consolidated shareholder class action aggregating 1413 million 825 million paid issuance 12462236 shares ctis common stock remainder paid cash following payment cti amounts security interest benefit plaintiff class account cti held auction rate securities ars cash proceeds sales redemptions ars including interest thereon terminated comprehensive discussion see item 3 “legal proceedingsproceedings related ctis special committee investigationssettlement agreements” note 26 consolidated financial statements included item 15 annual report sale ars fiscal year ended january 31 2012 cti sold approximately 869 million aggregate principal amount ars constituting substantially ars portfolio approximately 750 million cash settlement optout plaintiffs action december 2011 cti agreed settle action initiated maverick fund ldc certain affiliated investment funds opted participate settlement consolidated shareholder class action pursuant settlement agreement cti paid plaintiffs approximately 95 million detailed discussion see item 3 “legal proceedingsproceedings related ctis special committee investigationsoptout plaintiffs action” note 26 consolidated financial statements included item 15 annual report fcpa litigation settlement april 2011 cti entered nonprosecution agreement doj settlement agreement sec agreements resolved allegations cti certain foreign subsidiaries violated books records internal controls provisions fcpa inaccurately recording certain improper payments made 2003 2006 certain former employees external sales agent comverse ltd subsidiaries connection sale certain products foreign jurisdictions nonprosecution agreement doj cti paid fine 12 million doj settlement agreement sec cti paid approximately 16 million disgorgement prejudgment interest detailed discussion see item 3 “legal proceedingsinvestigation alleged unlawful payments” note 26 consolidated financial statements included item 15 annual report appointment chief executive officer effective march 4 2011 charles burdick appointed executive chairman chief executive officer replacing andre dahan prior appointment mr burdick served ctis nonexecutive chairman board changes board composition september 2011 mr richard nottenburg mr alexander porter jr advised cti personal reasons seek reelection director ctis annual shareholder meeting held november 16 2011 messrs nottenburg porter indicated decision result disagreement cti addition annual shareholder meeting mr raz alon mr joseph odonnell receive majority votes cast required ctis bylaws consequently accordance ctis corporate governance guidelines principles messrs alon odonnell tendered resignation board resignations accepted board approval 2011 stock incentive compensation plan september 2011 ctis board approved comverse technology inc 2011 stock incentive compensation plan referred 2011 incentive plan approved ctis shareholders annual shareholder meeting held november 16 2011 total 22000000 shares cti common stock reserved issuance 2011 incentive plan equity awards may granted 2011 incentive plan employees nonemployee directors consultants well employees consultants subsidiaries affiliates cti intends grant future equity awards solely 2011 incentive plan verint debt refinancing april 29 2011 verint entered credit agreement referred new credit agreement group lenders credit suisse ag administrative agent collateral agent lenders referred capacities agent ii terminated credit agreement dated may 25 2007 referred prior facility new credit agreement provides 7700 million secured senior credit facilities comprised 6000 million term loan maturing october 2017 referred new term loan facility 1700 million revolving credit facility maturing april 2016 referred new revolving credit facility subject increase maximum increase 3000 million reduction time according terms new credit agreement january 31 2012 verint outstanding borrowings new revolving credit facility additional discussion see “liquidity capital resourcesindebtednessverint credit facilities” note 12 consolidated financial statements included item 15 annual report verints business acquisitions fiscal year ended january 31 2012 verint completed seven business combinations included acquisitions global management technologies corporation gmt privatelyheld provider workforce management solutions vovici corporation vovici usbased privatelyheld provider online survey management enterprise feedback solutions privatelyheld provider communications intelligence solutions data retention services network performance management based americas region information relating acquisitions see note 6 consolidated financial statements included item 15 annual report changes verints board march 16 2012 board directors cti capacity verints controlling stockholder determined propose change composition verints board charles burdick john bunyan paul baker officers cti would cease serve verint board augustus oliver theodore schell mark terrell members cti board would appointed verint board march 18 2012 meeting verint board resignations messrs burdick bunyan baker verint board accepted messrs oliver schell terrell appointed fill vacancies resulting resignations liquidity forecast cti comverse currently forecast available cash equivalents sufficient meet liquidity needs including capital expenditures cti comverse least next 12 months comprehensive discussion liquidity forecast see “liquidity capital resourcesfinancial condition cti comverseliquidity forecast” adoption new revenue recognition guidance february 1 2011 adopted new accounting guidance relating revenue recognition prospective basis guidance amends criteria allocating consideration multipledeliverable revenue arrangements consisting tangible products establishing selling price hierarchy fiscal year ended january 31 2012 consolidated total revenue included 634 million additional revenue recognized result adoption new guidance 427 million 58 million 124 million 21 million 04 million recognized comverse bss comverse vas verint starhome comverse mi respectively information see note 1 consolidated financial statements included item 15 annual report additional revenue included 409 million 394 million 11 million 04 million revenue recognized company consolidated basis comverse bss comverse vas comverse mi respectively new guidance compared revenue would recognized prior accounting guidance fiscal year ended january 31 2012 resulting material modifications certain existing contracts entered connection change orders included purchase additional customer solutions services expansion projects customers changes reportable segments fiscal year ended january 31 2012 changed reportable segments reportable segments consist comverse bss comverse vas verint results operations included column captioned “all other” part business segment presentation operating segments included “all other” meet quantitative thresholds required separate presentation aggregation criteria segment reporting guidance specifically similar economic characteristics separately presented reportable segment changes reportable segments attributable implementation phase ii business transformation comverse focuses process reengineering maximize business performance productivity operational efficiency comprehensive discussion relating phase ii business transformation see item 1 “businesscomverse phase ii business transformation” note 11 consolidated financial statements included item 15 annual report result phase ii business transformation comverse bss comverse vas comverse mi became operating segments addition comverse created comverse gls provides customer postdelivery services revenue comverse bss comverse vas comverse mi includes revenue generated comverse gls attributable operations operating segment costs expenses comverse bss comverse vas comverse mi comprised direct costs product materials personnelrelated costs expenses incurred comverse gls connection operations operating segment chief operating decision maker codm ctis chief executive officer uses segment performance comverse bss comverse vas comverse mi including amounts attributable comverse gls assessing financial results segments allocation resources discrete financial information comverse gls used codm assessment financial results allocation resources recast presentation segment information fiscal years ended january 31 2011 2010 reflect reportable segments maintain balance sheets comverse bss comverse vas comverse mi operating segments comprehensive discussion relating changes reportable segments see notes 1 23 consolidated financial statements included item 15 annual report segment performance evaluate business assessing performance operating segments ctis chief executive officer codm uses segment performance defined primary basis assessing financial results operating segments allocation resources segment performance define accordance financial accounting standard boards fasb guidance relating segment reporting necessarily comparable similarly titled captions companies segment performance defined management represents operating results segment without impact significant expenditures incurred segment connection efforts become remain current periodic reporting obligations federal securities laws expected eliminated time certain noncash charges certain gains charges segment performance computed management income loss operations adjusted following stockbased compensation expense ii amortization acquisitionrelated intangibles iii compliancerelated professional fees iv compliancerelated compensation expenses v strategic evaluation related costs vi impairment property equipment vii impairment charges viii litigation settlements related costs ix acquisitionrelated charges x restructuring integration charges xi certain gains charges compliancerelated professional fees compliancerelated compensation expenses relate fees expenses incurred connection efforts complete current previously issued financial statements audits financial statements b become current periodic reporting obligations federal securities laws c remediate material weaknesses internal control financial reporting compliancerelated professional fees compliancerelated compensation expenses recorded fiscal year ended january 31 2012 also relate fees expenses incurred connection timely filing certain periodic reports fees expenses expected eliminated time enhance internal finance accounting personnel replace external consultants currently assisting us preparation periodic reports strategic evaluation related costs include financial advisory accounting tax consulting legal fees incurred connection evaluation strategic alternatives including proposed comverse share distribution additional information apply segment performance evaluate operating results segments fiscal years ended january 31 2012 2011 2010 see notes 1 23 consolidated financial statements included item 15 annual report evaluating segments performance management uses segment revenue consists revenue generated segment including intercompany revenue certain segment performance adjustments relate expenses included calculation income loss operations time certain segment performance adjustments may presented adjustments revenue calculating verints segment performance fiscal year ended january 31 2012 presentation segment revenue gives effect segment revenue adjustments represent impact fair value adjustments required fasbs guidance relating acquired customer support contracts would otherwise recognized revenue standalone basis respect acquisitions consummated verint periods presented verint segment revenue adjustments fiscal years ended january 31 2011 2010 segment financial highlights following table presents fiscal years ended january 31 2012 2011 2010 segment revenue gross margin income loss operations operating margin segment performance segment performance margin reflecting segment performance percentage segment revenue reportable segments discussion results segments see “results operations” comverse subsidiary financial highlights discussed changed reportable segments result implementation phase ii business transformation comverse manner codm reviews financial results comverse allocates resources operating segments providing following additional information presenting highlights results operations previous comverse reportable segment believe presentation provides useful information investors regarding performance comverse subsidiary including comparability previously reported financial information additional information provided replacement subset business segment information 1 comverse performance represents operating results comverse subsidiary without impact significant expenditures incurred comverse connection efforts become remain current periodic reporting obligations federal securities laws expected eliminated time certain noncash charges certain gains charges information see note 23 consolidated financial statements included item 15 annual report business trends uncertainties comverse second half fiscal year ended january 31 2011 commenced certain initiatives improve cash position including plan restructure operations comverse view towards aligning operating costs expenses anticipated revenue comverse successfully implemented first phase plan commencing third quarter fiscal year ended january 31 2011 significantly reducing annualized operating costs fiscal year ended january 31 2012 comverse implemented phase ii business transformation part phase ii business transformation comverse seeking achieve longterm improved operating performance sustainable positive operating cash flows believe fiscal year ended january 31 2012 comverse realized benefits initiatives fiscal year ended january 31 2012 comverse income operations change loss operations prior fiscal year significantly reduced negative cash flows operations despite decline revenue believe improvement performance cash flows attributable large extent managements enhanced focus profitability improved cash collections cost reduction measures part phase ii business transformation comverse achieved cost reduction process reengineering maximize business performance productivity operational efficiency addition compliancerelated professional fees declined significantly fiscal year ended january 31 2012 compared fiscal year ended january 31 2011 believe cost reductions result primarily declines compliancerelated professional fees result becoming timely filing periodic reports fees expected decline complete remediation remaining material weakness internal control financial reporting eliminated time enhance internal finance accounting personnel replace external consultants currently assisting us preparation periodic reports cost reductions may partially offset among factors increasing complexity project deployment may result higher product delivery costs significant expenses expected incurred connection proposed comverse share distribution part phase ii business transformation comverse restructured operations new business units result comverses principal business activities reported following segments • comverse bss conducts comverses converged prepaid postpaid billing active customer management systems business includes groups engaged product management professional services research development product sales support • comverse vas conducts comverses valueadded services business includes groups engaged vas delivery voice product research development messaging product research development product sales support comverse bss overview part previously disclosed strategy comverse bss continuing efforts expand presence market share bss market bss solutions believe offer several advantages competitors offerings including faster time market lower total cost ownership comverse bss continues leverage existing prepaid postpaid customer base offer upgrades comverse one converged billing solution believe better addresses enhanced business needs communication service providers addition comverse bss continues aggressively pursue opportunities market bss solutions primarily comverse one new customers part efforts increase customer base result comverse bss currently beginning experience shift product mix portion sales advanced comverse one converged billing solution continues increase portion sales traditional standalone prepaid postpaid bss solutions continues decline communication service providers experiencing growth global wireless subscriptions traffic rapid growth use advanced services data services internet browsing response market trends communication service providers require enhanced bss system functionality accommodate business needs result comverse bss facing increasing complexity project deployment resulting extended periods time required complete project milestones receive customer acceptance often required revenue recognition receipt payment address challenges comverse bss improved continues improve delivery implementation capabilities resulted reduced cost faster delivery time increased customer satisfaction addition comverse bss continues focus increasing revenue improving margins broadening customer solution service offerings including managed services existing new customers fiscal year ended january 31 2012 comverse bss experienced increase maintenance revenue significant decline bss customer solutions orders increase bss maintenance revenue primarily attributable increase installed base comverse bss customer solutions increased collections resulted recognition additional revenue believe decrease orders bss customer solutions attributable mainly deferral bss projects customers primarily fourth quarter addition believe bss customer solutions order activity adversely affected fiscal year uncertainty economic conditions prompted existing potential customers defer significant capital investments involved deploying bss solutions upgrading existing prepaid postpaid systems converged bss solution concerns part customers financial condition believe portion decline also attributable maturation certain markets historically accounted significant portion bss growth decline orders bss customer solutions fiscal year continues previously disclosed adverse business trend began 2008 expect orders bss customer solutions increase customers make certain purchasing decisions delayed addition anticipate customers become increasingly willing contract us comverse bsss solutions concerns financial condition lessened following successful implementation initiatives improve cash position cti becoming current reporting obligations federal securities laws resolution administrative proceeding brought sec payment amounts due consolidated shareholder class action settlement agreement relisting ctis common stock nasdaq addition believe customers begin fully recognize comverse bsss solutions offer several advantages competitors offerings also continue pursue growth opportunities certain emerging markets including africa south asia latin america existing potential customers expand market reach however bss customer solutions order activity increase comverses revenue profitability would likely materially adversely affected may required implement cost reduction measures initiatives preserve enhance cash position believe comverse bsss solutions offering potential become key driver growth going forward based interactions existing potential customers expect comverse bss continue build strength comverse one solution particularly converged billing segment bss market expected grow rapidly next years also expect growth mobile data traffic increase demand comverses mobile internet solutions include policy management enforcement deep packet inspection traffic management video optimization capabilities integrated bss solution strategy several elements comverse bsss strategy including • expand comverses presence market share bss market believe comverses bss solutions offer customers several advantages competitors solutions including faster time market lower total cost ownership intend focus expanding comverses position converged billing market new engagements large established communication service providers • leverage existing customer base intend continue aggressively marketing comverse one converged billing solution existing customers seeking upgrade prepaid postpaid billing systems • expand service offering comverse intends expand improve customer postdelivery services support offering dedicated resources comverse gls • focus offering managed services intend continue offer customers managed services managed services enable us assume responsibility operation management customers billing systems customers receive improved efficiencies realize longterm savings relating operation management systems thereby allowing focus internal business needs strengths reduced management distraction managed services also benefit us source predictable revenue longterm relationships • improve margins competitive position reducing delivery cost comverse bss intends continue seek improvement margins primarily reducing product delivery support costs comverse vas overview revenue orders related vas customer solutions fiscal year ended january 31 2012 declined compared fiscal year ended january 31 2011 declines attributable part comverses strategy pursue primarily higher margin vas projects led lower levels vas revenue customer order activity consistent expectations due implementation comverses strategy expect vas revenue customer order activity may continue decline moderately comverse vas continues maintain market leadership voicebased products voicemail call completion however recent years telecommunications industry comverse vas operates undergone continues undergo significant changes adverse comverse vas include emergence new lowcost competitors emerging markets ii proliferation alternative messaging applications sms text messaging part attractive substitute voicemail usage iii maturation wireless services industry particularly relates voicebased services voicemail resulting decreasing rate growth subscriber base comverse vass telecommunication service provider customers capital spending budgets iv relative commoditization voice sms text message services v increased dependence growth emerging markets lower average revenue per user vi changes regulatory environment believe changes reduced demand comverse vass products services increased pricing pressures turn reduced revenue margins although believe comverse vass products services superior lowcost competitors emerging markets result adverse trends comverse vas conducted extensive evaluation cost structure implemented measures increase efficiency significantly reduce costs providing products services addition comverse vas continuing implement strategy pursue primarily higher margin vas projects time global wireless subscriptions traffic continued grow emerging wireless segments data services internet browsing experienced rapid adoption growth use trends support demand several products part efforts maintain market position leverage recent trends comverse vas engaged promotion advanced offerings visual voicemail call management ip engine ipbased messaging platform service enablement middleware cloudbased solution believe demand advanced offerings may grow due increasing deployment smartphones wireless communication service providers accordingly comverse continues expend significant resources vas research development activities order enhance existing products develop new solutions additional information see item 1 “businesscomverseproductscomverse valueadded services solutionsnext generation vas solutions” strategy several elements comverse vass strategy including • maintain market leadership established voicebased services intend maintain strong market leadership position voicebased services voicemail call completion part promotion advanced offerings visual voicemail call management • expand service offering comverse intends expand improve customer postdelivery services support offering dedicated resources comverse gls • improve margins competitive position reducing delivery cost comverse vas intends continue seek improvement margins pursuing primarily higher margin vas projects reducing product delivery support costs • leverage communication service providers transition ip networks plan continue market next generation vas products communication service providers seeking transition networks newer ip technology 4g lte next generation vas products portfolio designed provide customers flexibility effecting vas ip transition either leveraging existing systems gradual deployment “allip” vas infrastructure uncertainties impacting future performance mix revenue discussed part strategy comverse continuing efforts expand bss business pursue primarily higher margin vas projects resulted lower vas revenue currently unable predict whether increases bss revenue exceed fully offset declines vas revenue bss revenue increase increases bss revenue exceed fully offset declines vas revenue comverses revenue profitability cash flows would likely materially adversely affected due current market trends consumer preferences expect advanced offerings comverse bss comverse vas account larger portion revenue although advanced offerings comverse bss comverse vas proven initially successful unclear whether advanced offerings widely adopted existing potential customers currently unable predict whether increases sales advanced offerings exceed fully offset declines comverse bss comverse vas may experience sale traditional solutions sales advanced offerings increase increases sales advanced offerings exceed fully offset declines sales traditional solutions due adverse market trends changes consumer preferences revenue profitability cash flows comverse bss comverse vas would likely materially adversely affected customer confidence believe comverse bss comverse vas may lost business opportunities due concerns part customers financial condition anticipate concerns ease result successful implementation initiatives improve cash position cti becoming current reporting obligations resolution administrative proceeding section 12j exchange act sec payment amounts due consolidated shareholder class action settlement agreement also believe relisting ctis common stock nasdaq enhanced comverses market perception increase willingness customers partners purchase solutions services global economic conditions business comverse bss comverse vas impacted general economic conditions weakness global economy recent years materially adversely affected telecommunications industry many customers experienced significant declines revenue profitability customers required reduce excessive debt levels response challenges many customers comverse bss comverse vas implemented cost cutting measures including closely managing operating expenses capital investment budgets resulted reduced demand products services solutions longer customer purchasing decisions pricing pressures fiscal year ended january 31 2012 global economy experienced gradual recovery resulting moderate increase levels spending customers concurrently however adverse developments global debt markets including european sovereign debt indications slowdown global economic recovery conditions adversely impacted financial markets created substantial volatility uncertainty likely continue recovery global economy curtailed market conditions worsen existing potential customers could reduce spending turn could reduce demand products services difficulty forecasting operating results operating results comverse difficult predict high percentage comverses customer orders typically generated late fiscal quarter addition based historical industry spending patterns communication service providers comverse typically forecasts highest customer order activity occur fourth fiscal quarter trend makes difficult comverse forecast annual customer order activity implement effective measures cover shortfalls prior fiscal quarters customer orders fourth fiscal quarter fail meet expectations furthermore comverse continues emphasize large capacity systems product development marketing strategies contracts bss vas installations typically involve lengthy complex highly competitive bidding selection process ability obtain particular contracts inherently difficult predict delay cancellation factor resulting postponement cancellation significant orders may cause us miss financial projections may discernible end financial reporting period verint segment business overview verint global leader actionable intelligence solutions valueadded services verints solutions enable organizations sizes make timely effective decisions improve enterprise performance enhance safety 10000 organizations 150 countriesincluding 85 fortune 100use verints actionable intelligence solutions capture distill analyze complex underused information sources voice video unstructured text enterprise intelligence market verints workforce optimization voice customer solutions help organizations enhance customer service operations contact centers branches backoffice environments increase customer satisfaction reduce operating costs identify revenue opportunities improve profitability security intelligence market verints communications cyber intelligence video situation intelligence public safety solutions help government commercial organizations efforts protect people property neutralize terrorism crime verints business verint serves two markets three product lines verints enterprise intelligence product line serves enterprise workforce optimization market video intelligence communications intelligence product lines serve security intelligence market verint leading provider enterprise intelligence software services verints solutions enable organizations extract analyze valuable information customer interactions related operational data order make effective proactive decisions optimizing performance customer service operations improving customer experience facilitating compliance enhancing products services verint leading provider networked ip video solutions provider situation management solutions designed optimize security enhance operations verints video intelligence solutions portfolio includes ip video management software services edge devices capturing digitizing transmitting video different types wired wireless networks video analytics networked video recorders physical security information management verint also leading provider communications intelligence solutions developer cyber intelligence solutions help law enforcement national security intelligence civilian government agencies effectively detect investigate neutralize criminal terrorist threats detect thwart cyber attacks verints solutions designed handle massive amounts unstructured structured information different sources quickly make sense complex scenarios generate evidence intelligence verints strategy verints strategy enhance position leading provider enterprise intelligence security intelligence solutions worldwide includes following key elements • continue drive development actionable intelligence solutions unstructured data verint pioneer development solutions help businesses governmental organizations derive intelligence unstructured data verint intends continue drive adoption actionable intelligence solutions designed provide high return investment delivering software services enterprise intelligence security intelligence markets • maintain market leadership innovation customer centricity verint believes compete successfully must continue introduce solutions better enable customers derive actionable intelligence unstructured data order verint intends continue make significant investments research development protect intellectual property patents means maintain regular dialog customer base order understand business objectives requirements • continue expand verints market presence oem partner relationships verint expanded relationships oems channel partners verint believes relationships broaden market coverage intends continue expanding existing relationships creating new ones • augment verints organic growth acquisitions verint examines acquisition opportunities regularly means add technology increase geographic presence enhance market leadership expand adjacent markets historically verint engaged acquisitions purposes expects continue future strategic opportunities arise key trends developments verints business verint believes many factors affect ability sustain increase revenue profitability including • market acceptance actionable intelligence unstructured data particularly analytics verint early stage market value certain aspects products solutions still process market acceptance verint believes future growth depends part continued increasing acceptance value data analytics across product offerings • verints debt instruments may constrain investment growth verint subject various restrictive covenants new credit agreement well leverage ratio financial covenant result verints new credit agreement limits ability incur additional debt engage mergers acquisitions make certain investments business limitations may impede verints ability execute upon business strategy • information technology spending verints growth results depend part general economic conditions pace growth information technology spending results operations following discussion provides analysis consolidated results operations segments fiscal years presented discussion consolidated results relates consolidated results cti subsidiaries discussion results operations segments provides detailed analysis results segment presented accordingly discussion consolidated results read conjunction discussions results operations segments fiscal year ended january 31 2012 compared fiscal year ended january 31 2011 consolidated results total revenue total revenue 15944 million fiscal year ended january 31 2012 decrease 290 million 18 compared fiscal year ended january 31 2011 decrease primarily attributable declines revenue 1045 million 39 million comverse vas segment respectively partially offset increases revenue 245 million 558 million comverse bss verint segments respectively fiscal year ended january 31 2012 compared fiscal year ended january 31 2011 total revenue fiscal year ended january 31 2012 includes 634 million additional revenue recognized result adoption new accounting guidance relating revenue recognition comprehensive discussion see “overviewadoption new revenue recognition guidance” note 1 consolidated financial statements included item 15 annual report income loss operations income operations 270 million fiscal year ended january 31 2012 change 770 million compared loss operations 499 million fiscal year ended january 31 2011 change primarily attributable • 1245 million decrease compliancerelated professional fees primarily within verint segment • 204 million decrease stockbased compensation verint segment • 92 million decrease restructuring charges within change partially offset • 260 million increase cost revenue attributable comverse bss verint segments partially offset decrease comverse vas segment • 224 million change attributable 49 million litigation settlement costs fiscal year ended january 31 2012 compared litigation settlement income 175 million received cti connection settlements consolidated shareholder derivative actions consolidated shareholder class action fiscal year ended january 31 2011 interest income interest income 43 million fiscal year ended january 31 2012 increase 02 million 56 compared fiscal year ended january 31 2011 interest expense interest expense 333 million fiscal year ended january 31 2012 increase 25 million 82 compared fiscal year ended january 31 2011 increase primarily attributable 25 million increase interest expense verint segment principally due higher interest rate verints borrowings associated amendment prior facility entered july 2010 new credit agreement entered april 2011 loss extinguishment debt fiscal year ended january 31 2012 verint recorded 81 million loss connection termination prior facility april 2011 additional discussion see “liquidity capital resourcesindebtednessverint credit facilities” income net income net 220 million fiscal year ended january 31 2012 increase 156 million 2447 compared fiscal year ended january 31 2011 increase attributable • 67 million impairment charge recorded fiscal year ended january 31 2011 respect ctis right require ubs repurchase cti eligible ars par value cti exercised june 2010 corresponding charge recorded fiscal year ended january 31 2012 • 48 million income recorded fiscal year ended january 31 2012 connection proceeds received part settlement certain cti claims third party • 31 million net realized unrealized losses verints interest rate swap terminated july 2010 recorded fiscal year ended january 31 2011 corresponding losses recorded fiscal year ended january 31 2012 income tax benefit provision income tax provision 430 million fiscal year ended january 31 2012 representing effective tax rate 3600 compared income tax provision 372 million representing effective tax rate 530 fiscal year ended january 31 2011 fiscal year ended january 31 2012 effective tax rate higher us federal statutory rate 35 fiscal year ended january 31 2011 effective tax rate negative primarily due mix income losses jurisdiction record income tax benefit losses certain jurisdictions maintain valuation allowances certain us foreign net deferred tax asset income tax provision period comprised income tax expense recorded nonloss jurisdictions withholding taxes certain tax contingencies recorded fiscal years ended january 31 2012 2011 change effective tax rate fiscal year ended january 31 2012 compared fiscal year ended january 31 2011 primarily attributable changes relative mix income losses across various jurisdictions loss discontinued operations net tax loss discontinued operations net tax 110 million fiscal year ended january 31 2011 represented results operations ulticom fiscal year ended january 31 2011 less applicable income taxes ulticom sold december 3 2010 net income attributable noncontrolling interest net income attributable noncontrolling interest 277 million fiscal year ended january 31 2012 increase 139 million 1005 compared net income attributable noncontrolling interest fiscal year ended january 31 2011 increase primarily attributable increase verints net income fiscal year ended january 31 2012 compared fiscal year ended january 31 2011 well increase percentage ownership verint verints stockholders cti segment results comverse bss revenue management analyzes comverse bsss revenue generated customer solutions ii maintenance revenue generated customer solutions consists primarily licensing comverses bss customer solutions hardware related professional services training professional services primarily include installation customization consulting services maintenance revenue consists primarily postcontract customer support pcs including technical software support services unspecified software updates upgrades customers whenandifavailable basis maintenance revenue typically less susceptible changes market conditions generally represents stable revenue stream recurring renewals contracts comverse bsss existing customer base total revenue fiscal year ended january 31 2012 includes 427 million additional revenue recognized result adoption new accounting guidance relating revenue recognition comprehensive discussion see “overviewadoption new revenue recognition guidance” note 1 consolidated financial statements included item 15 annual report revenue comverse bss customer solutions 2100 million fiscal year ended january 31 2012 increase 111 million 56 compared fiscal year ended january 31 2011 increase revenue comverse bss customer solutions primarily attributable 427 million additional revenue recognized result adoption new accounting guidance relating revenue recognition increase partially offset lower volume customer acceptances fiscal year ended january 31 2012 compared fiscal year ended january 31 2011 revenue comverse bss customer solutions continued adversely affected increasing complexity project deployment resulting extended periods time required complete project milestones receive customer acceptance ii lower volume bss projects current fiscal year resulting reduced customer order activity recent years due global economic weakness comverse bss maintenance revenue 1550 million fiscal year ended january 31 2012 increase 134 million 94 compared fiscal year ended january 31 2011 increase primarily attributable increase installed base comverse bss customer solutions increased collections resulted recognition additional revenue geographic region revenue americas emea apac represented approximately 19 53 28 comverse bsss revenue respectively fiscal year ended january 31 2012 compared approximately 17 60 23 comverse bsss revenue respectively fiscal year ended january 31 2011 increase revenue percentage total revenue comverse bss apac primarily attributable significant revenue recognized due customer acceptances certain largescale projects fiscal year ended january 31 2012 comparable customer acceptances fiscal year ended january 31 2011 europe continued suffer significant weakness market conditions accordingly european customers continued closely monitor costs maintain lower levels spending result comverse bsss revenue european customers declined fiscal year ended january 31 2012 compared fiscal year ended january 31 2011 foreign currency impact revenue functional currency financial reporting purposes us dollar majority comverse bsss revenue fiscal year ended january 31 2012 derived transactions denominated us dollars revenue derived transactions denominated various foreign currencies primarily euro fluctuations us dollar relative foreign currencies comverse bss conducted business fiscal year ended january 31 2012 compared fiscal year ended january 31 2011 favorably impacted revenue 47 million foreign currency impact costs significant portion comverse bsss expenses principally personnelrelated costs incurred new israeli shekel nis whereas functional currency financial reporting purposes us dollar strengthening nis us dollar would increase us dollar value comverse bsss expenses israel comverse enters foreign currency forward contracts mitigate risk attributable foreign currency exchange rate fluctuations cost revenue cost revenue consists primarily hardware software material costs compensation related expenses personnel involved customization comverse bsss products customer delivery contractor costs maintenance professional services installation costs training royalties license fees depreciation equipment used operations amortization capitalized software costs certain purchased intangible assets related overhead costs cost revenue 1998 million fiscal year ended january 31 2012 increase 73 million 38 compared fiscal year ended january 31 2011 increase primarily attributable • 188 million increase material costs overhead due increased revenue lower margin projects • 19 million increase travel entertainment expenses increases partially offset • 108 million decrease contractor costs due increased use company employees lieu contractors part cost savings initiatives • 35 million decrease allocated overhead costs relating cost revenue research development net research development expenses net primarily consist personnelrelated costs involved product development net reimbursement government programs research development expenses also include thirdparty development programming costs amortization purchased software code services content used research development activities research development expenses net 605 million fiscal year ended january 31 2012 decrease 29 million 46 compared fiscal year ended january 31 2011 decrease primarily attributable 27 million decrease personnelrelated costs principally due workforce reductions decline compensation levels selling general administrative selling general administrative expenses consist primarily compensation related expenses personnel professional services sales marketing expenses facility costs unallocated overhead expenses selling general administrative expenses 276 million fiscal year ended january 31 2012 decrease 06 million 23 compared fiscal year ended january 31 2011 decrease primarily attributable workforce reductions overall reduction sales commissions due lower bookings segment performance segment performance 968 million fiscal year ended january 31 2012 based segment revenue 3650 million representing segment performance margin 265 percentage segment revenue segment performance 764 million fiscal year ended january 31 2011 based segment revenue 3405 million representing segment performance margin 224 percentage segment revenue increase segment performance margin primarily attributable increase segment revenue partially offset increase segment expenses fiscal year ended january 31 2012 compared fiscal year ended january 31 2011 comverse vas revenue management analyzes comverse vass revenue generated customer solutions ii maintenance revenue generated customer solutions consists primarily licensing comverses vas customer solutions hardware related professional services training professional services primarily include installation customization consulting services maintenance revenue consists primarily postcontract customer support pcs including technical software support services unspecified software updates upgrades customers whenandifavailable basis maintenance revenue also includes revenue attributable maintenance services provided customers initial service period represents portion revenue generated customer solutions maintenance revenue typically less susceptible changes market conditions generally represents stable revenue stream recurring renewals contracts comverse vass existing customer base total revenue fiscal year ended january 31 2012 includes 58 million additional revenue recognized result adoption new accounting guidance relating revenue recognition comprehensive discussion see “overviewadoption new revenue recognition guidance” note 1 consolidated financial statements included item 15 annual report revenue comverse vas customer solutions 2023 million fiscal year ended january 31 2012 decrease 824 million 289 compared fiscal year ended january 31 2011 decrease revenue comverse vas customer solutions primarily attributable number customer acceptances largescale deployments next generation voicemail products including visual voicemail connection launch new smartphones increasing use smartphones subscribers fiscal year ended january 31 2011 comparable customer acceptances fiscal year ended january 31 2012 addition revenue impacted timing customer acceptances certain projects timing completion project milestones furthermore implementation comverses strategy pursue higher margin comverse vas projects led expected lower revenue comverse vas maintenance revenue 1541 million fiscal year ended january 31 2012 decrease 221 million 125 compared fiscal year ended january 31 2011 decrease mainly due decline maintenance revenue attributable maintenance services provided customers initial service period corresponding decline revenue vas customer solutions decline installed base value revenue geographic region revenue americas emea apac represented approximately 30 45 25 comverse vass revenue respectively fiscal year ended january 31 2012 compared approximately 41 34 25 comverse vass revenue respectively fiscal year ended january 31 2011 decrease revenue percentage total revenue comverse vas americas primarily attributable significant revenue recognized due customer acceptances certain largescale projects fiscal year ended january 31 2011 comparable customer acceptances fiscal year ended january 31 2012 ii implementation comverses strategy pursue higher margin comverse vas projects expected led lower revenue increase revenue comverse vas emea primarily attributable timing certain acceptances foreign currency impact revenue functional currency financial reporting purposes us dollar majority comverse vass revenue fiscal year ended january 31 2012 derived transactions denominated us dollars revenue derived transactions denominated various foreign currencies primarily euro fluctuations us dollar relative foreign currencies comverse vas conducted business fiscal year ended january 31 2012 compared fiscal year ended january 31 2011 favorably impacted revenue 42 million foreign currency impact costs significant portion comverse vass expenses principally personnelrelated costs incurred nis whereas functional currency financial reporting purposes us dollar strengthening nis us dollar would increase us dollar value comverse vass expenses israel comverse enters foreign currency forward contracts mitigate risk attributable foreign currency exchange rate fluctuations cost revenue cost revenue consists primarily hardware software material costs compensation related expenses personnel involved customization comverse vass products customer delivery contractor costs maintenance professional services installation costs training royalties license fees depreciation equipment used operations amortization capitalized software costs certain purchased intangible assets related overhead costs cost revenue 1951 million fiscal year ended january 31 2012 decrease 44 million 22 compared fiscal year ended january 31 2011 decrease primarily attributable • 147 million decrease material costs overhead primarily result decreased revenue inventory obsolescence • 13 million decrease travel entertainment expenses result cost saving initiatives decrease partially offset increases cost revenue due transfer certain research development personnel specific projects connection processes improve operational efficiency part implementation phase ii business transformation comverse costs attributable personnel recorded cost revenue lieu research development expenses net increases included • 90 million increase allocated overhead costs relating cost revenue • 25 million increase contractor costs recorded based progress projects related customer solutions • 08 million increase personnelrelated costs research development net research development expenses primarily consist personnelrelated costs involved product development net reimbursement government programs research development expenses also include thirdparty development programming costs amortization purchased software code services content used research development activities research development expenses net 254 million fiscal year ended january 31 2012 decrease 347 million 577 compared fiscal year ended january 31 2011 research development expenses net impacted transfer certain research development personnel specific projects connection processes improve operational efficiency part implementation phase ii business transformation comverse costs attributable personnel recorded cost revenue lieu research development expenses net decrease research development expenses net primarily attributable • 209 million decrease personnelrelated costs primarily due workforce reductions decline compensation levels decrease research development activity • 79 million decrease allocated overhead costs relating research development due workforce reduction • 40 million decrease contractor costs due decrease research development activity selling general administrative selling general administrative expenses consist primarily compensation related expenses personnel professional services sales marketing expenses facility costs unallocated overhead expenses selling general administrative expenses 120 million fiscal year ended january 31 2012 decrease 139 million 537 compared fiscal year ended january 31 2011 decrease primarily attributable • 124 million decrease personnelrelated costs primarily due workforce reductions decline compensation levels • 24 million decrease overhead allocations related selling general administrative expenses segment performance segment performance 1260 million fiscal year ended january 31 2012 based segment revenue 3564 million representing segment performance margin 353 percentage segment revenue segment performance 1757 million fiscal year ended january 31 2011 based segment revenue 4609 million representing segment performance margin 381 percentage segment revenue decrease segment performance margin primarily attributable decrease segment revenues partially offset decrease segment expenses fiscal year ended january 31 2012 compared fiscal year ended january 31 2011 verint revenue verints product revenue consists sale hardware software products verints service support revenue consists primarily revenue installation consulting training services postcontract customer support total revenue fiscal year ended january 31 2012 includes 124 million additional revenue recognized result adoption new accounting guidance relating revenue recognition comprehensive discussion see “overviewadoption new revenue recognition guidance” note 1 consolidated financial statements included item 15 annual report product revenue 3904 million fiscal year ended january 31 2012 increase 152 million 41 compared fiscal year ended january 31 2011 increase primarily attributable 94 million increase related verints communication intelligence solutions 85 million increase product revenue related verints video intelligence solutions increase revenue related verints communication intelligence solutions primarily attributable new communications intelligence product offerings increase product revenue related verints video intelligence solutions attributable increase product deliveries customers recognition revenue associated completion project large customer fiscal year ended january 31 2012 partially offset reduction product revenue recognized prior fiscal years multipleelement arrangements recognized ratably allocated product service revenue several fiscal quarters years primarily due verints prior business practice providing implied pcs video intelligence customers vendor specific objective evidence vsoe exist increases revenue partially offset 26 million decrease revenue related enterprise intelligence solutions due primarily large transaction whereby product delivery occurred fiscal year ended january 31 2012 significant portion product revenue could recognized fiscal year ended january 31 2012 due certain contractual terms required remaining product revenue recognized future periods comparable transactions prior fiscal year service support revenue 3923 million fiscal year ended january 31 2012 increase 406 million 116 compared fiscal year ended january 31 2011 increase primarily attributable increase service support revenue 301 million 150 million related verints enterprise intelligence solutions communication intelligence solutions respectively increase service support revenue related verints enterprise intelligence solutions due primarily increase customer installed base related support revenue generated customer base lesser extent inclusion results operations companies acquired fiscal year ended january 31 2012 primarily vovici verint continues experience expansion implementation services revenue due growth professional services organization meet demands customer base 150 million increase service support revenue related verints communications intelligence solutions approximately 67 million attributable increase customer installed base related support revenue generated customer base remaining increase primarily attributable progress realized fiscal year ended january 31 2012 certain large projects commenced previous fiscal year resulted increase service revenue fiscal year ended january 31 2012 compared fiscal year ended january 31 2011 increases service support revenue partially offset 45 million decrease service support revenue related verints video intelligence solutions due reduction service revenue recognized prior fiscal years multipleelement arrangements entire arrangement recognized ratably several fiscal quarters years primarily due prior business practice providing implied pcs customers vsoe exist revenue geographic region revenue americas emea apac represented approximately 53 27 20 verints total revenue respectively fiscal year ended january 31 2012 compared approximately 53 26 21 respectively fiscal year ended january 31 2011 cost revenue cost revenue consists product costs service costs verints product cost revenue primarily consists hardware material costs royalties due third parties software components embedded software solutions amortization capitalized software development costs personnelrelated costs associated verints global operations contractor consulting costs travel expenses relating resources dedicated project management associated product delivery facility costs allocated overhead expenses product costs also include amortization acquired technology consists amortization technology assets acquired connection business combinations verints service cost revenue primarily consists personnelrelated costs contractor costs travel expenses relating installation training consulting maintenance services stockbased compensation expenses facility costs overhead expenses product cost revenue 1385 million fiscal year ended january 31 2012 increase 174 million 144 compared fiscal year ended january 31 2011 verints overall product margins decreased slightly fiscal year ended january 31 2012 compared fiscal year ended january 31 2011 result higher profit margins projects recognized fiscal year ended january 31 2011 compared fiscal year ended january 31 2012 due increase projects requiring customized implementation services carry lower gross margins verints standard implementation services due change product mix decrease partially offset growth sales software licenses verint continues transition softwarebase solution part enterprise intelligence solutions offering product costs fiscal year ended january 31 2012 2011 included amortization acquired technology 124 million 91 million respectively increase amortization primarily attributable increase amortization expense technologybased intangible assets acquired business combinations completed fiscal year ended january 31 2012 service cost revenue 1299 million fiscal year ended january 31 2012 increase 126 million 107 compared fiscal year ended january 31 2011 increase primarily attributable 140 million increase personnelrelated costs due increase employee headcount required deliver increased volume implementation services verints overall service support margins remained consistent fiscal years ended january 31 2012 2011 research development net verints research development expenses primarily consist personnel subcontracting expenses facility costs allocated overhead net certain software development costs capitalized well reimbursements government programs software development costs capitalized upon establishment technological feasibility continue capitalized general release related software product research development expenses net 1110 million fiscal year ended january 31 2012 increase 145 million 150 compared fiscal year ended january 31 2011 increase primarily attributable 160 million increase personnelrelated costs due increase employee headcount well impact weakening us dollar nis canadian dollar research development wages verints israeli canadian research development facilities 20 million increase contractor costs primarily due additional headcount required research development efforts fiscal year ended january 31 2012 compared fiscal year ended january 31 2011 increases partially offset 40 million decrease stockbased compensation due decrease number outstanding stockbased compensation arrangements accounted liability awards fiscal year ended january 31 2012 compared fiscal year ended january 31 2011 lower average amounts outstanding rsus case associated research development employees selling general administrative verints selling general administrative expenses consist primarily personnelrelated costs related expenses professional fees sales marketing expenses including travel sales commissions sales referral fees facility costs communication expenses administrative expenses amortization acquired intangible assets amortization acquired intangible assets consists amortization certain intangible assets acquired connection business combinations including customer relationships distribution networks trade names noncompete agreements selling general administrative expenses 3168 million fiscal year ended january 31 2012 decrease 20 million 06 compared fiscal year ended january 31 2011 decrease primarily attributable • 279 million decrease compliancerelated professional fees due verint becoming current periodic reporting obligations federal securities laws june 2010 • 120 million decrease stockbased compensation primarily due decrease number outstanding stockbased compensation arrangements accounted liability awards lower average amounts outstanding rsus fiscal year ended january 31 2012 decreases offset • 193 million increase personnelrelated costs 40 million increase employee travel expenses due increase employee headcount • 32 million increase contractor costs primarily due increased use contractors resulting acquisitions well internal support activities • 28 million increase facilities expenses partially due business combinations completed fiscal year ended january 31 2012 • 18 million increase sales marketing costs addition cost associated business combinations increased 62 million primarily due 68 million higher legal professional fees 16 million acquisitionrelated costs 14 million increase amortization resulting principally business combinations completed fiscal year ended january 31 2012 partially offset 36 million net decrease change fair value contingent consideration arrangements foreign currency effect operating results fiscal year ended january 31 2012 compared fiscal year ended january 31 2011 fluctuations value us dollar relative major currencies used verints business resulted increases revenue cost revenue operating expenses dollardenominated basis foreign exchange rates remained constant periods verints revenue would approximately 129 million lower cost revenue operating expenses would approximately 129 million lower would resulted minimal impact income operations fiscal year ended january 31 2012 segment performance segment performance 1766 million fiscal year ended january 31 2012 based segment revenue 7962 million representing segment performance margin 222 percentage segment revenue segment revenue fiscal year ended january 31 2012 includes 136 million segment revenue adjustment represents impact fair value adjustments required fasbs guidance relating acquired customer support contracts would otherwise recognized revenue standalone basis respect acquisitions consummated verint fiscal year segment performance 1846 million fiscal year ended january 31 2011 based segment revenue 7268 million representing segment performance margin 254 percentage segment revenue decrease segment performance margin primarily attributable increase segment expenses partially offset increase segment revenue fiscal year ended january 31 2012 compared fiscal year ended january 31 2011 revenue fiscal years ended january 31 2012 2011 includes revenue generated primarily starhome comverses mobile internet operating segment comverse mi comverses netcentrex operations netcentrex total revenue 948 million fiscal year ended january 31 2012 decrease 39 million 39 compared fiscal year ended january 31 2011 decrease primarily attributable 132 million revenue decline comverse mi partially offset increases revenue 73 million 33 million starhome netcentrex respectively fiscal years ended january 31 2012 2011 starhomes total revenue 450 million 372 million respectively comverse mis total revenue 239 million 371 million respectively netcentrex total revenue 234 million 201 million respectively total revenue starhome comverse mi fiscal year ended january 31 2012 includes 21 million 04 million respectively additional revenue recognized result adoption new accounting guidance relating revenue recognition comprehensive discussion see “overviewadoption new revenue recognition guidance” note 1 consolidated financial statements included item 15 annual report cost revenue cost revenue fiscal years ended january 31 2012 january 31 2011 primarily attributable starhome comverse including comverse mi netcentrex cost revenue attributable comverse includes shared services costs associated percentage completion projects attributable comverses operations including comverse bss comverse vas cost revenue 820 million fiscal year ended january 31 2012 decrease 69 million 78 compared fiscal year ended january 31 2011 decrease primarily attributable • 60 million decrease material costs due decrease provision contract loss compared fiscal year ended january 31 2011 • 17 million decrease contractor costs • 16 million decrease allocated overhead costs relating cost revenue • 15 million decrease travel entertainment expenses result cost saving initiatives decrease partially offset 55 million increase personnelrelated costs due transfer certain research development personnel specific projects connection processes improve operational efficiency part implementation phase ii business transformation comverse personnelrelated costs attributable personnel recorded cost revenue lieu research development expenses net research development net research development expenses net primarily include expenses incurred comverse starhome research development expenses net attributable comverse include expenses incurred comverses global corporate functions connection shared services provided comverses operations including comverse bss comverse vas research development expenses net 168 million fiscal year ended january 31 2012 decrease 162 million 491 decrease primarily attributable • 62 million decrease personnelrelated costs due decrease research development activity resulting transfer certain research development personnel specific projects connection processes improve operational efficiency part implementation phase ii business transformation comverse personnelrelated costs attributable personnel recorded cost revenue lieu research development expenses net • 77 million decrease personnelrelated costs primarily due workforce reduction comverse selling general administrative selling general administrative expenses include primarily expenses incurred comverse starhome ctis holding company operations insignificant operations selling general administrative attributable comverse include expenses incurred comverses global corporate functions connection shared services provided comverses operations including comverse bss comverse vas selling general administrative expenses 2265 million fiscal year ended january 31 2012 decrease 898 million 284 compared fiscal year ended january 31 2011 decrease primarily attributable 966 million decrease compliancerelated professional fees related primarily cti comverse fiscal year ended january 31 2012 company incurred compliancerelated professional fees primarily connection preparation 2010 form 10k filed sec may 31 2011 quarterly report form 10q fiscal quarter ended april 30 2011 filed sec june 22 2011 quarterly reports form 10q fiscal quarters ended april 30 2010 july 31 2010 october 31 2010 filed sec july 28 2011 quarterly report form 10q fiscal quarter ended july 31 2011 filed sec september 8 2011 quarterly report form 10q fiscal quarter ended october 31 2011 filed sec december 12 2011 fees lower compliancerelated professional fees incurred fiscal year ended january 31 2011 connection efforts complete adjustments historical financial statements evaluations application us gaap ultimately concluded filing comprehensive form 10k sec october 4 2010 operating expenses operating expenses 256 million fiscal year ended january 31 2012 increase 132 million 1060 increase primarily attributable litigation settlement income 175 million received cti primarily connection settlements consolidated shareholder derivative actions consolidated shareholder class action fiscal year ended january 31 2011 compared 49 million litigation settlement costs fiscal year ended january 31 2012 increase partially offset 92 million decrease restructuring integration charges due higher personnelrelated expenses incurred fiscal year ended january 31 2011 loss operations loss operations 2606 million fiscal year ended january 31 2012 decrease loss 954 million 268 compared fiscal year ended january 31 2011 fiscal year ended january 31 2012 2011 starhome income operations 78 million 27 million respectively comverse mi loss operations 07 million fiscal year ended january 31 2012 compared income operations 155 million fiscal year ended january 31 2011 netcentrex loss operations 43 million 196 million fiscal years ended january 31 2012 2011 respectively segment performance segment performance 1730 million loss fiscal year ended january 31 2012 decrease loss 247 million 125 compared loss fiscal year ended january 31 2011 decrease loss attributable decrease segment expenses partially offset decrease segment revenue fiscal year ended january 31 2011 compared fiscal year ended january 31 2010 consolidated results total revenue total revenue 16234 million fiscal year ended january 31 2011 increase 895 million 58 compared fiscal year ended january 31 2010 increase primarily attributable • 759 million increase revenue comverse vas segment mainly attributable vas customer solutions revenue • 232 million increase revenue verint segment mainly attributable 358 million increase verints enterprise intelligence solutions revenue partially offset 110 million decrease revenue verints video intelligence solutions increases partially offset 86 million decrease revenue comverse bss segment mainly due 173 million decrease revenue comverse bss customer solutions partially offset 87 million increase comverse bss maintenance revenue loss operations loss operations 499 million fiscal year ended january 31 2011 decrease loss 1432 million 742 compared fiscal year ended january 31 2010 decrease primarily attributable • 895 million increase total revenue primarily attributable comverse vas verint segments • 415 million decrease loss due decline personnelrelated costs recorded selling general administrative expenses ii research development expenses net mainly due cost saving initiatives implemented comverse • 219 million decrease total compliancerelated professional fees mainly due verint becoming current periodic reporting obligations federal securities laws june 2010 partially offset net increase compliancerelated professional fees attributable comverse cti • 177 million decrease agent employee sales commissions consisting decreases 188 million 17 million attributable comverse bss respectively offset increase 28 million attributable comverse vas • 175 million litigation settlement income fiscal year ended january 31 2011 comprised 165 million insurance proceeds received cti directors officers insurance policies 10 million received cti former directors officers case connection settlements consolidated shareholder derivative actions consolidated shareholder class action corresponding income recorded fiscal year ended january 31 2010 decreases partially offset • 153 million increase personnel personnelrelated expenses recorded selling general administrative expenses due increase salaries headcount attributable verint • 147 million increase restructuring charges due number restructuring initiatives commenced comverse recorded within • 127 million increase research development expenses primarily due increase headcount salary increases attributable verint interest income interest income 41 million fiscal year ended january 31 2011 decrease 30 million 418 compared fiscal year ended january 31 2010 decrease primarily attributable 13 million decrease interest income due lower principal value auction rate securities ars investments held cti compared prior fiscal year due sales redemptions 14 million decrease interest income comverse due lower cash equivalents fiscal year ended january 31 2011 compared prior fiscal year interest expense interest expense 308 million fiscal year ended january 31 2011 increase 54 million 214 compared fiscal year ended january 31 2010 increase primarily attributable 49 million increase interest expense due higher interest rate applicable verints borrowings pursuant amendment verints prior facility entered july 2010 income expense net income net 64 million fiscal year ended january 31 2011 change 232 million expense net 168 million fiscal year ended january 31 2010 change primarily attributable • 130 million increase net realized gains recognized investments • 105 million decrease net realized unrealized losses verints interest rate swap • 65 million decrease otherthantemporary impairment charges associated ctis ars change partially offset • 23 million increase net realized unrealized losses derivatives • 19 million increase impairment charges relation costbasis investments • 15 million decrease dividend income tax provision benefit income tax provision 372 million fiscal year ended january 31 2011 compared income tax benefit 70 million fiscal year ended january 31 2010 change 443 million income tax primarily due • 553 million decrease tax benefit net loss us statutory rate 35 • 163 million decrease tax allocated continuing operations discontinued operations additional paidin capital comprehensive income • 157 million change tax arising due basis difference investment affiliates result sales shares affiliates • 117 million increase tax contingencies partially offset 391 million reduction us tax effects foreign operations 133 million change foreign tax rate differential benefit fiscal year ended january 31 2011 due operations foreign jurisdictions tax rates different us tax rate effective tax rate continuing operations 530 fiscal year ended january 31 2011 compared 31 fiscal year ended january 31 2010 negative effective tax rate fiscal year ended january 31 2011 resulted recording income tax expense consolidated pretax loss primarily attributable recording valuation allowance deferred tax assets recording income tax provision jurisdictions taxable income fiscal year ended january 31 2011 significant differences impacting effective tax rate valuation allowance included impact discontinued operations tax contingencies us tax effect foreign earnings basis difference investment affiliates loss discontinued operations net tax loss discontinued operations net tax 110 million fiscal year ended january 31 2011 decrease loss 320 million 744 compared fiscal year ended january 31 2010 decrease due • 344 million decrease tax allocated continuing operations discontinued operations • 41 million gain sale discontinued operations recorded fiscal year ended january 31 2011 partially offset 65 million increase loss operations discontinued operations net tax due decline revenue increase income tax provision net income attributable noncontrolling interest net income attributable noncontrolling interest 138 million fiscal year ended january 31 2011 increase 60 million 776 compared fiscal year ended january 31 2010 increase primarily attributable increase verints net income fiscal year ended january 31 2011 compared fiscal year ended january 31 2010 net loss attributable comverse technology inc net loss attributable comverse technology inc 1323 million fiscal year ended january 31 2011 decrease loss 1397 million 514 compared fiscal year ended january 31 2010 due primarily reasons discussed segment results comverse bss revenue comverse bss customer solutions 1988 million fiscal year ended january 31 2011 decrease 173 million 80 compared fiscal year ended january 31 2010 decrease revenue comverse bss customer solutions primarily attributable increasing complexity project deployment resulting extended periods time required complete project milestones receive customer acceptance ii lower volume comverse bss projects fiscal year ended january 31 2011 resulting reduced customer order activity preceding years due global economic weakness comverse bss maintenance revenue 1417 million fiscal year ended january 31 2011 increase 87 million 66 compared fiscal year ended january 31 2010 increase primarily attributable increase installed base comverse bss customer solutions revenue geographic region revenue americas emea apac represented approximately 17 60 23 comverse bsss revenue respectively fiscal year ended january 31 2011 compared approximately 17 63 20 comverse bsss revenue respectively fiscal year ended january 31 2010 fiscal year ended january 31 2011 revenue geographic region impacted market conditions therein europe continued suffer significant weakness market conditions accordingly european customers continued closely monitor costs maintain lower levels spending result comverse bsss revenue european customers declined fiscal year ended january 31 2011 compared fiscal year ended january 31 2010 foreign currency impact revenue functional currency financial reporting purposes us dollar majority comverse bsss revenue fiscal year ended january 31 2011 derived transactions denominated us dollars revenue derived transactions denominated various foreign currencies primarily euro fluctuations us dollar relative foreign currencies comverse bss conducted business fiscal year ended january 31 2011 compared fiscal year ended january 31 2010 unfavorably impacted revenue 12 million foreign currency impact costs significant portion comverse bsss expenses principally personnelrelated costs incurred nis whereas functional currency financial reporting purposes us dollar strengthening nis us dollar would increase us dollar value comverse bsss expenses israel comverse enters foreign currency forward contracts mitigate risk attributable foreign currency exchange rate fluctuations cost revenue cost revenue 1925 million fiscal year ended january 31 2011 decrease 111 million 55 compared fiscal year ended january 31 2010 decrease primarily attributable • 74 million decrease contractor costs due project completion increased use company employees lieu contractors part cost saving initiatives • 27 million decrease general administrative expense related cost revenue • 10 million decrease personnelrelated costs principally due 23 million decrease workforce reductions associated restructuring initiatives decline compensation levels partially offset fluctuations foreign currency exchange rates unfavorable impact personnelrelated costs approximately 13 million fiscal year ended january 31 2011 • 09 million decrease travel entertainment expenses result cost saving initiatives research development net research development expenses net 634 million fiscal year ended january 31 2011 decrease 56 million 82 compared fiscal year ended january 31 2010 decrease primarily attributable • 48 million decrease personnelrelated costs primarily due workforce reductions associated restructuring initiatives decline compensation levels fluctuations foreign currency exchange rates unfavorable impact personnelrelated costs approximately 05 million fiscal year ended january 31 2011 • 10 million decrease general administrative expenses relating research development • 04 million decrease costs including travel entertainment depreciation result cost saving initiatives reduced capital expenditures decreases partially offset 06 million increase contractor costs selling general administrative selling general administrative expenses 283 million fiscal year ended january 31 2011 decrease 40 million 124 compared fiscal year ended january 31 2010 decrease primarily attributable • 17 million decrease agent employee sales commissions principally due decrease bookings generated certain projects certain geographic locations respect comverse bss pays higher commissions sales agents lesser extent decrease sales commissions paid employees result shift product project mix due products projects respect comverse bss pays lower sales commissions compared fiscal year ended january 31 2010 • 08 million decrease personnelrelated costs primarily due workforce reductions associated restructuring initiatives decline compensation levels fluctuations foreign currency exchange rates immaterial impact personnelrelated costs fiscal year ended january 31 2011 • 07 million decrease bad debt expense primarily due improved collection process fluctuations foreign currency exchange rates • 04 million decrease marketing advertising costs result cost saving initiatives income operations income operations 564 million fiscal year ended january 31 2011 increase 122 million 276 compared fiscal year ended january 31 2010 due primarily reasons described segment performance segment performance 764 million fiscal year ended january 31 2011 based segment revenue 3405 million representing segment performance margin 224 percentage segment revenue segment performance 658 million fiscal year ended january 31 2010 based segment revenue 3491 million representing segment performance margin 188 percentage segment revenue increase segment performance margin primarily attributable decrease segment expenses fiscal year ended january 31 2011 compared fiscal year ended january 31 2010 comverse vas revenue comverse vas customer solutions 2848 million fiscal year ended january 31 2011 increase 786 million 381 compared fiscal year ended january 31 2010 increase revenue comverse vas customer solutions primarily attributable number large deployments next generation voicemail products including visual voicemail customers connection launch new smartphones increasing use smartphones subscribers fiscal year ended january 31 2011 however revenue vas customer solutions continued adversely affected continuance weakness global economy certain regions resulting lower levels spending telecommunication service providers located regions ii continued proliferation alternative messaging applications sms text messaging part attractive substitute voicemail usage iii continued maturation wireless services industry particularly relates voicebased services voicemail resulting decreasing rate growth subscriber base comverses telecommunication service provider customers capital spending budgets iv increased competition certain product areas lowcost service providers particularly emerging markets comverse vas maintenance revenue 1761 million fiscal year ended january 31 2011 decrease 26 million 14 compared fiscal year ended january 31 2010 decrease mainly due decline maintenance revenue attributable maintenance services provided customers initial service period result slight decline installed base value revenue geographic region revenue americas emea apac represented approximately 41 34 25 comverse vass revenue respectively fiscal year ended january 31 2011 compared approximately 34 46 20 comverse vass revenue respectively fiscal year ended january 31 2010 fiscal year ended january 31 2011 revenue geographic region impacted market conditions therein comverse vass revenue increased north america apac regions general market conditions improved increase revenue north america primarily attributable number large deployments next generation voicemail products including visual voicemail customers connection launch new smartphones increasing use smartphones subscribers europe continued suffer significant weakness market conditions accordingly european customers continued closely monitor costs maintain lower levels spending result comverse vass revenue european customers declined fiscal year ended january 31 2011 compared fiscal year ended january 31 2010 foreign currency impact revenue functional currency financial reporting purposes us dollar majority comverse vass revenue fiscal year ended january 31 2011 derived transactions denominated us dollars revenue derived transactions denominated various foreign currencies primarily euro fluctuations us dollar relative foreign currencies comverse vas conducted business fiscal year ended january 31 2011 compared fiscal year ended january 31 2010 unfavorably impacted revenue 17 million foreign currency impact costs significant portion comverse vass expenses principally personnelrelated costs incurred nis whereas functional currency financial reporting purposes us dollar strengthening nis us dollar would increase us dollar value comverse vass expenses israel comverse enters foreign currency forward contracts mitigate risk attributable foreign currency exchange rate fluctuations cost revenue cost revenue 1995 million fiscal year ended january 31 2011 increase 107 million 56 compared fiscal year ended january 31 2010 increase primarily attributable 157 million increase material costs overhead 257 million attributable increased revenue partially offset decline cost revenue due higher margin projects increase partially offset • 26 million decrease allocated overhead costs relating cost revenue • 21 million decrease costs including travel entertainment depreciation result cost saving initiatives reduced capital expenditures • 09 million decrease personnelrelated costs primarily due fluctuations foreign currency exchange rates research development net research development expenses net 602 million fiscal year ended january 31 2011 decrease 116 million 162 compared fiscal year ended january 31 2010 decrease primarily attributable • 32 million decrease depreciation result reduced capital expenditures writeoff assets longer use • 30 million decrease contractor costs due decrease research development activity • 28 million decrease allocated overhead costs relating research development due workforce reductions • 23 million decrease personnelrelated costs primarily due workforce reductions associated restructuring initiatives decline compensation levels fluctuations foreign currency exchange rates unfavorable impact personnelrelated costs approximately 17 million fiscal year ended january 31 2011 selling general administrative selling general administrative expenses 259 million fiscal year ended january 31 2011 decrease 47 million 153 compared fiscal year ended january 31 2010 decrease primarily attributable • 43 million decrease personnelrelated costs primarily due workforce reductions associated restructuring initiatives decline compensation levels fluctuations foreign currency exchange rates unfavorable impact personnelrelated costs approximately 06 million fiscal year ended january 31 2011 • 12 million decrease overhead allocations related selling general administrative expenses • 10 million decrease bad debt expense primarily due improved collection process fluctuations foreign currency exchange rates decreases offset primarily 28 million increase agent employee sales commissions principally due overall increase business activities income operations income operations 1753 million fiscal year ended january 31 2011 increase 816 million 870 compared fiscal year ended january 31 2010 due primarily reasons described segment performance segment performance 1757 million fiscal year ended january 31 2011 based segment revenue 4609 million representing segment performance margin 381 percentage segment revenue segment performance 962 million fiscal year ended january 31 2010 based segment revenue 3850 million representing segment performance margin 250 percentage segment revenue increase segment performance margin primarily attributable increase segment revenue well decrease segment expenses fiscal year ended january 31 2011 compared fiscal year ended january 31 2010 verint revenue product revenue 3752 million fiscal year ended january 31 2011 increase 09 million compared fiscal year ended january 31 2010 increase primarily attributable increase product revenue related verints enterprise intelligence solutions due increase customer order activity increase verints communication intelligence solutions result higher volume projects completed fiscal year ended january 31 2011 increases partially offset decrease revenue verints video intelligence solutions due reduction deliveries major customer partially offset increase revenue customers service support revenue 3516 million fiscal year ended january 31 2011 increase 223 million 68 compared fiscal year ended january 31 2010 increase primarily attributable increase verints enterprise intelligence solutions higher support revenue due increase customer installed base growth verints professional services organization meet demand verints customer base increasing professional services revenue associated installation consulting training revenue geographic region revenue americas emea apac represented approximately 53 26 21 verints revenue respectively fiscal year ended january 31 2011 compared approximately 55 25 20 respectively fiscal year ended january 31 2010 cost revenue product cost revenue 1211 million fiscal year ended january 31 2011 decrease 99 million 76 compared fiscal year ended january 31 2010 verints overall product margins increased fiscal year ended january 31 2011 compared fiscal year ended january 31 2010 due slight increase product revenue combined decline product costs favorable change product mix higher margin software revenue accounted larger portion overall product mix product costs fiscal years ended january 31 2011 2010 included amortization acquired technology 91 million 80 million respectively service costs 1173 million fiscal year ended january 31 2011 increase 83 million 76 compared fiscal year ended january 31 2010 increase primarily attributable 80 million increase personnelrelated expenses due increase employee headcount required support increased implementation services salary increases verints overall service margins remained constant fiscal year ended january 31 2011 research development net research development expenses net 965 million fiscal year ended january 31 2011 increase 127 million 152 compared fiscal year ended january 31 2010 increase primarily attributable 156 million increase personnelrelated costs due increase employee headcount salary increases ii increase costs result higher portion employees time devoted generic product development rather specific customization work iii impact weakening us dollar nis canadian dollar research development wages verints israeli canadian research development facilities increases partially offset 14 million increase research development reimbursements government programs due new programs approved ocs 10 million decrease contractor costs selling general administrative selling general administrative expenses 3188 million fiscal year ended january 31 2011 increase 47 million 15 compared fiscal year ended january 31 2010 increase primarily attributable • 118 million increase personnel costs due increase headcount salary increases • 35 million increase personnelrelated expenses including travel entertainment recruitment expenses result increase headcount • 31 million increase stockbased compensation expense primarily related increase verints stock price impacting certain stockbased compensation arrangements accounted liability awards • 20 million increase sales commissions due increase headcount customer orders received fiscal year ended january 31 2011 • 12 million increase expenses • 07 million increase marketing expenses due verints global brand awareness campaign increases partially offset 171 million decrease professional fees primarily due verint becoming current periodic reporting obligations federal securities laws june 2010 operating expenses operating expenses 01 million fiscal year ended january 31 2010 due restructuring costs related severance personnelrelated costs headcount reductions corresponding expenses fiscal year ended january 31 2011 income operations income operations 731 million fiscal year ended january 31 2011 increase 74 million compared fiscal year ended january 31 2010 due primarily reasons described foreign currency effect operating results fiscal year ended january 31 2011 compared fiscal year ended january 31 2010 fluctuations value us dollar relative major currencies used verints business resulted decrease verints revenue increase cost revenue operating expenses foreign exchange rates remained constant periods verints revenue would approximately 10 million higher operating expenses cost revenue would approximately 60 million lower would resulted approximately 70 million higher income operations fiscal year ended january 31 2011 segment performance segment performance 1846 million fiscal year ended january 31 2011 based segment revenue 7268 million representing segment performance margin 254 percentage segment revenue segment performance 1956 million fiscal year ended january 31 2010 based segment revenue 7036 million representing segment performance margin 278 percentage segment revenue decrease segment performance margin primarily attributable increase segment expenses due increase personnelrelated costs partially offset increase segment revenue total revenue 986 million fiscal year ended january 31 2011 increase 04 million 04 compared fiscal year ended january 31 2010 increase primarily attributable slight overall increase revenue generated comverse operations included starhomes total revenue fiscal years ended january 31 2011 2010 372 million 375 million respectively comverse mis total revenue fiscal years 371 million 299 million respectively netcentrexs total revenue fiscal years 201 million 290 million respectively cost revenue cost revenue 889 million fiscal year ended january 31 2011 increase 15 million 17 compared fiscal year ended january 31 2010 increase primarily attributable increase 26 million comverse offset 11 million decrease starhome research development net research development expenses net 331 million fiscal year ended january 31 2011 decrease 96 million 225 decrease primarily attributable • 57 million decrease personnelrelated costs primarily due transfer certain research development personnel specific projects connection processes improve operational efficiency part implementation phase ii business transformation personnelrelated costs attributable personnel recorded cost revenue lieu research development expenses workforce reduction associated restructuring initiatives comverse • 17 million decrease overhead allocation relating research development • 05 million decrease personnelrelated costs primarily due workforce reductions selling general administrative selling general administrative expenses 3163 million fiscal year ended january 31 2011 decrease 285 million 83 compared fiscal year ended january 31 2010 decrease primarily attributable • 188 million decrease agent employee sales commissions comverse principally due decrease bookings generated certain projects certain geographic locations respect comverse pays higher commissions sales agents lesser extent decrease sales commissions paid employees principally result shift product project mix fiscal year ended january 31 2011 products projects respect comverse pays lower sales commissions compared fiscal year ended january 31 2010 • 76 million decrease personnelrelated costs primarily due workforce reductions associated restructuring initiatives decline compensation levels comverse • 46 million decrease contractor costs due increased use company employees lieu contractors part cost savings initiatives decrease partially offset 36 million increase compliancerelated professional fees fiscal year ended january 31 2011 due completion adjustments historical financial statements evaluations application generally accepted accounting principles resulting filing sec comprehensive form 10k fiscal years ended january 31 2009 2008 2007 2006 october 4 2010 annual report form 10k fiscal year ended january 31 2010 january 25 2011 operating expense operating expenses 124 million fiscal year ended january 31 2011 decrease 63 million 337 decrease primarily attributable litigation settlement income 175 million received cti primarily connection settlements consolidated shareholder derivative actions consolidated shareholder class action fiscal year ended january 31 2011 decrease partially offset 145 million increase restructuring integration charges due higher personnelrelated expenses incurred fiscal year ended january 31 2010 34 million reduction charges impairment intangible assets comverse recorded fiscal year ended january 31 2010 loss operations loss operations 3559 million fiscal year ended january 31 2011 decrease loss 437 million 109 compared fiscal year ended january 31 2010 primarily due reasons described fiscal years ended january 31 2011 2010 starhome income operations 27 million 19 million respectively comverse mi income operations 155 million 85 million respectively fiscal years ended january 31 2011 2010 netcentrex loss operations 196 million 248 million respectively segment performance segment performance 1977 million loss fiscal year ended january 31 2011 decrease loss 236 million 107 compared loss fiscal year ended january 31 2010 decrease loss attributable decrease segment expenses slight increase segment revenue liquidity capital resources overview principal sources liquidity historically consisted cash equivalents cash flows operations including changes working capital borrowings term loans revolving credit facilities proceeds issuance convertible debt obligations sale investments assets receipt dividends subsidiaries believe future sources liquidity include cash equivalents may include new borrowings cash generated asset divestitures proceeds issuance equity debt securities fiscal year ended january 31 2012 principal uses liquidity fund operating expenses make capital expenditures repay indebtedness service debt obligations complete business combinations make cash payments consolidated shareholder class action settlement agreement pay significant professional fees expenses connection efforts become current continue meet periodic reporting obligations federal securities laws addition expended resources made investments improve internal control financial reporting hiring additional experienced finance accounting personnel redesigning processes implementing accounting finance systems performing additional business analytics expenses declined significantly fiscal year ended january 31 2012 compared fiscal year ended january 31 2011 expect expenses continue decline subsequent fiscal periods result becoming timely filing periodic reports expenses expected decline complete remediation remaining material weakness internal control financial reporting eliminated time enhance internal finance accounting personnel replace external consultants currently assisting us preparation periodic reports connection proposed comverse share distribution however begun expect continue incur significant expenses including financial advisory accounting tax consulting legal fees financial condition cti comverse cash equivalents january 31 2012 cti comverse cash equivalents bank time deposits restricted cash approximately 3704 million compared approximately 4576 million january 31 2011 fiscal year ended january 31 2012 cti comverse made following significant disbursements • 683 million paid cash cti accordance terms settlement agreements consolidated shareholder class action optout plaintiffs action • approximately 627 million paid professional fees primarily connection ctis efforts become current periodic reporting obligations federal securities laws timely filing certain periodic reports remediate material weaknesses internal control financial reporting • approximately 229 million restructuring payments including workforce reduction initiatives comverse • approximately 89 million paid professional fees expenses connection evaluation strategic alternatives • repayment borrowings 60 million comverse ltd existing line credit • approximately 60 million paid cti connection separation agreement ctis former president chief executive officer • approximately 58 million paid special retention bonuses • approximately 28 million paid cti connection settlement agreements sec doj resolving allegations improper payments decline cash equivalents also attributable • acceleration collections certain receivables three months ended january 31 2011 corresponding acceleration collections performed fiscal year ended january 31 2012 • negative cash flows operations comverse cash outflows cti attributable expenses associated holding company structure declines cash equivalents partially offset primarily • approximately 750 million proceeds received sales redemptions ars • approximately 33 million received connection settlement certain cti claims third party • approximately 16 million remaining proceeds received comverse sale land raanana israel restricted cash restricted cash aggregated 386 million 679 million january 31 2012 2011 respectively restricted cash includes compensating cash balances related existing lines credit deposits pledged collateral restricted use settle specified creditrelated bank instruments pending tax judgments proceeds received sales redemptions ars including interest thereon restricted terms consolidated shareholder class action settlement agreement january 31 2011 cti 334 million restricted cash received sales redemptions ars including interest thereon restricted terms settlement agreement information restrictions see item 3 “legal proceedingsproceedings related ctis special committee investigationssettlement agreements” note 26 consolidated financial statements included item 15 annual report fourth quarter fiscal year ended january 31 2012 cti paid remaining amounts settlement agreement using restricted cash received sales redemptions ars shares common stock accordingly remaining cash proceeds received sales redemptions ars became unrestricted ars cash equivalents bank time deposits restricted cash excludes ars january 31 2012 2011 cti 75 million 944 million aggregate principal amount ars respectively carrying amount date approximately 03 million 724 million respectively noted proceeds sales redemptions ars including interest thereon restricted terms consolidated shareholder class action settlement agreement fiscal year ended january 31 2012 cti sold approximately 869 million aggregate principal amount ars carrying amount 722 million january 31 2011 approximately 750 million cash fourth quarter fiscal year ended january 31 2012 cti paid remaining amounts settlement agreement accordingly remaining ars cash proceeds sales redemptions thereof became unrestricted liquidity forecast currently forecast available cash equivalents sufficient meet liquidity needs including capital expenditures cti comverse least next 12 months managements current forecast based upon number assumptions including among others implementation phase ii business transformation continued focus reducing operating costs restricted cash bank time deposits amounts consistent current levels slight reductions unrestricted cash levels required support working capital needs business reductions compliancerelated costs intraquarter working capital fluctuations consistent historical trends management believes abovenoted assumptions reasonable however one assumptions prove incorrect one risks uncertainties described item 1a “risk factors” materialize cti comverse may experience shortfall cash required support working capital needs financial condition ctis majorityowned subsidiaries based past performance current expectations believe cash equivalents cash generated operations majorityowned subsidiaries sufficient meet respective anticipated operating costs working capital needs ordinary course capital expenditures research development spending commitments respect verint required payments principal interest least next 12 months liquidity ctis majorityowned subsidiaries could negatively impacted decrease demand products service support including impact changes customer buying behavior due economic environment ctis majorityowned subsidiaries determines make acquisitions otherwise requires additional funds may need raise additional capital could involve issuance equity debt securities assurance subsidiary would able raise additional equity debt private public markets terms favorable verint incurred significant professional fees related expenses past several fiscal years including fiscal year ended january 31 2011 connection efforts become current periodic reporting obligations federal securities laws july 2010 verint filed sec annual reports required fiscal years quarterly reports certain fiscal quarters previously filed reports resumed making timely periodic filings sec relisted common stock nasdaq resolved certain matters sec result professional fees incurred verint fiscal year ended january 31 2012 declined significantly incurred fiscal year ended january 31 2011 sources liquidity following discussion highlights primary sources liquidity cash equivalents changes amounts due operations financing investing activities liquidity investments cash flows fiscal year ended january 31 2012 compared fiscal year ended january 31 2011 1 consists investments recorded within “other assets” consolidated balance sheets consolidated financial statements included item 15 annual report operating cash flows operating cash flows vary significantly period based timing collections accounts receivable receipts deposits workinprocess achievement milestones fiscal year ended january 31 2012 used net cash 343 million operating activities net cash used operating activities primarily attributable • 793 million decrease deferred revenue • 480 million decrease accounts payable accrued expenses • 1006 million decrease assets liabilities 634 million represents payments made settlement agreement consolidated shareholder class action cash used operating activities partially offset • 1177 million net income noncash charges addback • 423 million decrease deferred cost revenue • 230 million decrease accounts receivable investing cash flows fiscal year ended january 31 2012 net cash used investing activities 270 million net cash used investing activities primarily attributable 1098 million cash used verints acquisition businesses payments contingent consideration associated business combinations completed prior periods ii 224 million cash used capital expenditures including capitalization software development costs cash outflows partially offset proceeds 755 million sales redemptions investments 294 million decrease restricted cash bank time deposits financing cash flows fiscal year ended january 31 2012 net cash used financing activities 64 million net cash used financing activities primarily attributable 5936 million cash used repay bank loans longterm debt financing obligations including repayment 5832 million outstanding borrowings verints prior facility ii 153 million debt issuance costs incurred verint connection new credit agreement iii 45 million cash used repurchase stock cti certain directors executive officers employees cover tax liabilities connection delivery shares settlement stock awards partially offset 5971 million verints borrowings new credit agreement representing 6000 million gross borrowings net 30 million original issuance discount ii 146 million proceeds received exercises stock options effects exchange rates cash equivalents majority cash equivalents denominated us dollars however due nature global business also hold cash denominated currencies primarily euro nis british pound sterling fiscal year ended january 31 2012 fluctuation foreign currency exchange rates favorable impact 19 million cash equivalents liquidity investments january 31 2012 2011 carrying amount ars 03 million 724 million respectively aggregate principal amount 75 million 944 million respectively january 31 2011 investments ars held cti date restricted cti prohibited using proceeds sales redemptions ars pursuant terms consolidated shareholder class action settlement agreement cti entered december 16 2009 amended june 19 2010 fourth quarter fiscal year ended january 31 2012 cti paid remaining amounts settlement agreement accordingly ars cash proceeds received sales redemptions thereof became unrestricted information see item 3 “legal proceedingsproceedings related ctis special committee investigationssettlement agreements” note 26 consolidated financial statements included item 15 annual report fiscal year ended january 31 2012 cti sold approximately 869 million aggregate principal amount ars carrying amount 722 million january 31 2011 approximately 750 million cash fiscal year ended january 31 2011 compared fiscal year ended january 31 2010 1 consists investments recorded within “other assets” consolidated balance sheets consolidated financial statements included item 15 annual report operating cash flows fiscal year ended january 31 2011 used net cash 1229 million operating activities net cash used operating activities primarily attributable 1608 million decrease deferred revenue 558 million decrease accounts payable accrued expenses 109 million decrease accounts receivable compared fiscal year ended january 31 2010 partially offset 635 million net income noncash charges addback 440 million decrease deferred cost revenue investing cash flows fiscal year ended january 31 2011 cash provided investing activities 908 million net cash provided investing activities primarily attributable 765 million sale shares verint systems common stock january 2011 573 million sales maturities investments 273 million asset sales mainly attributable sale land raanana israel increases partially offset 335 million cash used settle derivative financial instruments designed hedges 229 million cash used capital expenditures including capitalization software development costs 235 million cash used verints acquisition iontas payments contingent consideration associated business combinations consummated prior periods investments 732 million january 31 2011 decrease 442 million compared january 31 2010 decrease primarily attributable sales maturities investments financing cash flows fiscal year ended january 31 2011 cash used financing activities 28 million primarily attributable 442 million cash used repay bank loans longterm debt financing obligations 40 million cash paid relating debt issuance costs 22 million dividends paid verints joint venture noncontrolling stockholders 19 million cash paid acquire treasury shares outflows partially offset 366 million net proceeds issuance common stock subsidiaries principally due exercises verint stock options result termination prohibition option exercises verint became current periodic reporting obligations federal securities laws june 2010 120 million proceeds new borrowings line credit cash flows discontinued operations fiscal year ended january 31 2011 net cash provided discontinued operations 388 million net cash provided discontinued operations primarily attributable 650 million sales maturities investments net purchases partially offset 217 million cash used discontinued operations payment dividend minority shareholders effects exchange rates cash equivalents majority cash equivalents denominated us dollar however due nature global business also hold cash denominated currencies primarily euro nis british pound sterling fiscal year ended january 31 2011 fluctuation foreign currency exchange rates favorable impact 27 million cash equivalents primarily due weakening us dollar relative major foreign currencies held fiscal year liquidity investments fiscal year ended january 31 2011 market liquidity ars exhibited improvement although price markets certain classes ars holdings continued decline accordingly recorded otherthantemporary impairment charges 04 million fiscal year ended january 31 2011 january 31 2011 carrying amount 944 million aggregate principal amount ars 724 million additional information see notes 1 3 consolidated financial statements included item 15 annual report january 31 2010 investments ars held cti date restricted cti prohibited using proceeds sales ars pursuant terms settlement agreement consolidated shareholder class action cti entered december 16 2009 information restrictions see item 3 “legal proceedingsproceedings related ctis special committee investigationssettlement agreements” note 26 consolidated financial statements included item 15 annual report terms original settlement agreement consolidated shareholder class action prior amendment june 19 2010 cti agreed exercise right sell eligible ars face value ubs specified period referred ubs put june 30 2010 ii within 48 hours receipt payment pay plaintiff class proceeds received subsequent date settlement agreement sales ars held account ubs including proceeds received result exercise ubs put would reduce amount 515 million payment payable august 15 2010 comprehensive discussion relating ubs put see note 3 consolidated financial statements included item 15 annual report part amendment settlement agreement payment schedule settlement agreement revised payment due august 15 2010 reduced 179 million representing agreed 215 million payment less holdback 36 million respect anticipated optout credit certain applicable provisions settlement agreement remained unchanged amendment pursuant amendment cti continued obligated exercise ubs put june 30 2010 required pay reduced payment using proceeds received sales ars held account ubs additional proceeds remain cti ubs purchased approximately 416 million aggregate principal amount ars cti prior june 30 2010 effective june 30 2010 cti exercised ubs put balance 100 million aggregate principal amount ars subject ubs put july 2010 cti paid 179 million plaintiff class required settlement agreement amended january 31 2011 investments ars held cti date restricted cti prohibited using proceeds sales ars pursuant terms settlement agreement consolidated shareholder class action cti entered december 16 2009 amended june 19 2010 information restrictions see item 3 “legal proceedingsproceedings related ctis special committee investigationssettlement agreements” note 26 consolidated financial statements included item 15 annual report indebtedness verint credit facilities may 25 2007 verint entered 6750 million secured credit agreement referred prior facility group banks fund portion acquisition witness prior facility comprised 6500 million sevenyear term loan facility 250 million sixyear revolving line credit borrowing capacity revolving line credit increased 750 million july 2010 april 29 2011 verint entered credit agreement referred new credit agreement group lenders credit suisse ag administrative agent collateral agent lenders referred capacities agent concurrently terminated prior facility new credit agreement provides 7700 million secured senior credit facilities comprised 6000 million term loan maturing october 2017 referred new term loan facility 1700 million revolving credit facility maturing april 2016 referred new revolving credit facility subject increase maximum increase 3000 million reduction time according terms new credit agreement january 31 2012 verint outstanding borrowings new revolving credit facility majority new term loan facility proceeds used repay 5832 million outstanding term loan borrowings prior facility closing date new credit agreement outstanding borrowings prior revolving credit facility closing date new credit agreement included original issuance term loan facility discount 050 30 million resulting net term loan facility proceeds 5970 million discount amortized interest expense term loan facility using effective interest method loans new credit agreement bear interest payable quarterly case eurodollar loans interest period three months shorter end interest period per annum rate verints election • case eurodollar loans adjusted london interbank offered libo rate plus 325 verints corporate ratings least bb ba3 better 300 “adjusted libo rate” greater 125 per annum ii product libo rate statutory reserves defined new credit agreement • case base rate loans base rate plus 225 verints corporate ratings least bb ba3 better 200 “base rate” greatest agents prime rate ii federal funds effective rate defined new credit agreement plus 050 iii adjusted libo rate onemonth interest period plus 100 verint incurred debt issuance costs 148 million associated new credit agreement deferred classified within “other assets” deferred costs amortized interest expense term new credit agreement deferred costs associated term loan facility 102 million amortized using effective interest rate method deferred costs associated new revolving credit facility 46 million amortized straightline basis closing date new credit agreement 90 million unamortized deferred costs associated prior facility upon termination prior facility repayment prior term loan 81 million fees expensed loss extinguishment debt remaining 09 million fees associated lenders provided commitments new prior revolving credit facilities remained deferred amortized term new credit agreement fiscal year ended january 31 2012 verint incurred 05 million fees secure waivers certain provisions new credit agreement allowed structure financing one business combinations favorable manner 02 million deferred amortized remaining term new credit agreement 03 million expensed incurred january 31 2012 interest rate new term loan facility 450 including impact 050 original issuance term loan facility discount deferred debt issuance costs effective interest rate verints new term loan facility approximately 491 january 31 2012 verint incurred interest expense borrowings credit facilities 281 million 262 million 226 million fiscal years ended january 31 2012 2011 2010 respectively verint also recorded 28 million 28 million 19 million fiscal years ended january 31 2012 2011 2010 respectively amortization deferred debt issuance costs reported within interest expense included deferred debtrelated cost amortization fiscal years ended january 31 2011 2010 03 million 01 million respectively additional amortization associated unscheduled principal repayments fiscal years fiscal year ended january 31 2012 verint also recorded 03 million amortization original issuance term loan discount reported within “interest expense” verint required pay commitment fee respect undrawn availability new revolving credit facility payable quarterly rate 050 per annum customary administrative agent letter credit fees new credit agreement requires verint make term loan principal payments 15 million per quarter august 2017 beginning august 2011 remaining balance due october 2017 optional prepayments loans permitted without premium penalty customary breakage costs associated prepayment loans bearing interest based libo rates 10 premium applicable event repricing transaction defined new credit agreement prior april 30 2012 loans also subject mandatory prepayment requirements respect certain asset sales excess cash flow defined new credit agreement certain events prepayments applied first eight immediately following scheduled term loan principal payments pro rata remaining scheduled term loan principal payments thereafter otherwise provided new credit agreement verint systems obligations new credit agreement guaranteed substantially verints domestic subsidiaries certain foreign subsidiaries elected disregarded us tax purposes secured security interests substantially assets verint guarantor subsidiaries subject certain exceptions verints obligations new credit agreement guaranteed cti secured ctis assets new credit agreement contains customary negative covenants credit facilities type including limitations verint subsidiaries respect indebtedness liens nature business investments loans distributions acquisitions dispositions assets saleleaseback transactions affiliates accordingly new credit agreement precludes verint systems paying cash dividends limits ability make asset distributions stockholders including cti new credit agreement also contains financial covenant requires verint maintain consolidated total debt consolidated earnings interest taxes depreciation amortization ebitda defined new credit agreement leverage ratio july 31 2013 greater 500 1 thereafter greater 450 1 limitations imposed covenants subject certain exceptions january 31 2012 verint compliance requirements january 31 2012 verints consolidated leverage ratio approximately 27 1 compared permitted consolidated leverage ratio 500 1 ebitda twelvemonth period ended exceeded least 800 million minimum ebitda required satisfy leverage ratio covenant given verints outstanding debt date new credit agreement also contains number affirmative covenants including requirement verint submit consolidated financial statements lenders within certain periods end fiscal year quarter new credit agreement provides customary events default corresponding grace periods including failure pay principal interest new credit agreement due failure comply covenants representation warranty made verint proving inaccurate material respect defaults certain indebtedness verint subsidiaries change control defined new credit agreement verint certain insolvency receivership events affecting verint significant subsidiaries upon event default verints indebtedness new credit agreement may declared immediately due payable lenders commitments provide loans new credit agreement may terminated verint indebtedness connection verints august 2 2011 business combination verint assumed approximately 33 million development bank government debt americas region debt payableinperiods february 2017 bears interest varying rates january 31 2012 majority debt bears interest annual rate 700 carrying value debt approximately 31 million january 31 2012 convertible debt obligations january 31 2012 2011 cti 22 million aggregate principal amount outstanding convertible debt obligations referred convertible debt obligations convertible debt obligations secured assets guaranteed ctis subsidiaries additional information relating convertible debt obligations see note 12 consolidated financial statements included item 15 annual report comverse ltd lines credit january 31 2011 comverse ltd whollyowned israeli subsidiary comverse inc 100 million line credit bank used various performance guarantees customers vendors letters credit foreign currency transactions ordinary course business line credit available borrowings line credit bears interest subject renewal annual basis comverse ltd required maintain cash balances bank less capacity line credit times regardless amounts utilized line credit june 2011 line credit increased 200 million corresponding increase cash balances comverse ltd required maintain bank 200 million january 31 2012 2011 comverse ltd utilized 178 million 40 million respectively capacity line credit guarantees foreign currency transactions january 31 2011 comverse ltd additional line credit bank 150 million used borrowings various performance guarantees customers vendors letters credit foreign currency transactions ordinary course business line credit bears interest borrowings thereunder subject renewal annual basis borrowings line credit bear interest annual rate libor plus variable margin determined based banks underlying cost capital comverse ltd required maintain cash balances bank less capacity line credit times regardless amounts borrowed utilized line credit january 31 2011 comverse ltd outstanding borrowings 60 million line credit repaid full first quarter fiscal year ended january 31 2012 december 2011 line credit decreased 80 million corresponding decrease cash balances comverse ltd required maintain bank 80 million january 31 2012 2011 comverse ltd utilized 33 million 73 million respectively capacity line credit guarantees foreign currency transactions comverse ltds requirement maintain cash balances banks discussed lines credit financial covenants cash balances required maintained banks classified “restricted cash bank time deposits” within consolidated balance sheets january 31 2012 2011 settlements shareholder actions december 16 2009 cti entered consolidated shareholder class action settlement agreement amended june 19 2010 fiscal year ended january 31 2012 cti paid remaining amounts payable settlement agreement approximately 588 paid cash 825 million paid issuance 12462236 shares ctis common stock consolidated shareholder class action settlement agreement included restrictions ctis ability use proceeds sales ars amounts payable settlement agreement paid full following payment cti remaining amounts payable settlement agreement restrictions terminated information see item 3 “legal proceedingsproceedings related ctis special committee investigationssettlement agreements” note 26 consolidated financial statements included item 15 annual report addition december 19 2011 cti optout plaintiffs entered settlement agreement pursuant cti paid plaintiffs approximately 95 million december 28 2011 information see item 3 “legal proceedingsproceedings related ctis special committee investigationsoptout plaintiffs action” note 26 consolidated financial statements included item 15 annual report restructuring initiatives review business manage costs align resources market demand conjunction various acquisitions result taken several actions improve cash position reduce fixed costs eliminate redundancies strengthen operational focus better position us respond market pressures unfavorable economic conditions restructuring initiatives expected positive impact operating cash flows long term also led lead charges information relating restructuring initiatives including financial obligations respect thereof see note 11 consolidated financial statements included item 15 annual report business transformation second half fiscal year ended january 31 2011 commenced certain initiatives improve cash position including plan restructure operations comverse view towards aligning operating costs expenses anticipated revenue comverse successfully implemented first phase plan commencing third quarter fiscal year ended january 31 2011 significantly reducing annualized operating costs fiscal year ended january 31 2012 comverse implemented phase ii business transformation focuses process reengineering maximize business performance productivity operational efficiency part phase ii business transformation comverse restructured operations new business units designed improve operational efficiency business performance one primary purposes phase ii business transformation solidify comverses leadership bss leverage growth mobile data usage maintaining leading market position vas implementing cost savings operational efficiencies strategic focus relation restructuring plans recorded severancerelated costs 126 million 116 million fiscal years ended january 31 2012 2011 respectively facilitiesrelated costs 02 million fiscal year fiscal years ended january 31 2012 2011 paid severancerelated costs 124 million 91 million respectively facilitiesrelated costs 03 million 01 million respectively remaining costs 25 million expected paid january 31 2013 substantially completed implementation phase ii business transformation fiscal year ending january 31 2013 expect continue evaluate implementation certain measures business transformation netcentrex 2010 initiative fiscal year ended january 31 2011 management part initiatives improve focus comverses core business maintain ability face intense competitive pressures markets approved first phase restructuring plan eliminate staff positions primarily located france fiscal year ended january 31 2012 comverse began second phase netcentrex restructuring plan relation initiatives recorded severancerelated costs 76 million 109 million fiscal years ended january 31 2012 2011 respectively facilitiesrelated costs 01 million fiscal year ended january 31 2012 fiscal years ended january 31 2012 2011 paid severancerelated costs 93 million 80 million respectively remaining costs 12 million relating netcentrex second phase expected substantially paid january 31 2013 part commitment customers netcentrex providing expected continue provide maintenance support certain services address ongoing needs existing customer base guarantees restrictions access subsidiary cash guarantees provide certain customers ordinary course business financial performance guarantees certain cases backed standby letters credit surety bonds majority cash collateralized accounted restricted cash bank time deposits liable amounts guarantees event nonperformance would permit customer exercise guarantee january 31 2012 2011 believe compliance performance obligations contracts financial performance guarantee liabilities arising connection guarantees material adverse effect consolidated results operations financial position cash flows also obtained bank guarantees primarily provide customer assurance relating performance certain obligations required customer agreements guarantee certain payment obligations guarantees aggregated 688 million january 31 2012 generally scheduled released upon performance specified contract milestones majority scheduled completed various dates january 31 2013 dividends subsidiaries ability israeli subsidiaries pay dividends governed israeli law provides dividends may paid israeli corporation earnings defined accordance israeli companies law 1999 provided reasonable concern payment cause subsidiary fail meet current expected liabilities come due operate business internationally significant portion cash equivalents held outside united states various foreign subsidiaries cash equivalents held outside united states distributed united states resident corporate parents form dividends otherwise may subject additional us income taxes subject adjustment foreign tax credits foreign withholding taxes may incur substantial withholding taxes repatriate cash certain foreign subsidiaries addition verint party credit agreement contains certain restrictive covenants among things preclude verint systems paying cash dividends limit ability make asset distributions stockholders including cti also pursuant investment agreements starhome bv precluded paying cash dividends shareholders without approval certain minority shareholders investment verint systems preferred stock may 25 2007 connection verints acquisition witness cti entered securities purchase agreement verint referred securities purchase agreement whereby cti purchased cash aggregate 293000 shares verints series convertible perpetual preferred stock referred preferred stock represents verints outstanding preferred stock aggregate purchase price 2930 million proceeds issuance preferred stock used partially finance acquisition preferred stock eliminated consolidation dividends dividend rate preferred stock 3875 per annum verints prior facility contained new credit agreement contains restrictive covenant limits ability pay dividends preferred stock date hereof dividends declared paid preferred stock january 31 2012 2011 cumulative undeclared dividends preferred stock 590 million 457 million respectively january 31 2012 2011 liquidation preference preferred stock 3520 million 3387 million respectively voting conversion share preferred stock entitled number votes equal number shares common stock share preferred stock convertible using conversion rate effect upon issuance preferred stock may 2007 matters voted upon verint systems common stockholders conversion rate set 306185 shares common stock share preferred stock share preferred stock convertible option cti number shares verint systems common stock equal liquidation preference effect divided conversion price effect initially set 3266 remained unchanged january 31 2012 january 31 2012 2011 preferred stock could converted approximately 108 million 104 million shares verint systems common stock respectively special rights upon fundamental change terms preferred stock also provide upon fundamental change defined certificate designation preferred stock cti would right require verint repurchase preferred stock 100 liquidation preference effect addition event fundamental change conversion rate increased provide additional shares common stock issuable cti upon conversion based sliding scale depending acquisition price defined certificate designation preferred stock ranging zero 37 additional shares common stock every share preferred stock converted shares common stock registration rights pursuant registration rights agreement cti verint entered concurrently securities purchase agreement referred new registration rights agreement cti entitled two demands unlimited piggyback registration rights certain securities act registrations filed verint comprehensive discussion relating terms preferred stock see note 25 consolidated financial statements included item 15 annual report liquidation preference starhome bv event liquidation merger sale starhome bv first 200 million proceeds would distributed certain minority shareholders thereafter shareholder would entitled receive pro rata share remaining proceeds asconverted basis provided certain circumstances cti would entitled receive 410 million remaining proceeds contingent payments associated business combinations connection certain verints business combinations verint agreed make contingent cash payments former shareholders acquired companies based upon achievement performance targets following acquisition dates fiscal year ended january 31 2012 verint completed seven business combinations included contingent cash consideration arrangements information see note 6 consolidated financial statements included item 15 annual report january 31 2012 potential future cash payments contingent consideration arrangements aggregated 792 million estimated fair value 386 million 101 million included within “accounts payable accrued expenses” 285 million included within “other longterm liabilities” performance periods associated potential payments extend january 2015 offbalance sheet arrangements lease certain current facilities furniture equipment noncancelable operating lease agreements typically required pay property taxes insurance normal maintenance costs facilities provide certain customers ordinary course business financial performance guarantees see “liquidity capital resourcesguarantees restrictions access subsidiary cashguarantees” note 26 consolidated financial statements included item 15 annual report normal course business provide indemnifications varying scopes customers claims intellectual property infringement made third parties arising use products addition extent permitted state laws applicable laws agreements agreed indemnify directors officers certain events occurrences director officer serving request capacity information relating indemnification agreements see note 26 consolidated financial statements included item 15 annual report january 31 2012 offbalance sheet arrangements believe reasonably likely current future effect financial condition changes financial condition revenue expenses results operations liquidity capital expenditures capital resources material investors contractual obligations following table presents contractual obligations january 31 2012 1 purchase obligations include agreements purchase goods services enforceable legally binding specify significant terms including fixed minimum quantities purchased fixed minimum variable price provisions approximate timing transaction purchase obligations exclude agreements cancelable without penalty 2 consolidated balance sheet january 31 2012 includes 1257 million noncurrent tax liabilities uncertain tax positions specific timing cash payments relating obligation cannot projected reasonable certainty therefore amounts obligation included table set forth longterm debt obligations reflected include projected interest payments term debt assuming interest rates 450 interest rate effect verint’s term loan borrowings january 31 2012 interest rate term loan revolving credit facility new credit agreement variable detailed discussion interest borrowings new credit agreement see item 7 “managements discussion analysis financial condition results operationsliquidity capital resourcesindebtednessverint credit facilities” note 12 consolidated financial statements included item 15 annual report connection certain verints business combinations verint agreed make contingent cash payments former shareholders acquired companies based upon achievement performance targets following acquisition dates information relating potential future cash payments contingent consideration arrangements see “liquidity capital resourcescontingent payments associated business combinations” critical accounting estimates judgments accounting estimates judgments discussed section consider critical understand consolidated financial statements financial statements involve significant judgments uncertainties specifically accounting estimates judgments outlined critical materially affect operating results financial condition inasmuch require management make difficult subjective judgments regarding uncertainties many estimates include determinations fair value estimates reflect best judgment current estimates future economic market conditions effects based information available us date accompanying financial statements result accuracy estimates likelihood future changes depend range possible outcomes number underlying variables beyond control see also note 1 consolidated financial statements included item 15 annual report additional information significant accounting estimates judgments underlying financial results disclosed consolidated financial statements please note following discussion critical accounting estimates judgments contains references fasbs guidance effect applicable consolidated financial statements january 31 2012 end recent fiscal year covered annual report revenue recognition report revenue two categories product revenue including hardware software products ii service revenue including revenue professional services training services postcontract customer support pcs professional services primarily include installation customization consulting services revenue arrangements may include one single elements may incorporate one elements single transaction combination related transactions september 2009 fasb issued revenue recognition guidance applicable multiple element arrangements • applies multiple element revenue arrangements contain software hardware elements focusing determining revenue arrangements within scope software revenue guidance • addresses separate consideration related element multiple element arrangement excluding software arrangements establishes hierarchy determining selling price element also eliminates residual method allocation requiring arrangement consideration allocated inception arrangement elements using relative selling price method adopted guidance prospective basis revenue arrangements entered materially modified february 1 2011 multiple element arrangements entered materially modified february 1 2011 include hardware functions together software provide essential functionality product accounted fasbs new guidance applicable multiple element arrangements multiple element arrangements entered prior february 1 2011 materially modified february 1 2011 accounted accordance fasbs guidance relating revenue recognition software arrangements software component multiple element arrangements incidental products sold arrangements require significant customization underlying software recognize revenue persuasive evidence arrangement product shipped services provided customer sales price fixed determinable collectability probable pertinent criteria met required fasbs guidance multiple element arrangements entered prior february 1 2011 materially modified february 1 2011 allocate revenue delivered elements arrangement using residual method whereby revenue allocated undelivered elements based vendor specific objective evidence vsoe fair value undelivered elements remaining arrangement fee allocated delivered elements recognized revenue assuming revenue recognition criteria met unable establish vsoe fair value undelivered elements arrangement revenue recognition deferred entire arrangement elements arrangement delivered however undelivered element pcs recognize arrangement fee ratably pcs period multiple element arrangements entered materially modified february 1 2011 include hardware functions together software provide essential functionality product allocate revenue element based selling price selling price used element based vsoe fair value available thirdparty evidence “tpe” fair value vsoe available best estimate selling price “besp” neither vsoe tpe available determining units accounting arrangements evaluate whether element standalone value defined fasbs guidance comverse bss comverse vas segments professional services performed prior products acceptance standalone value therefore combined related hardware software one nonsoftware deliverable determining fair value deliverable arrangement consideration allocated using relative selling price method revenue recognized accordingly deliverable respective revenue recognition criteria met deliverable timing recognition revenue transactions involves numerous judgments estimates policy determinations significant summarized follows pcs revenue derived primarily providing technical software support services unspecified software updates upgrades customers available basis pcs revenue recognized ratably term pcs period pcs included within multiple element arrangement within scope software revenue guidance primarily utilize substantive renewal rate establish vsoe fair value pcs much lesser extent bellshaped curve approach used certain verint arrangements depending upon geographical region product line using substantive renewal rate method may unable establish vsoe fair value pcs renewal rate deemed nonsubstantive contractuallystated renewal rates stated renewal rate nonsubstantive entire arrangement fee recognized ratably estimated economic life product five eight years beginning upon delivery elements pcs believe estimated economic life product best estimate long customer renew pcs contractually stated renewal rate entire arrangement fee recognized ratably relevant contractual pcs term beginning upon delivery elements pcs arrangements include stated renewal rate determining whether actual renewal rate substantive matter judgment group products stratify customers based size installed base geographic location customer based historical negotiations contract experience believe customers behave differently perceive different values pcs based two main factors bellshaped curve approach establishing vsoe fair value verint performs vsoe fair value compliance test ensure substantial majority 75 actual pcs renewals within narrow range plus minus 15 median pricing evaluate many factors determining estimated economic life products including support period product technological obsolescence average time new product releases upgrade activity customers concluded estimated economic lives key software products range five eight years policy establishing vsoe fair value professional services training based upon analysis separate sales services compared fees charged elements included multiple element arrangement comverse yet established vsoe fair value element pcs certain multiple element arrangements obligated provide training services customers related operation software products comverse training services either provided customer “defined” basis limited specified number days training classes “asrequested” basis unlimited training contractual period multiple element arrangements containing asrequested training obligations within scope software revenue guidance recognize total arrangement consideration ratably contractual period required “stand ready” perform training provided criteria revenue recognition met multiple element arrangements containing defined training obligations training services typically provided customer prior completion installation services arrangements within scope software revenue guidance revenue recognition commence completion installation defined training obligations impact timing recognition revenue certain circumstances training provided end installation period commence revenue recognition upon completion training provided criteria revenue recognition met arrangements require significant customization product meet particular requirements customer arrangements revenue recognized accordance fasbs guidance longterm construction type contracts using percentageofcompletion poc method determination whether services entail significant customization requires judgment primarily based alterations features functionality standard release complex unusual interfaces well amount hours necessary complete customization solution relative size contract revenue arrangements recognized poc method based ratio total hours incurred date compared estimated total hours complete contract required make judgments estimate total estimated costs progress completion changes estimates impact timing revenue recognition period use historical experience project plans assessment risks uncertainties inherent arrangement establish estimates uncertainties arrangements include implementation delays performance issues may within control level profitability assured related revenue costs cannot reasonably estimated revenue recognized extent costs incurred time projects profitability estimated services completed subsequent fiscal year ended january 31 2012 entered contract modification customer comverse bss segment accounted using poc method revenue recognition expected result approximately 97 million incremental revenue fiscal year ending january 31 2013 contract modification related changes estimate complete arrangement expected decrease consolidated revenue three months ended april 30 2012 66 million revenue nine months following april 30 2012 related modified arrangement expected total 163 million vsoe fair value pcs exist revenues recognized extent costs incurred services completed provided able make reliable cost estimates level profitability assured services completed remaining unrecognized portion arrangement fee recognized ratably remaining pcs period situations able make reliable estimates level profitability assured revenue deferred completion professional services recognized ratably respective pcs period determine based estimates costs exceed sales price entire amount estimated loss accrued period losses become known revenue recognized multiple periods accordance revenue recognition policies material cost including hardware thirdparty software license fees deferred amortized period product revenue recognized costs recognized “deferred cost revenue” consolidated balance sheets however made accounting policy election whereby cost installation service costs expensed incurred except arrangements recognized accordance fasbs guidance longterm construction type contracts consolidated statements operations classify revenue product revenue service revenue prescribed sec rules regulations multiple element arrangements include product service elements unable determine vsoe fair value elements arrangement management evaluates various available indicators fair value applies judgment reasonably classify arrangement fee product revenue service revenue amount multiple element arrangement fees classified product service revenue based management estimates fair value vsoe fair value elements arrangement exist could differ amounts classified product service revenue vsoe fair value elements existed allocation multiple element arrangement fees product revenue service revenue vsoe fair value elements exist consolidated financial statement presentation purposes affect timing amount revenue recognized determining amount multiple element arrangement fee classified product revenue service revenue comverse first allocates arrangement fee product revenue pcs classified service revenue based managements estimate fair value elements remainder arrangement fee comprised service elements allocated service revenue estimate fair value product element based primarily managements evaluation direct costs reasonable profit margins products determined appropriate methodology comverse historically product oriented respect pricing policies facilitates evaluation product costs related margins arriving reasonable estimate product element fair value managements estimate reasonable profit margins requires significant judgment consideration various factors impact economic environment margins complexity projects stability product profit margins nature products estimate fair value pcs based managements evaluation weighted average pcs rates arrangements vsoe fair value pcs exists determining classification revenue products services verint reviews vsoe fair value training installation pcs services similar transactions stand alone services arrangements compares peers order determine reasonable consistent approximations fair values service revenue remaining amount allocated product revenue sales resellers original equipment manufacturers oems purchase verints products resale generally recognized products shipped referred sellin basis reseller oem policy predicated verints ability estimate sales returns customers among criteria verint also required evaluate whether resellers oems ability honor commitment make fixed determinable payments regardless whether collect payment customers verint change assumptions judgments could cause material change reported revenue particular period verint historically experienced insignificant product returns resellers oems payment terms customers similar granted end users reseller oem develops pattern payment delinquency seeks payment terms longer generally accepted verint defers recognition revenue receipt cash extended payment terms one critical judgments make related revenue recognition assessment collectability probable recognition revenue based assessment probability collecting related accounts receivable balance onset sales arrangement certain comverses arrangements include payment terms depart customary practice situations customer adequate history abiding contractual payment terms without concessions sales price considered fixed determinable revenue recognized upon collection provided revenue recognition criteria met consider payment terms 5 arrangement fees due 120 days customer acceptance extended arrangement new customer payment terms extended evidence collecting original payment terms without making concessions therefore presumption fee fixed determinable cannot overcome arrangement existing customer evaluation customers payment history take place determine fee fixed stockbased compensation account sharebased payment awards including employee stock options restricted stock restricted stock units deferred stock units employee stock purchases made employees directors accordance fasbs guidance sharebased payment related interpretative guidance requires measurement recognition compensation expense awards based estimated fair value options granted cti well verint starhome subsidiaries estimate fair value sharebased payment awards date grant using optionpricing model fasbs guidance stockbased compensation expense measured grant date based fair value award cost recognized expense ratably awards vesting period use blackscholes optionpricing model measure fair value stock option awards blackscholes model requires judgments regarding assumptions used within model significant stock price volatility assumption term awards expected life option award based actual projected employee stock option behaviors inputs noted factored option valuation model use measure fair value stock awards subjective estimates changes estimates could cause fair value stock awards related stockbased compensation expenses vary materially except noted following key assumptions used stockbased compensation awards • riskfree interest rate assumption use based upon us treasury interest rates appropriate expected life awards • majorityowned subsidiaries including publiclytraded verint subsidiary use historical volatility measuring volatility stock options • expected dividend rate zero since currently pay cash dividends common stock anticipate foreseeable future also required estimate expected forfeitures stockbased awards grant date recognize compensation cost awards expected vest although estimate forfeitures based historical experience future expectation actual forfeitures may differ forfeiture assumption adjusted actual forfeitures occur fiscal years ended january 31 2012 2011 2010 consolidated stockbased compensation expense 370 million 574 million 577 million respectively business combinations acquire business allocate fair value consideration transferred business combination estimated fair value acquisition date tangible intangible assets acquired liabilities assumed noncontrolling interest intangible assets consist primarily acquired technology customer relationships time engage independent thirdparty appraisal firms assist management considering determinations fair values significant net assets acquired residual purchase price recorded goodwill purchase price allocation process requires us make significant estimates assumptions especially acquisition date respect intangible assets estimated restructuring liabilities preacquisition contingencies although believe assumptions estimates made past reasonable appropriate based part historical experience information obtained management acquired companies result inherent level uncertainty key critical estimates valuing certain intangible assets include limited • future expected cash flows generated acquired technology customer relationships • expected costs develop inprocess research development commercially viable products estimated cash flows projects completed • acquired companys brand competitive position well assumptions period time acquired brand continue used • weighted average cost capital discount rates • estimating useful lives acquired assets well pattern manner assets amortize • make significant judgments related business combinations including evaluating contingent consideration agreements review contingent consideration agreements ensure represent compensation ongoing activities business consider reasons contingent consideration provisions terms employment agreements mix employee selling shareholders nonemployee selling shareholders making determination whether contingent consideration accounted adjustment purchase price compensation services also estimate fair value contractual support obligations deferred revenue assuming acquired business estimated fair value support obligations determined utilizing cost buildup approach determines fair value estimating costs related fulfilling obligations plus reasonable profit margin estimated costs fulfill support obligations based historical direct costs related providing support services sum costs operating profit represents approximation amount would required pay third party assume support obligations unanticipated events circumstances may occur affect accuracy validity assumptions estimates actual results recoverability goodwill represents excess fair value consideration transferred business combination fair value tangible intangible assets acquired net fair value liabilities assumed fair value noncontrolling interest acquiree apply fasbs guidance testing goodwill impairment permits management make qualitative assessment whether goodwill impaired opt bypass qualitative assessment proceed directly performing first step twostep impairment test management performs qualitative assessment concludes likely fair value reporting unit exceeds carrying value goodwill considered impaired twostep impairment test unnecessary however management concludes otherwise required perform first step twostep impairment test reporting units decide perform qualitative assessment management assesses makes judgments regarding variety factors potentially impact fair value reporting unit including general economic conditions industry marketspecific conditions customer behavior cost factors financial performance trends strategies business plans capital requirements management personnel issues stock price among others management considers totality factors placing weight events circumstances judged affect reporting units fair value carrying amount net assets reach qualitative conclusion regarding whether likely fair value reporting unit exceeds carrying amount reporting units perform twostep goodwill impairment test first step requires us compare fair value reporting unit carrying value net assets management considers incomebased approach using projected discounted cash flows marketbased approach using multiples comparable companies determine fair value reporting units managements estimate fair value reporting unit based number subjective factors including appropriate weighting valuation approaches incomebased approach marketbased approach ii estimates future revenue cash flows iii discount rate estimated cash flows iv selection peer group companies marketbased approach v required levels working capital vi assumed terminal value vii time horizon cash flow forecasts viii control premium use work independent thirdparty appraisal firm assist us considering determination implied fair value goodwill fair values calculated using income approach market approach based comparable companies income approach commonly known discounted cash flow approach estimates fair value based cash flows asset expected generate useful life carrying value reporting units goodwill exceeds implied fair value impairment charge equal difference recorded assumptions estimates future values reporting units implied goodwill complex subjective affected variety factors including external factors industry economic trends internal factors changes business strategy internal forecasts although believe historical assumptions estimates made reasonable appropriate different assumptions estimates could materially impact reported financial results determination reporting units also requires management judgment assess whether reporting unit exists within reportable segment identifying unit determining whether unit qualifies business us gaap assessing availability regular review segment management discrete financial information unit fiscal year ended january 31 2012 indicators impairment verint starhome reporting units january 31 2012 verint starhome reporting units 8971 million 76 million goodwill respectively fiscal year ended january 31 2012 performed impairment testing comverse subsidiary january 31 2012 comverse subsidiary 1555 million goodwill information see note 1 consolidated financial statements included item 15 annual report record impairment goodwill fiscal years ended january 31 2012 2011 2010 managements forecasts estimates based assumptions consistent plans estimates used manage business changes estimates could change conclusion regarding impairment goodwill impairment longlived intangible assets review recoverability longlived assets property equipment intangible assets finite lives whenever events changes circumstances occur indicate carrying value asset may recoverable impairment assets must considered prior impairment review goodwill assessment impairment based ability recover carrying value asset analyzing expected future undiscounted pretax cash flows specific asset group circumstances could trigger review include limited significant decreases market price asset significant adverse changes business climate legal factors accumulation costs significantly excess amount expected acquisition longlived asset current period negative cash flow operating losses combined history losses forecast continuing losses associated use asset assess recoverability carrying value longlived assets lowest level identifiable cash flows largely independent cash flows assets liabilities undiscounted cash flows less carrying value asset group impairment loss measured based difference estimated fair value carrying value assets disposed writtendown greater fair value salvage value estimated fair values based assumptions regarding amount timing estimated future cash flows appropriate discount rates reflect varying degrees perceived risk significant management judgment involved estimating factors include inherent uncertainties measurement recoverability assets dependent upon accuracy assumptions used making estimates well estimates compare eventual future operating performance specific reporting unit assets attributed connection testing goodwill netcentrex reporting unit recorded charges 34 million relating finitelived intangible assets fiscal year ended january 31 2010 writedown reflected impairment reporting units intangible assets allowance doubtful accounts estimate collectability accounts receivable balances accounting period adjust allowance doubtful accounts accordingly exercise judgment assessing collectability accounts receivable including consideration current economic conditions creditworthiness customers collection history related aging past due receivables balances evaluate specific accounts become aware customer may experiencing deterioration financial condition due lower credit ratings bankruptcy factors may affect customers ability meet payment obligations management used available information subsequent balance sheet date evaluate reasonableness estimates charge uncollectible trade receivables collection efforts exhausted believe amount collected january 31 2012 2011 accounts receivable balance 2906 million 3196 million net allowance doubtful accounts 122 million 132 million respectively unanticipated events circumstances may occur affect accuracy validity assumptions estimates actual results income taxes account income taxes accordance fasbs guidance relating income taxes income taxes provided using asset liability method income taxes ie deferred tax assets deferred tax liabilities taxes currently payablerefunds receivable tax expensebenefit recorded based amounts refundable payable current year include results difference us gaap tax reporting deferred income taxes reflect tax effect net operating losses capital losses general business credit carryforwards net tax effects temporary differences carrying amount assets liabilities financial statement income tax purposes determined enacted tax laws rates valuation allowances established management determines morelikelythannot portion deferred tax asset realized financial effect changes tax laws rates accounted period enactment subsequent realization net operating loss general business credit carryforwards acquired acquisitions accounted using acquisition method accounting recognized consolidated statement operations research development credits recorded based amount benefit believe morelikelythannot earned additionally required recognize consolidated financial statements tax positions determined morelikelythannot sustained upon examination based technical merits positions time engage transactions tax consequences may subject uncertainty examples transactions include business acquisitions dispositions certain financing transactions significant judgment required assessing estimating tax consequences transactions prepare file tax returns based interpretation tax laws regulations normal course business tax returns subject examination various taxing authorities examinations may result future tax interest assessments taxing authorities determining tax provision financial reporting purposes establish reserve uncertain tax positions unless positions determined morelikelythannot sustained upon examination based technical merits financial reporting purposes recognize tax benefits taken tax return believe morelikelythannot sustained considerable judgment involved determining whether positions taken tax return morelikelythannot sustained adjust tax reserve estimates periodically ongoing examinations settlements various taxing authorities well changes tax laws regulations interpretations consolidated tax provision given year includes adjustments prior year income tax accruals considered appropriate related estimated interest policy recognize applicable interest penalties uncertain tax positions part income tax expense information see note 22 consolidated financial statements included item 15 annual report part accounting business combinations purchase price allocated goodwill intangible assets impairment charges associated goodwill generally tax deductible result increased effective income tax rate quarter impairment recorded amortization expenses associated acquired intangible assets generally tax deductible pursuant existing tax structure however deferred taxes recorded nondeductible amortization expenses part purchase price allocation process taken account allocation identified intangibles among different taxing jurisdictions including nominal zero percent tax rates establishing related deferred tax liabilities fasbs guidance income tax benefit future releases acquisition date valuation allowances income tax contingencies reflected income tax provision consolidated statements operations rather adjustment purchase price allocation litigation contingencies nature relate uncertainties require management exercise judgment assessing likelihood liability incurred well estimating amount potential loss accrue costs relating litigation claims contingent matters liabilities become probable reasonably estimable expense legal fees associated consultations outside counsel defense lawsuits incurred estimates may based advice third parties solely managements judgment appropriate actual amounts paid may differ materially amounts estimated differences charged operations period final determination liability made time receive notices products processes may infringing patent intellectual property rights others notices shareholder litigation notices lawsuits claims us assess matter order determine contingent liability recorded making determination management may depending nature matter consult internal external legal counsel based information obtained combined managements judgment regarding facts circumstances matter determine whether contingent loss probable whether amount loss estimated loss probable estimable record contingent loss judgments estimates made management coincide future events judicial action us expected merit part party bringing action us may need record additional contingent losses could materially adversely impact results operations alternatively judgments estimates made management incorrect particular contingent loss occur contingent loss recorded would reversed thereby favorably impacting results operations fiscal year ended january 31 2007 recorded 1744 million pretax charge settlement amounts payable settlement agreements consolidated shareholder class action federal state derivative actions agreements approved courts actions pending june 23 2010 july 1 2010 september 23 2010 respectively amounts payable settlements consisted aggregate 1650 million payable settlement consolidated shareholder class action settlement 94 million legal fees expenses plaintiffs settlement shareholder derivative actions amount charge determined based actual amount settlement reflected charges fiscal year ended january 31 2007 fiscal period actions commenced fiscal period lawsuits settled financial statements fiscal year ended january 31 2007 issued upon entering settlement agreement consolidated shareholder class action december 2009 cti paid 10 million plaintiff class fiscal year ended january 31 2011 cti paid 179 million 94 million agreements settle consolidated shareholder class action consolidated shareholder derivative actions respectively fiscal year ended january 31 2012 cti paid 683 million cash 825 million paid issuance 12462236 shares ctis common stock agreement settle consolidated shareholder class action addition december 2011 cti agreed settle action initiated maverick fund ldc certain affiliated investment funds opted participate settlement consolidated shareholder class action pursuant settlement agreement paid plaintiffs approximately 95 million connection matter recorded pretax charge 49 million fiscal year ended january 31 2012 representing amount settlement amount exceeded optout credit certain credits settlement agreement consolidated shareholder class action recent accounting pronouncements standards implemented revenue recognition previously discussed september 2009 fasb issued revenue recognition guidance applicable multiple element arrangements company adopted guidance prospective basis revenue arrangements entered materially modified february 1 2011 comprehensive discussion see critical accounting estimates judgmentsrevenue recognition note 1 consolidated financial statements included item 15 annual report goodwill impairment september 2011 fasb issued new accounting guidance testing goodwill impairment new guidance provides entity option first perform qualitative assessment determine whether reporting units fair value likely less carrying value including goodwill performing qualitative assessment entity considers extent adverse events circumstances factors identified changes economic conditions industry market conditions entity specific events could affect comparison reporting units fair value carrying amount entity concludes fair value reporting unit likely less carrying amount entity required perform currently prescribed twostep goodwill impairment test identify potential goodwill impairment accordingly measure amount goodwill impairment loss recognized reporting unit guidance effective us interim annual periods commencing february 1 2012 fourth quarter fiscal year ended january 31 2012 conjunction managements annual testing goodwill early adopted new accounting guidance qualitative assessment various factors would affect estimated fair value reporting unit identified factors classified type impact would estimated fair value using positive neutral adverse categories based current business conditions additionally assessment level impact particular factor would estimated fair value determined using high medium low weighting annual testing goodwill fiscal year ended january 31 2012 management performed qualitative assessment verint starhome reporting units qualitative assessment included review changes following recent financial performance financial forecasts discount rates carrying amount market values comparable companies industry conditions general economic conditions furthermore management considered results recent twostep quantitative impairment test completed reporting unit instance companys verint starhome reporting units november 1 2010 management concluded likely estimated fair value verint starhome reporting units equity less carrying value analysis verint starhome reporting units required standards implemented january 2010 fasb issued guidance amend disclosure requirements related recurring nonrecurring fair value measurements guidance requires new disclosures transfers assets liabilities level 1 quoted prices active market identical assets liabilities level 2 significant observable inputs fair value measurement hierarchy including reasons timing transfers additionally guidance requires gross presentation activity within level 3 significant unobservable inputs roll forward presenting information purchases sales issuance settlements separately guidance effective us interim annual periods commenced february 1 2010 except gross presentation level 3 roll forward became effective us interim annual periods commenced february 1 2011 adoption guidance resulted additional disclosures gross presentation level 3 roll forward see note 14 consolidated financial statements included item 15 annual report december 2010 fasb issued updated accounting guidance clarify pro forma disclosures presented business combination occurred beginning prior annual period purposes preparing current reporting period prior reporting period pro forma financial information disclosures accompanied narrative description nature amount material nonrecurring pro forma adjustments new accounting guidance effective business combinations consummated periods beginning december 15 2010 applied prospectively date adoption although early adoption permitted adopted new guidance effective february 1 2011 adoption guidance material impact consolidated financial statements december 2010 fasb issued guidance perform step two goodwill impairment test reporting units zero negative carrying amounts upon adoption carrying amount reporting unit zero negative reporting entity must perform step two goodwill impairment test likely goodwill impaired date adoption determining likely goodwill impairment exists entity consider whether adverse qualitative factors indicating impairment may exist goodwill impairment recognized upon adoption guidance presented cumulativeeffect adjustment opening retained earnings adoption date reflecting change accounting principle guidance effective us interim annual periods commenced february 1 2011 carrying value previously defined comverse reporting unit negative february 1 2011 existence adverse qualitative factors indicated potential impairment step two goodwill impairment test performed date result impairment adoption guidance material impact consolidated financial statements fiscal year ended january 31 2012 standards implemented may 2011 fasb issued updated accounting guidance amend existing requirements fair value measurements disclosures guidance expands disclosure requirements around fair value measurements categorized level 3 fair value hierarchy requires disclosure level fair value hierarchy items measured fair value whose fair value must disclosed also clarifies expands upon existing requirements fair value measurements financial assets liabilities well instruments classified shareholders equity guidance effective beginning interim period ending april 30 2012 assessing impact application guidance may consolidated financial statements june 2011 fasb issued accounting guidance revises manner entities present comprehensive income financial statements new guidance eliminates option present components comprehensive income part statement equity new guidance entities required present net income comprehensive income either single continuous statement two separate consecutive statements net income comprehensive income december 2011 fasb amended updated guidance issued june 2011 defer certain presentation requirements amended updated guidance effective interim annual periods commencing february 1 2012 company believes changes presentation adoption guidance material impact consolidated financial statements item 7a nannannannanitem 7a quantitative qualitative disclosures market risk company exposed market risk changes foreign currency exchange rates interest rates equity trading prices could impact results operations financial condition company manages exposure market risks regular operating financing activities deemed appropriate use derivative financial instruments company time uses foreign currency exchange contracts derivative instruments reduce exposure risk eventual net cash inflows outflows resulting sale products foreign customers adversely affected changes exchange rates use derivative financial instruments allows company reduce exposure exchange rate movements since gains losses contracts substantially offset losses gains assets liabilities transactions hedged many instances company elects hedge transactions management expect significant changes strategies employs manage exposure near future january 31 1999 companys foreign currency market exposure hedged relates japanese yen january 31 1999 10 appreciation depreciation prevailing market rate japanese yen would material effect companys financial position results operations cash flows various financial instruments held company sensitive changes interest rates interest rate changes would result gains losses market value companys investments debt securities due differences market interest rates inception financial instruments neither 100 basis point increase decrease current interest rates would material effect companys financial position results operations cash flows equity investments held company subject equity price risks neither 10 increase decrease equity prices would material effect companys financial position results operations cash flows item 8item 7a quantitative qualitative disclosures market risk company exposed market risk changes foreign currency exchange rates interest rates equity trading prices could impact results operations financial condition company manages exposure market risks regular operating financing activities deemed appropriate use derivative financial instruments company time uses foreign currency exchange contracts derivative instruments reduce exposure risk eventual net cash inflows outflows resulting sale products foreign customers adversely affected changes exchange rates use derivative financial instruments allows company reduce exposure exchange rate movements since gains losses contracts substantially offset losses gains assets liabilities transactions hedged many instances company elects hedge transactions management expect significant changes strategies employs manage exposure near future january 31 2000 company material outstanding foreign currency exchange contracts various financial instruments held company sensitive changes interest rates interest rate changes would result gains losses market value companys investments debt securities due differences market interest rates inception financial instruments neither 100 basis point increase decrease current interest rates would material effect companys financial position results operations cash flows equity investments held company subject equity price risks neither 10 increase decrease equity prices would material effect companys financial position results operations cash flows item 8item 7a quantitative qualitative disclosures market risk company exposed market risk changes foreign currency exchange rates interest rates equity trading prices could impact results operations financial condition company manages exposure market risks regular operating financing activities deemed appropriate use derivative financial instruments company may time use foreign currency exchange contracts derivative instruments reduce exposure risk eventual net cash inflows outflows resulting sale products foreign currency adversely affected changes exchange rates instances company elects hedge transactions january 31 2003 company outstanding foreign currency exchange contracts various financial instruments held company sensitive changes interest rates interest rate changes would result gains losses market value companys investments debt securities due differences market interest rates date purchase financial instruments neither 100 basis point increase decrease current interest rates would material effect companys financial position results operations cash flows equity investments held company subject equity price risks neither 10 increase decrease equity prices would material effect companys financial position results operations cash flows item 8item 7a quantitative qualitative disclosures market risk company exposed market risk changes foreign currency exchange rates interest rates equity trading prices could impact results operations financial condition company manages exposure market risks regular operating financing activities deemed appropriate use derivative financial instruments company operates internationally therefore exposed potentially adverse movements foreign currency rate changes primary currencies company exposed euro israeli shekel company may time use foreign currency exchange contracts derivative instruments reduce exposure risk eventual net cash inflows outflows resulting sale products foreign currency primarily euro adversely affected changes exchange rates objective contracts neutralize impact foreign currency exchange rate movements companys operating results january 31 2004 company approximately 317 million notional amount foreign exchange forward contracts sell euros fair value approximately 02 million original maturity three months neither 10 increase decrease current exchange rates would material effect companys consolidated financial statements various financial instruments held company sensitive changes interest rates interest rate changes would result gains losses market value companys investments debt securities due differences market interest rates date purchase financial instruments neither 10 increase decrease current interest rates would material effect companys consolidated financial statements equity investments held company subject equity price risks neither 10 increase decrease equity prices would material effect companys consolidated financial statements item 8item 7a quantitative qualitative disclosures market risk company exposed market risk changes foreign currency exchange rates interest rates equity trading prices could impact results operations financial condition company manages exposure market risks regular operating financing activities deemed appropriate use derivative financial instruments company operates internationally therefore exposed potentially adverse movements foreign currency exchange rates primary currencies company exposed euro israeli shekel company may time use foreign currency exchange contracts derivative instruments reduce exposure risk eventual net cash inflows outflows resulting sale products foreign currency primarily euro adversely affected changes exchange rates objective contracts neutralize impact foreign currency exchange rate movements companys operating results january 31 2005 company approximately 326 million notional amount foreign exchange forward contracts sell euros fair value approximately 66000 original maturity six months neither 10 increase decrease current exchange rates would material effect companys consolidated financial statements various financial instruments held company sensitive changes interest rates interest rate changes would result gains losses market value companys investments debt securities due differences market interest rates date purchase financial instruments neither 10 increase decrease current interest rates would material effect companys consolidated financial statements equity investments held company subject equity price risks neither 10 increase decrease equity prices would material effect companys consolidated financial statements item 8item 7a quantitative qualitative disclosures market risk exposed market risk changes interest rates foreign currency exchange rates may adversely affect consolidated financial position results operations seek minimize risks regular operating financing activities deemed appropriate use derivative financial instruments including foreign currency forward contracts interest swap agreements policy enter derivative transactions extent considered necessary meet risk management objectives purchase hold sell derivative financial instruments trading speculative purposes interest rate risk indebtedness may 25 2007 partially finance acquisition witness verint entered 6750 million secured financing arrangement comprised sevenyear 6500 million term loan facility sixyear 250 million revolving credit facility january 31 2009 verint 6100 million outstanding term loan original 250 million revolving credit facility reduced 150 million september 2008 connection bankruptcy lehman brothers related subsequent termination revolving commitment credit agreement june 2009 later increased 750 million july 2010 november 2008 verint borrowed 150 million revolving credit facility remained outstanding january 31 2009 july 31 2010 prior amendment verint’s credit facilities july 2010 borrowings thereunder bore interest rate verint’s election 175 plus higher prime rate ii federal funds rate plus 050 b 275 london interbank offered rate libor case former interest rate adjusted unison underlying index case libor borrowings interest rate adjusted end relevant libor period effective february 25 2008 verint’s applicable margins indicated increased 025 pursuant terms facility verint provide certain audited financial statements lenders additionally august 25 2008 applicable margins increased another 025 050 total since verint deliver audited financial statements lenders applicable margin accordingly reduced 050 june 2010 verint delivered audited financial statements fiscal year ended january 31 2010 lenders obtained corporate ratings following amendments verint’s term loan revolving credit facilities july 2010 borrowings thereunder bear interest rate either verint’s election highest prime rate ii federal funds rate plus 050 iii onemonth libor subject 150 floor plus 100 b libor subject 150 floor plus either case applicable interest rate margin case base rate borrowings interest rate adjusts unison underlying index case libor borrowings interest rate adjusts end relevant libor period since july 2010 applicable margin determined reference verint’s consolidated leverage ratio follows interest rates applicable borrowings credit facilities variable verint exposed market risk changes underlying index rates affect cost borrowing partially mitigate risk part verint required lenders verint entered credit facilities may 2007 verint executed payfixed receivevariable interest rate swap multinational financial institution paid fixed interest 518 received variable interest threemonth libor notional amount 4500 million instrument settled counterparty quarterly basis scheduled maturity date may 1 2011 january 31 2009 6100 million borrowings outstanding term loan interest rate 4500 million borrowings substantially fixed utilization interest rate swap interest remaining 1600 million variable market interest rates one threemonth libor changed 100 basis points january 31 2009 annual interest expense borrowings would change approximately 16 million july 2010 verint terminated swap agreement prior may 1 2011 maturity paid approximately 217 million august 2010 counterparty representing approximate present value expected remaining quarterly settlement payments otherwise due verint thereafter interest rate swap designated hedging instrument terms sfas 133 accounting derivative instruments hedging activities accounted derivative whereby fair value instrument reported consolidated balance sheets gains losses changes fair value whether realized unrealized reported income expense net fiscal year ended january 31 2009 verint recorded losses instrument approximately 115 million income expense net consolidated statements operations losses reflect decline market interest rates fiscal year ended january 31 2009 additional information relating amendments verint’s credit facility termination interest rate swap agreement see item 7 “management’s discussion analysis financial condition results operationssignificant subsequent events” investments cash equivalents restricted cash bank time deposits shortterm investments invest cash equivalents bank time deposits shortterm investments cash primarily consists cash hand bank deposits cash equivalents primarily consist interestbearing money market accounts bankissued commercial paper agency notes highly liquid investments original maturity three months less purchased restricted cash includes compensating cash balances related existing line credit deposits pledged collateral restricted use settle specified creditrelated bank instruments vendor payables general liability insurance workers’ compensation insurance warranty programs bank time deposits generally consist certificates deposit original maturities less twelve months shortterm investments consist primarily us government corporation agency bonds interest rate changes could result increase decrease interest income generate interestbearing assets cash equivalents bank time deposits primarily maintained high creditquality financial institutions around world maintain cash equivalents us dollars foreign currencies subject risks related foreign currency exchange rate fluctuations primary objective investment activities preservation principal maximizing investment income accordance prescribed risk management profile investment guidelines relative diversification maturities designed maintain safety liquidity january 31 2009 cash equivalents bank time deposits shortterm investments totaling approximately 13022 million restricted cash 283 million ars cti holds ars supported corporate issuers student loans ars longterm stated maturities prior january 31 2008 classified ars shortterm investments due liquid nature evidenced successful auctions occurring every seven ninety days beginning third quarter fiscal year ended january 31 2008 auctions ars began fail addition global economic decline also contributed decline credit quality certain issuers ars although ars continued pay interest stated terms determined may able access underlying principal amounts within twelvemonth period accordingly reclassified ars experienced failed auctions shortterm investments longterm investments beginning period failure certain ars determined probable cti unable collect contractual principal interest payments addition certain ars could assert intended hold ars recovered previous carrying amount carrying amount ars january 31 2009 1203 million classified longterm availableforsale investments corresponding principal amount 2365 million reflecting cumulative otherthantemporary impairment charges 1293 million november 2008 cti accepted offer ubs ag ubs sell ubs face value 516 million ars time exercise period june 30 2010 july 2 2012 result fourth quarter fiscal year ended january 31 2009 recognized ubs put asset measured fair value consolidated balance sheets recorded resulting gain amount 136 million consolidated statements operations fair value related ars 345 million consideration ubs put corresponding par value 516 million january 31 2009 detailed discussion impairment see item 7 “management’s discussion analysis financial condition results operationsliquidity capital resourcesinvestments securities portfolio” notes 4 15 27 consolidated financial statements included item 15 annual report interest rate risk investments provide meaningful assessment interest rate risk associated investment portfolio performed sensitivity analysis determine impact change interest rates would value investment portfolio assuming fiscal year ended january 31 2009 average shortterm interest rates increase decrease 05 50 basis points relative average rates realized fiscal year ended january 31 2009 change would cause projected interest income cash equivalents bank time deposits shortterm investments increase decrease approximately 67 million foreign currency exchange rate risk although engage hedging activities subject risk related foreign currency exchange rate fluctuations functional currency significant foreign subsidiaries respective local currency exception subsidiaries israel whose functional currencies us dollar exposed foreign currency exchange rate fluctuations convert financial statements foreign subsidiaries us dollars consolidated reporting purposes change foreign currency exchange rates conversion foreign subsidiaries’ financial statements us dollars results gain loss recorded component accumulated comprehensive income within shareholders’ equity deficit international operations subject us risks associated currency fluctuations revenue denominated us dollars significant portion operating expenses primarily labor expenses denominated local currencies foreign operations located primarily israel result consolidated us dollar operating results subject potentially adverse impact fluctuations foreign currency exchange rates us dollar currencies conduct business addition certain assets liabilities denominated currencies respective entity’s functional currency changes functional currency value assets liabilities create fluctuations result gains losses recorded foreign currency transaction gains losses realized unrealized income expense net consolidated statements operations recorded net foreign currency transaction losses 49 million fiscal year ended january 31 2009 additionally time enter foreign currency forward contracts effort reduce volatility cash flows primarily related forecasted personnelrelated costs denominated nis canadian dollars reduce volatility cash flows primarily related forecasted dollar denominated accounts payable payments singapore contracts generally maturities longer twelve months three six months ended july 31 2010 verint entered foreign currency forward contracts manage exposures resulting forecasted eurodenominated customer collections us dollar functional currency operation contracts settle various dates february 2012 fiscal year ended january 31 2009 realized net losses 21 million settlements foreign currency forward contracts january 31 2009 1276 million notional amount foreign currency forward contracts sensitivity analysis performed foreign exchange derivatives january 31 2009 sensitivity analysis based modeling technique measures hypothetical market value resulting 10 shift value exchange rates relative us dollar 10 increase value us dollar would lead decrease fair value hedging instruments approximately 128 million conversely 10 decrease value us dollar would result increase fair value financial instruments approximately 128 million counterparties foreign currency forward contracts multinational commercial banks believe risk counterparty nonperformance material recent disruption global financial markets impacted financial institutions business sustained decline financial stability financial institutions result disruption financial markets could affect ability secure creditworthy counterparties foreign currency hedging programs item 8item 7a quantitative qualitative disclosures market risk exposed market risk changes interest rates foreign currency exchange rates may adversely affect consolidated financial position results operations seek minimize risks regular operating financing activities deemed appropriate use derivative financial instruments including foreign currency forward contracts interest swap agreements policy enter derivative transactions extent considered necessary meet risk management objectives purchase hold sell derivative financial instruments trading speculative purposes interest rate risk indebtedness may 25 2007 partially finance acquisition witness verint entered 6750 million secured credit facility comprised sevenyear 6500 million term loan facility sixyear 250 million revolving credit facility october 31 2010 january 31 2010 verint 5832 million 6059 million outstanding term loan respectively original 250 million revolving credit facility reduced 150 million september 2008 connection bankruptcy lehman brothers related subsequent termination revolving commitment credit agreement june 2009 later increased 750 million july 2010 november 2008 verint borrowed 150 million revolving credit facility remained outstanding january 31 2010 october 31 2010 december 2010 verint repaid 150 million previously borrowed revolving credit facility prior amendment verint’s credit facilities july 2010 borrowings thereunder bore interest rate verint’s election 175 plus higher prime rate ii federal funds rate plus 050 b 275 london interbank offered rate libor case former interest rate adjusted unison underlying index case libor borrowings interest rate adjusted end relevant libor period effective february 25 2008 verint’s applicable margins indicated increased 025 pursuant terms facility verint provide certain audited financial statements lenders additionally august 25 2008 applicable margins increased another 025 050 total since verint deliver audited financial statements lenders applicable margin accordingly reduced 050 june 2010 verint delivered audited financial statements fiscal year ended january 31 2010 lenders obtained corporate ratings following amendments verint’s term loan revolving credit facilities july 2010 borrowings thereunder bear interest rate either verint’s election highest prime rate ii federal funds rate plus 050 iii onemonth libor subject 150 floor plus 100 b libor subject 150 floor plus either case applicable interest rate margin case base rate borrowings interest rate adjusts unison underlying index case libor borrowings interest rate adjusts end relevant libor period since july 2010 applicable margin determined reference verint’s consolidated leverage ratio follows interest rates applicable borrowings credit facilities variable verint exposed market risk changes underlying index rates affect cost borrowing partially mitigate risk part verint required lenders verint entered credit facilities may 2007 verint executed payfixed receivevariable interest rate swap multinational financial institution paid fixed interest 518 received variable interest threemonth libor notional amount 4500 million instrument settled counterparty quarterly basis scheduled maturity date may 1 2011 january 31 2010 6059 million borrowings outstanding term loan interest rate 4500 million borrowings substantially fixed utilization interest rate swap interest remaining 1559 million variable market interest rates one threemonth libor changed 100 basis points january 31 2010 annual interest expense borrowings would change approximately 16 million july 2010 verint terminated swap agreement prior may 1 2011 maturity paid approximately 217 million august 3 2010 counterparty representing approximate present value expected remaining quarterly settlement payments otherwise due verint thereafter interest rate swap designated hedging instrument fasb’s guidance accounted derivative whereby fair value instrument reported consolidated balance sheets gains losses changes fair value whether realized unrealized reported income expense net nine months ended october 31 2010 fiscal year ended january 31 2010 verint recorded losses instrument approximately 31 million 136 million respectively income expense net consolidated statements operations losses reflect decline market interest rates periods giving effect termination swap based 5982 million borrowings outstanding credit facility october 31 2010 giving effect floor interest rates arising libor floor interest rate margin applicable borrowings verint’s credit facility interest rate changed 100 annual interest expense borrowings would change approximately 60 million additional information relating amendments verint’s credit facility termination interest rate swap agreement see item 7 “management’s discussion analysis financial condition results operationsliquidity capital resourcesindebtednessverint credit facility” investments cash equivalents restricted cash bank time deposits shortterm investments invest cash equivalents shortterm investments cash primarily consists cash hand bank deposits cash equivalents primarily consist interestbearing money market accounts commercial paper agency notes highly liquid investments original maturity three months less purchased restricted cash bank time deposits includes compensating cash balances related existing lines credit deposits pledged collateral restricted use settle specified creditrelated bank instruments vendor payables general liability insurance workers’ compensation insurance warranty programs cash received sales ars restricted pursuant settlement agreement consolidated shareholder class action restricted bank time deposits generally consist certificates deposit original maturities twelve months less shortterm investments consist primarily us government corporation agency bonds interest rate changes could result increase decrease interest income generate interestbearing assets cash equivalents restricted cash bank time deposits primarily maintained high creditquality financial institutions around world maintain cash equivalents us dollars foreign currencies subject risks related foreign currency exchange rate fluctuations primary objective investment activities preservation principal maximizing investment income accordance prescribed risk management profile investment guidelines relative diversification maturities designed maintain safety liquidity january 31 2010 cash equivalents shortterm investments excluding ars totaling approximately 6400 million restricted cash bank time deposits 700 million addition 186 million restricted cash classified longterm asset january 31 2010 ars cti holds ars supported corporate issuers student loans ars longterm stated maturities prior january 31 2008 classified ars shortterm investments due liquid nature evidenced successful auctions occurring every seven ninety days beginning third quarter fiscal year ended january 31 2008 auctions ars began fail addition global economic decline also contributed decline credit quality certain issuers ars although ars continued pay interest stated terms determined may able access underlying principal amounts within twelvemonth period accordingly reclassified ars experienced failed auctions shortterm investments longterm investments beginning period failure january 31 2010 continued classify ars longterm investments except 426 million aggregate principal amount ars recorded value 358 million subject ubs put required exercised settlement agreement consolidated shareholder class action june 30 2010 exercised cti date additional information relating ars ubs put see note 3 consolidated financial statements included item 15 annual report ars determined could assert intended hold ars fair value ars recovered amortized cost carrying amount ars january 31 2010 1147 million corresponding principal amount 2066 million reflecting cumulative otherthantemporary impairment charges 1220 million unrealized gains 301 million terms consolidated shareholder class action settlement entered december 16 2009 amended approved court action pending june 23 2010 cti granted security interest benefit plaintiff class account cti holds ars held account ubs proceeds sales thereof restricting cti’s ability use proceeds sales ars amounts payable settlement agreement paid full november 2008 cti accepted offer ubs ag ubs sell ubs face value 516 million aggregate principal amount ars time exercise period june 30 2010 july 2 2012 fourth quarter fiscal year ended january 31 2009 recognized ubs put asset measured fair value consolidated balance sheets recorded corresponding gain amount 136 million consolidated statements operations evaluated ubs put impairment based redemptions changes fair value related ars subject ubs put fiscal year ended january 31 2010 recorded 69 million pretax impairment charges consolidated statement operations january 31 2010 ubs put’s recorded value 67 million ubs purchased cti pursuant purchase right approximately 326 million 90 million aggregate principal amount ars february 1 2010 june 30 2010 fiscal year ended january 31 2010 respectively terms settlement agreement consolidated shareholder class action amended cti required exercise ubs put june 30 2010 apply proceeds exercise toward amounts payable settlement effective june 30 2010 cti exercised ubs put balance ars 100 million aggregate principal amount subject ubs put january 31 2010 fair value related ars 358 million consideration ubs put corresponding aggregate principal amount 426 million detailed discussion impairment see item 7 “management’s discussion analysis financial condition results operationsliquidity capital resourcessources liquidityinvestments securities portfolio” notes 3 14 26 consolidated financial statements included item 15 annual report interest rate risk investments provide meaningful assessment interest rate risk associated investment portfolio performed sensitivity analysis determine impact change interest rates would value investment portfolio assuming fiscal year ended january 31 2010 average shortterm interest rates increase decrease 05 50 basis points relative average rates realized fiscal year ended january 31 2010 change would cause projected interest income cash equivalents shortterm investments increase decrease approximately 46 million foreign currency exchange rate risk although engage hedging activities subject risk related foreign currency exchange rate fluctuations functional currency significant foreign subsidiaries respective local currency exception subsidiaries israel whose functional currencies us dollar exposed foreign currency exchange rate fluctuations convert financial statements foreign subsidiaries us dollars consolidated reporting purposes change foreign currency exchange rates conversion foreign subsidiaries’ financial statements us dollars results gain loss recorded component accumulated comprehensive income within equity international operations subject us risks associated currency fluctuations revenue denominated us dollars significant portion operating expenses primarily labor expenses denominated local currencies foreign operations located primarily israel result consolidated us dollar operating results subject potentially adverse impact fluctuations foreign currency exchange rates us dollar currencies conduct business addition certain assets liabilities denominated currencies respective entity’s functional currency changes functional currency value assets liabilities create fluctuations result gains losses recorded foreign currency transaction gains losses realized unrealized income expense net consolidated statements operations recorded net foreign currency translation losses 29 million fiscal year ended january 31 2010 additionally time enter foreign currency forward contracts effort reduce volatility cash flows primarily related forecasted personnelrelated costs denominated nis canadian dollars reduce volatility cash flows primarily related forecasted dollar denominated accounts payable payments singapore contracts generally maturities longer twelve months nine months ended october 31 2010 verint entered foreign currency forward contracts manage exposures resulting forecasted eurodenominated customer collections us dollar functional currency operation fiscal year ended january 31 2010 realized net gains 34 million settlements foreign currency forward contracts january 31 2010 1358 million notional amount foreign currency forward contracts sensitivity analysis performed foreign exchange derivatives january 31 2010 10 increase value us dollar would lead decrease fair value hedging instruments approximately 137 million conversely 10 decrease value us dollar would result increase fair value financial instruments approximately 137 million counterparties foreign currency forward contracts multinational commercial banks believe risk counterparty nonperformance including material recent disruption global financial markets impacted financial institutions business sustained decline financial stability financial institutions result disruption financial markets could affect ability secure creditworthy counterparties foreign currency hedging programs item 8nanitem 7a quantitative qualitative disclosures market risk exposed market risk changes interest rates foreign currency exchange rates may adversely affect consolidated financial position results operations seek minimize risks regular operating financing activities deemed appropriate use derivative financial instruments including foreign currency forward contracts interest swap agreements policy enter derivative transactions extent considered necessary meet risk management objectives purchase hold sell derivative financial instruments trading speculative purposes interest rate risk indebtedness may 25 2007 verint entered credit agreement group banks fund portion acquisition witness april 29 2011 verint entered credit agreement referred new credit agreement group lenders credit suisse ag administrative agent collateral agent lenders referred capacities agent ii terminated credit agreement dated may 25 2007 referred prior facility prior facility prior facility provided 6500 million sevenyear term loan facility 250 million sixyear revolving credit facility january 31 2011 2010 verint 5832 million 6059 million outstanding term loan prior facility respectively original 250 million revolving credit facility prior facility reduced 150 million september 2008 connection bankruptcy lehman brothers related subsequent termination revolving commitment credit agreement june 2009 later increased 750 million july 2010 november 2008 verint borrowed 150 million revolving credit facility prior facility december 2010 repaid amount full july 2010 verint’s prior facility amended among things change method calculation applicable interest rate margin based periodic consolidated leverage ratio b add libor floor 150 c change certain negative covenants including providing covenant relief respect permitted consolidated leverage ratio increase aggregate amount incremental revolving commitment term loan increases permitted prior facility 500 million 2000 million also july 2010 verint amended prior facility increase revolving credit facility thereunder 150 million 750 million commitment fee unused capacity revolving credit facility increased 050 075 per annum following july 2010 modifications borrowings term loan revolving credit facilities prior facility bore interest rate either verint’s election highest prime rate ii federal funds rate plus 050 iii onemonth libor subject 150 floor plus 100 b libor subject 150 floor plus either case applicable interest rate margin case prime rate federal funds rate referred base rate borrowings interest rate adjusted unison underlying index case libor borrowings interest rate adjusted end relevant libor period prior july 2010 modifications applicable interest rate margin prior facility determined reference verint’s corporate ratings twice increased february 2008 august 2008 due failure deliver certain audited financial statements lack corporate ratings subsequently decreased june 2010 verint delivered required audited financial statements obtained corporate ratings since july 2010 applicable margin prior facility determined reference verint’s consolidated leverage ratio follows interest rates applicable borrowings prior facility variable verint exposed market risk changes underlying index rates affect cost borrowing partially mitigate risk part verint required lenders verint entered prior facility may 2007 verint executed payfixedreceivevariable interest rate swap multinational financial institution paid fixed interest 518 received variable interest threemonth libor notional amount 4500 million instrument settled counterparty quarterly basis scheduled maturity date may 1 2011 july 2010 verint terminated swap agreement prior may 2011 maturity paid approximately 217 million counterparty august 3 2010 representing approximate present value expected remaining quarterly settlement payments otherwise due verint thereafter termination interest rate swap agreement eliminated partial mitigation provided risks associated variable interest rate verint’s term loan prior facility periodic interest rate term loan prior facility function several factors importantly libor applicable interest rate margin however implementation 150 libor floor interest rate calculation effective july 2010 amendments described earlier reduced likelihood increases periodic interest rate current shortterm libor rates well 150 although periodic interest rate could still fluctuated based upon verint’s consolidated leverage ratio determined interest rate margin changes shortterm libor rates could impact calculation unless rates increased 150 based upon verint’s january 31 2011 borrowings 100 increase applicable libor rate 150 verint’s annual interest payments would increase approximately 58 million additional information relating amendments verint’s prior facility termination interest rate swap agreement see item 7 “management’s discussion analysis financial condition results operationsliquidity capital resourcesindebtednessverint credit facilitiesprior facility” new credit agreement new credit agreement loans bear interest payable quarterly case eurodollar loans interest period three months shorter end interest period per annum rate verint’s election • case eurodollar loans adjusted libo rate plus 325 verint’s corporate ratings least bb ba3 better 300 “adjusted libo rate” greater 125 per annum ii product libo rate statutory reserves defined new credit agreement • case base rate loans base rate plus 225 verint’s corporate ratings least bb ba3 better 200 “base rate” greatest agent’s prime rate ii federal funds effective rate defined new credit agreement plus 050 iii adjusted libo rate one month interest period plus 100 accordingly new credit agreement verint continues exposed market risk changes underlying index rates affect cost borrowings additional information relating new credit agreement see item 7 “management’s discussion analysis financial condition results operationsliquidity capital resourcesindebtednessverint credit facilitiesnew credit agreement” notes 12 28 consolidated financial statements included item 15 annual report investments cash equivalents restricted cash bank time deposits invest cash equivalents shortterm investments cash primarily consists cash hand bank deposits cash equivalents primarily consist interestbearing money market accounts commercial paper agency notes highly liquid investments original maturity three months less purchased restricted cash bank time deposit includes compensating cash balances related existing lines credit deposits pledged collateral restricted use settle specified creditrelated bank instruments vendor payables general liability insurance workers’ compensation insurance pending tax judgments warranty programs proceeds sales redemptions ars including interest thereon restricted terms settlement agreement consolidated shareholder class action restricted bank time deposits generally consist certificates deposit original maturities twelve months less interest rate changes could result increase decrease interest income generate interestbearing assets cash equivalents restricted cash bank time deposits primarily maintained high creditquality financial institutions around world maintain cash equivalents us dollars foreign currencies subject risks related foreign currency exchange rate fluctuations primary objective investment activities preservation principal maximizing investment income accordance prescribed risk management profile investment guidelines relative diversification maturities designed maintain safety liquidity january 31 2011 cash equivalents excluding ars totaling approximately 5814 million restricted cash bank time deposits 731 million addition 84 million restricted cash classified longterm asset january 31 2011 ars cti holds ars supported corporate issuers student loans ars longterm stated maturities august 2010 began forecast sell remaining ars fourth quarter fiscal year ending january 31 2012 expiration restrictions sales ars use proceeds sales thereof following final payment settlement agreement consolidated shareholder class action due november 15 2011 accordingly classified ars current assets january 31 2011 additional information relating ars see note 3 consolidated financial statements included item 15 annual report determined could assert intended hold ars fair value recovered amortized cost carrying amount ars january 31 2011 724 million corresponding principal amount 944 million reflecting cumulative otherthantemporary impairment charges 436 million unrealized gains 217 million terms consolidated shareholder class action settlement entered december 16 2009 amended approved court action pending june 23 2010 cti granted security interest benefit plaintiff class account cti holds ars held account ubs proceeds sales thereof restricting cti’s ability use proceeds sales ars amounts payable settlement agreement paid full november 2008 cti accepted offer ubs ag ubs sell ubs face value 516 million aggregate principal amount ars time exercise period june 30 2010 july 2 2012 fourth quarter fiscal year ended january 31 2009 recognized ubs put asset measured fair value consolidated balance sheets recorded corresponding gain amount 136 million consolidated statements operations evaluated ubs put impairment based redemptions changes fair value related ars subject ubs put fiscal years ended january 31 2011 2010 recorded 67 million 69 million pretax impairment charges respectively consolidated statements operations due exercise june 30 2010 recorded amounts connection ubs put january 31 2011 january 31 2010 ubs put’s carrying value 67 million ubs purchased cti pursuant purchase right approximately 326 million 90 million aggregate principal amount ars fiscal years ended january 31 2011 2010 respectively terms settlement agreement consolidated shareholder class action amended cti required exercise ubs put june 30 2010 apply proceeds exercise toward amounts payable settlement effective june 30 2010 cti exercised ubs put balance ars 100 million aggregate principal amount subject ubs put detailed discussion see item 7 “management’s discussion analysis financial condition results operationsliquidity capital resourcessources liquidityinvestments securities portfolio” notes 3 14 26 consolidated financial statements included item 15 annual report interest rate risk investments provide meaningful assessment interest rate risk associated investment portfolio performed sensitivity analysis determine impact change interest rates would value investment portfolio assuming fiscal year ended january 31 2011 average shortterm interest rates increase decrease 05 50 basis points relative average rates realized fiscal year ended january 31 2011 change would cause projected interest income cash equivalents shortterm investments increase decrease approximately 38 million foreign currency exchange rate risk although engage hedging activities subject risk related foreign currency exchange rate fluctuations functional currency significant foreign subsidiaries respective local currency exception subsidiaries israel whose functional currencies us dollar exposed foreign currency exchange rate fluctuations convert financial statements foreign subsidiaries us dollars consolidated reporting purposes change foreign currency exchange rates conversion foreign subsidiaries’ financial statements us dollars results gain loss recorded component accumulated comprehensive income within equity international operations subject us risks associated currency fluctuations revenue denominated us dollars significant portion operating expenses primarily labor expenses denominated local currencies foreign operations located primarily israel result consolidated us dollar operating results subject potentially adverse impact fluctuations foreign currency exchange rates us dollar currencies conduct business addition certain assets liabilities denominated currencies respective entity’s functional currency changes functional currency value assets liabilities create fluctuations result gains losses recorded foreign currency transaction gains losses realized unrealized income expense net consolidated statements operations recorded net foreign currency transaction losses 34 million fiscal year ended january 31 2011 additionally time enter foreign currency forward contracts effort reduce volatility cash flows primarily related forecasted personnelrelated costs denominated nis canadian dollars reduce volatility cash flows primarily related forecasted dollar denominated accounts payable payments singapore contracts generally limited durations approximately one year less fiscal year ended january 31 2011 verint entered foreign currency forward contracts manage exposures resulting forecasted eurodenominated customer collections us dollar functional currency operation contracts settle various dates february 2012 fiscal year ended january 31 2011 realized net gains 32 million settlements foreign currency forward contracts january 31 2011 770 million notional amount foreign currency forward contracts sensitivity analysis performed foreign exchange derivatives january 31 2011 10 increase value us dollar would lead decrease fair value hedging instruments approximately 77 million conversely 10 decrease value us dollar would result increase fair value financial instruments approximately 77 million counterparties foreign currency forward contracts multinational commercial banks believe risk counterparty nonperformance including material recent disruption global financial markets impacted financial institutions business sustained decline financial stability financial institutions result disruption financial markets could affect ability secure creditworthy counterparties foreign currency hedging programs item 8item 7a quantitative qualitative disclosures market risk company exposed market risk changes foreign currency exchange rates interest rates equity trading prices could impact results operations financial condition company manages exposure market risks regular operating financing activities deemed appropriate use derivative financial instruments company time uses foreign currency exchange contracts derivative instruments reduce exposure risk eventual net cash inflows outflows resulting sale products foreign customers adversely affected changes exchange rates use derivative financial instruments allows company reduce exposure exchange rate movements since gains losses contracts substantially offset losses gains assets liabilities transactions hedged many instances company elects hedge transactions management expect significant changes strategies employs manage exposure near future january 31 2001 company material outstanding foreign currency exchange contracts various financial instruments held company sensitive changes interest rates interest rate changes would result gains losses market value companys investments debt securities due differences market interest rates inception financial instruments neither 100 basis point increase decrease current interest rates would material effect companys financial position results operations cash flows equity investments held company subject equity price risks neither 10 increase decrease equity prices would material effect companys financial position results operations cash flows item 8item 7a quantitative qualitative disclosures market risk company exposed market risk changes foreign currency exchange rates interest rates equity trading prices could impact results operations financial condition company manages exposure market risks regular operating financing activities deemed appropriate use derivative financial instruments company may time use foreign currency exchange contracts derivative instruments reduce exposure risk eventual net cash inflows outflows resulting sale products foreign currency adversely affected changes exchange rates instances company elects hedge transactions management expect significant changes strategies employs manage exposure near future january 31 2001 company material outstanding foreign currency exchange contracts various financial instruments held company sensitive changes interest rates interest rate changes would result gains losses market value companys investments debt securities due differences market interest rates date purchase financial instruments neither 100 basis point increase decrease current interest rates would material effect companys financial position results operations cash flows equity investments held company subject equity price risks neither 10 increase decrease equity prices would material effect companys financial position results operations cash flows item 8item 7a quantitative qualitative disclosures market risk exposed market risk changes interest rates foreign currency exchange rates may adversely affect consolidated financial position results operations seek minimize risks regular operating financing activities deemed appropriate use derivative financial instruments including foreign currency forward contracts interest swap agreements policy enter derivative transactions extent considered necessary meet risk management objectives purchase hold sell derivative financial instruments trading speculative purposes interest rate risk debt april 2011 verint entered new credit agreement concurrently terminated prior facility additional discussion including interest rates applicable borrowings new credit agreement see item 7 “managements discussion analysis financial condition results operationsliquidity capital resourcesindebtednessverint credit facilities” note 12 consolidated financial statements included item 15 annual report interest rates applicable borrowings new credit agreement variable verint exposed market risk changes underlying index rates affect cost borrowing periodic interest rate new term loan facility currently function several factors importantly libo rate applicable interest rate margin however borrowings subject 125 libo rate floor interest rate calculation currently reduces likelihood increases periodic interest rate current shortterm libo rates well 125 although periodic interest rate may still fluctuate based upon verints corporate ratings determine interest rate margin changes shortterm libo rates impact calculation unless rates increase 125 based upon verints january 31 2012 borrowings 1 increase applicable libo rate 125 annual interest payments would increase approximately 60 million verint utilized payfixedreceivevariable interest rate swap agreement partially mitigate variable interest rate risk associated prior facility verint terminated agreement july 2010 verint may consider utilizing interest rate swap agreements intended mitigate variable interest rate risk future investments cash equivalents restricted cash bank time deposits invest cash equivalents shortterm investments cash primarily consists cash hand bank deposits cash equivalents primarily consist interestbearing money market accounts commercial paper agency notes highly liquid investments original maturity three months less purchased restricted cash bank time deposits include compensating cash balances related existing lines credit deposits pledged collateral restricted use settle specified creditrelated bank instruments vendor payables general liability insurance workers compensation insurance pending tax judgments warranty programs obligations restricted bank time deposits generally consist certificates deposit original maturities twelve months less interest rate changes could result increase decrease interest income generate interestbearing assets cash equivalents restricted cash bank time deposits primarily maintained high creditquality financial institutions around world maintain cash equivalents us dollars foreign currencies subject risks related foreign currency exchange rate fluctuations primary objective investment activities preservation principal maximizing investment income accordance prescribed risk management profile investment guidelines relative diversification maturities designed maintain safety liquidity january 31 2012 cash equivalents totaling approximately 5156 million restricted cash bank time deposits 418 million addition 98 million restricted cash classified longterm asset january 31 2012 interest rate risk investments provide meaningful assessment interest rate risk associated investment portfolio performed sensitivity analysis determine impact change interest rates would value investment portfolio assuming fiscal year ended january 31 2012 average shortterm interest rates increase decrease 05 50 basis points relative average rates realized fiscal year ended january 31 2012 change would cause projected interest income cash equivalents shortterm investments increase approximately 30 million decrease approximately 20 million assuming similar level investments fiscal year ending january 31 2013 foreign currency exchange rate risk although engage hedging activities subject risk related foreign currency exchange rate fluctuations functional currency significant foreign subsidiaries respective local currency notable exceptions subsidiaries israel whose functional currencies us dollar exposed foreign currency exchange rate fluctuations convert financial statements foreign subsidiaries us dollars consolidated reporting purposes change foreign currency exchange rates conversion foreign subsidiaries financial statements us dollars results gain loss recorded component accumulated comprehensive income within equity international operations subject us risks associated currency fluctuations revenue denominated us dollars significant portion operating expenses primarily labor expenses denominated local currencies foreign operations located primarily israel result consolidated us dollar operating results subject potentially adverse impact fluctuations foreign currency exchange rates us dollar currencies conduct business addition certain assets liabilities denominated currencies respective entitys functional currency changes functional currency value assets liabilities create fluctuations result gains losses recorded foreign currency transaction gains losses realized unrealized income expense net consolidated statements operations recorded net foreign currency transaction losses 44 million fiscal year ended january 31 2012 additionally time enter foreign currency forward contracts effort reduce volatility cash flows primarily related forecasted personnelrelated costs denominated nis canadian dollars reduce volatility cash flows primarily related forecasted dollar denominated accounts payable payments singapore contracts generally limited durations approximately one year less january 31 2012 verint foreign currency forward contract manage exposure resulting forecasted eurodenominated customer collections us dollar functional currency operation contract settle fiscal year ending january 31 2013 fiscal year ended january 31 2012 realized net gains 13 million settlements foreign currency forward contracts january 31 2012 1406 million notional amount foreign currency forward contracts sensitivity analysis performed foreign exchange derivatives january 31 2012 10 increase value us dollar would lead decrease fair value hedging instruments approximately 90 million conversely 10 decrease value us dollar would result increase fair value financial instruments approximately 117 million counterparties foreign currency forward contracts multinational commercial banks believe risk counterparty nonperformance including material recent volatility global financial markets impacted financial institutions business sustained decline financial stability financial institutions result volatility financial markets could affect ability secure creditworthy counterparties foreign currency hedging programs european debt exposure january 31 2012 direct indirect investments sovereign debt corporations financial institutions greece portugal italy spain maintain cash balances european financial institutions part european operations item 8 item 8 financial statements supplementary data financial information required item 8 included elsewhere report see part iv item 14 item 9item 8 financial statements supplementary data financial information required item 8 included elsewhere report see part iv item 14 item 9item 8 financial statements supplementary data financial information required item 8 included elsewhere report see part iv item 14 item 9item 8 financial statements supplementary data financial information required item 8 included elsewhere report see part iv item 14 item 9item 8 financial statements supplementary data financial information required item 8 included elsewhere report see part iv item 14 item 9item 8 financial statements supplementary data financial information required item 8 included elsewhere report see part iv item 14 item 9item 8 financial statements supplementary data financial information required item 8 included elsewhere report see part iv item 15 item 9item 8 financial statements supplementary data financial information required item 8 included elsewhere report see part iv item 15 item 9item 8 financial statements supplementary data financial information required item 8 included elsewhere report see part iv item 15 item 9item 8 financial statements supplementary data financial information required item 8 included item 15 annual report item 9item 8 financial statements supplementary data financial information required item 8 included item 15 annual report item 9item 8 financial statements supplementary data financial information required item 8 included elsewhere report see part iv item 14 item 9item 8 financial statements supplementary data financial information required item 8 included item 15 annual report item 9item 8 financial statements supplementary data financial information required item 8 included elsewhere report see part iv item 14 item 9item 8 financial statements supplementary data financial information required item 8 included elsewhere report see part iv item 14 item 9item 8 financial statements supplementary data financial information required item 8 included item 15 annual report item 9 nannannannannannanitem 15 exhibits financial statement schedules reports form 8k pages documents filed part report 1 financial statements index consolidated financial statements independent auditors report consolidated balance sheets january 31 2002 2003 consolidated statements operations years ended january 31 2001 2002 2003 consolidated statements stockholders equity years ended january 31 2001 2002 2003 consolidated statements cash flows years ended january 31 2001 2002 2003 notes consolidated financial statements 2 financial statement schedules none 3 exhibits index exhibits commences following page exhibits numbered 101 103 105 1010 comprise material compensatory plans arrangements registrant b reports form 8k fourth quarter 2002 company filed one report form 8k report form 8k dated december 13 2002 item 9 regulation fd disclosure certifications principal executive officer principal financial officer pursuant section 906 sarbanesoxley act 2002 exhibits description 3 articles incorporation bylaws 31 certificate incorporation incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 32 certificate amendment certificate incorporation effective february 26 1993 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 33 certificate amendment certificate incorporation effective january 12 1995 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1994 34 certificate amendment certificate incorporation dated october 18 1999 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended january 31 2000 35 certificate amendment certificate incorporation dated september 19 2000 36 bylaws amended 4 instruments defining rights security holders including indentures 41 specimen stock certificate incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 42 indenture dated november 22 2000 comverse technology inc chase manhattan bank trustee incorporated reference registrants registration statement form s3 securities act 1933 registration 33355526 43 specimen 1 12 convertible senior debenture due 2005 incorporated reference registrants registration statement form s3 securities act 1933 registration 33355526 10 material contracts 101 form stock option agreement pertaining shares certain subsidiaries comverse technology inc incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1993 102 form incentive stock option agreement incorporated reference registrants registration statement form s1 securities act 1933 registration 339147 103 form stock option agreement options incentive stock options incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 104 form indemnity agreement comverse technology inc officers directors 105 1997 employee stock purchase plan amended incorporated reference definitive proxy materials registrants annual meeting stockholders held june 15 2001 106 2002 employee stock purchase plan incorporated reference definitive proxy materials registrants annual meeting stockholder held december 3 2002 107 1997 stock incentive compensation plan incorporated reference definitive proxy materials registrants annual meeting stockholders held january 13 1998 108 1999 stock incentive compensation plan incorporated reference definitive proxy materials registrants annual meeting stockholders held october 8 1999 109 2000 stock incentive compensation plan incorporated reference definitive proxy materials registrants annual meeting stockholders held september 15 2000 1010 2001 stock incentive compensation plan incorporated reference definitive proxy materials registrants annual meeting stockholders held june 15 2001 1011 lease dated november 5 1990 boston technology inc wakefield park limited partnership lease incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1991 1012 first amendment lease dated march 31 1993 boston technology inc wbam limited partnership incorporated reference quarterly report boston technology inc form 10q securities exchange act 1934 quarter ended october 31 1993 1013 second amendment lease dated august 31 1994 boston technology inc wbam limited partnership incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1995 1014 third amendment lease dated june 7 1996 boston technology inc wbam limited partnership incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1997 1015 fourth amendment lease dated december 21 1998 wakefield 100 llc comverse technology inc 1016 fifth amendment lease dated september 5 2002 sc wakefield 200 inc comverse technology inc 211 subsidiaries registrant 231 consent deloitte touche llp 241 powers attorney see signature page report incorporated reference filed herewith signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized comverse technology inc registrant april 28 2003 kobi alexander kobi alexander chief executive officer know persons presents person whose signature appears constitutes appoints kobi alexander david kreinberg jointly severally attorneysinfact full power substitution capacities sign amendments form 10k file exhibits thereto documents connection therewith securities exchange commission hereby ratifying confirming said attorneysinfact substitutes may cause done virtue hereof pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated kobi alexander april 28 2003 kobi alexander chairman board chief executive officer director david kreinberg april 28 2003 david kreinberg executive vice president chief financial officer itsik danziger april 28 2003 itsik danziger director john h friedman april 28 2003 john h friedman director francis e girard april 28 2003 francis e girard director ron hiram april 28 2003 ron hiram director sam oolie april 28 2003 sam oolie director william f sorin april 28 2003 william f sorin director certifications kobi alexander chairman board directors chief executive officer certify 1 reviewed annual report form 10k comverse technology inc 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrants certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing date annual report evaluation date c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrants certifying officers disclosed based recent evaluation registrants auditors audit committee registrants board directors persons performing equivalent functions significant deficiencies design operation internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrants internal controls 6 registrants certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses date april 28 2003 kobi alexander name kobi alexander title chairman board directors chief executive officer david kreinberg executive vice president chief financial officer comverse technology inc certify 1 reviewed annual report form 10k comverse technology inc 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrants certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing date annual report evaluation date c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrants certifying officers disclosed based recent evaluation registrants auditors audit committee registrants board directors persons performing equivalent functions significant deficiencies design operation internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrants internal controls 6 registrants certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses date april 28 2003 david kreinberg name david kreinberg title executive vice president chief financial officer comverse technology inc subsidiaries index consolidated financial statements page independent auditors report consolidated balance sheets january 31 2002 2003 consolidated statements operations years ended january 31 2001 2002 2003 consolidated statements stockholders equity years ended january 31 2001 2002 2003 consolidated statements cash flows years ended january 31 2001 2002 2003 notes consolidated financial statements independent auditors report board directors stockholders comverse technology inc woodbury new york audited accompanying consolidated balance sheets comverse technology inc subsidiaries company january 31 2002 2003 related consolidated statements operations stockholders equity cash flows three years period ended january 31 2003 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position comverse technology inc subsidiaries january 31 2002 2003 results operations cash flows three years period ended january 31 2003 conformity accounting principles generally accepted united states america deloitte touche llp new york new york march 11 2003 april 22 2003 note 24 see notes consolidated financial statements see notes consolidated financial statements see notes consolidated financial statements see notes consolidated financial statements comverse technology inc subsidiaries notes consolidated financial statements years ended january 31 2001 2002 2003 1 organization business comverse technology inc cti together subsidiaries company organized new york corporation october 1984 company engaged design development manufacture marketing support special purpose computer telecommunications systems software multimedia communications information processing applications 2 summary significant accounting policies principles consolidation consolidated financial statements include accounts cti whollyowned majorityowned subsidiaries material intercompany balances transactions eliminated cash equivalents bank time deposits company considers highly liquid investments purchased original maturities three months less cash equivalents bank deposits maturities excess three months classified bank time deposits shortterm investments company classifies shortterm investments including us treasury bills availableforsale accounted fair value resulting unrealized gains losses reported separate component stockholders equity concentration credit risk financial instruments potentially expose company concentration credit risk consist primarily cash investments accounts receivable company places cash investments highcredit quality financial institutions currently invests primarily money market funds placed major banks financial institutions bank time deposits corporate commercial paper corporate municipal shortterm notes corporate mediumterm notes mortgage asset backed securities us government us government corporation agency obligations mutual funds investing like common preferred stock accounts receivable generally diversified due number commercial government entities comprising companys customer base dispersion across many geographical regions january 31 2002 2003 companys allowance doubtful accounts approximately 41955000 56759000 respectively company believes significant concentration credit risk exists respect cash investments accounts receivable inventories stated lower cost market cost determined firstin firstout method property equipment property equipment carried cost less accumulated depreciation amortization company depreciates property equipment straightline basis primarily periods ranging two seven years leasehold improvements amortized shorter estimated useful lives related lease term cost maintenance repairs charged operations incurred significant renewals improvements capitalized income taxes company accounts income taxes using asset liability method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities measured using enacted tax rates laws expected effect differences expected reverse revenue expense recognition company recognizes revenues accordance provisions statement position 972 software revenue recognition related interpretations companys systems generally bundled hardware software solution shipped together revenue generally recognized time shipment sales systems require significant customization performed company following criteria met 1 persuasive evidence arrangement exists 2 delivery occurred 3 fee fixed determinable 4 collectibility probable postcontract customer support pcs services sold separately part multiple element arrangement case related pcs element determined based upon vendorspecific objective evidence fair value portion total fee allocated pcs services generally recognized revenue ratably term pcs arrangement revenues certain development contracts recognized percentageofcompletion method basis physical completion date using actual costs incurred total expected costs contract revisions estimates costs profits reflected accounting period facts require revision become known time loss contract known entire amount estimated loss accrued amounts received customers excess revenues earned percentageofcompletion method recorded advance payments customers related contract costs include direct material labor costs indirect costs related contract performance included cost sales consolidated statements operations expenses incurred connection research development activities certain software development costs capitalized selling general administrative expenses charged operations incurred software development costs software development costs capitalized upon establishment technological feasibility amortized estimated useful life software date four years less amortization begins period related product available general release customers amortization expense amounted approximately 7203000 9129000 12594000 years ended january 31 2001 2002 2003 respectively functional currency foreign currency transaction gains losses united states dollar functional currency major portion companys foreign operations companys sales materials purchased manufacturing denominated linked dollar certain operating costs principally salaries foreign operations denominated local currencies instances foreign subsidiary functional currency dollar company records necessary foreign currency translation adjustment reflected stockholders equity end reporting period january 31 2002 2003 company outstanding foreign exchange contracts goodwill intangible assets goodwill represents excess purchase price fair value net assets acquired intangible assets include identifiable acquired software technology trade name noncompete agreements accordance provisions statement financial accounting standards sfas 142 goodwill intangible assets goodwill certain intangible assets longer amortized rather reviewed impairment least annual basis intangible assets finite lives amortized using straightline method estimated useful lives exceeding six years assets licenses patent rights acquired knowhow recorded cost amortized using straightline method estimated useful lives related technology exceeding four years debt issue costs amortized using effective interest method term related debt longlived assets company reviews impairment longlived assets whenever events changes circumstances indicate carrying amount asset may recoverable impairment loss would recognized estimated future undiscounted cash flows expected result use asset proceeds eventual disposition less carrying amount impairment measured fair value connection restructuring plan years ended january 31 2002 2003 company identified certain impairment losses included workforce reduction restructuring impairment charges consolidated statements operations refer note 9 details liabilities january 2002 majorityowned subsidiary cti verint systems inc verint took bank loan amount 42000000 loan matures february 2003 bears interest libor plus 055 loan guaranteed cti refer note 24 subsequent events stockbased compensation january 31 2003 company place comverse stock option plans fully described note 14 company accounts option plans recognition measurement principles accounting principles board opinion 25 accounting stock issued employees related interpretations accordingly stockbased employee compensation cost reflected net income periods options granted plan exercise price least equal market value underlying common stock date grant company estimated fair value employee stock options utilizing blackscholes option valuation model using assumptions described note 14 required accounting principles generally accepted united states america blackscholes model developed use estimating fair value traded options consider nontraded nature employee stock options vesting trading restrictions lack transferability ability employees forfeit options prior expiry addition option valuation models require input highly subjective assumptions including expected stock price volatility companys employee stock options characteristics significantly different traded options changes subjective input assumptions materially affect fair value estimate managements opinion existing models necessarily provide reliable single measure fair value companys employee stock options following table illustrates effect net income loss earnings loss per share company applied fair value recognition provisions sfas 123 accounting stockbased compensation stockbased employee compensation periods pervasiveness estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates reclassifications certain prior year amounts reclassified conform manner presentation current year 3 research development significant portion companys research development operations located israel company derives benefits participation programs sponsored government israel support research development activities conducted country certain companys research development activities include projects partially funded office chief scientist ministry industry trade state israel ocs funding organization reimburses portion companys research development expenditures approved project budgets one companys subsidiaries accrues royalties ocs sale products incorporating technology developed projects year ended january 31 2002 another companys subsidiaries entered agreement ocs whereby subsidiary agreed pay lump sum royalty amount past amounts received ocs addition subsidiary began receive lower amounts ocs historically received required pay royalties future grants terms applicable funding agreements products resulting projects funded ocs may manufactured outside israel without government approval amounts reimbursed ocs years ended january 31 2001 2002 2003 21508000 9980000 10540000 respectively 4 shortterm investments company classifies shortterm investments availableforsale securities following summary availableforsale securities january 31 2003 1 investing us government us government corporation agency obligations corporate debt securities commercial paper assetbacked securities following summary availableforsale securities january 31 2002 1 investing us government us government corporation agency obligations corporate debt securities commercial paper assetbacked securities year ended january 31 2003 gross realized gains sales securities totaled approximately 3588000 gross realized losses totaled approximately 13644000 year ended january 31 2002 gross realized gains sales securities totaled approximately 25252000 gross realized losses totaled approximately 18855000 year ended january 31 2001 gross realized gains sales securities totaled approximately 9905000 gross realized losses totaled approximately 8394000 basis cost determined computing realized gain loss firstin firstout method amortized cost estimated fair value debt securities january 31 2003 contractual maturity follows 5 inventories consist 6 property equipment property equipment consist 7 assets consist 8 business combinations february 2002 verint acquired digital video recording business lanex llc lanex business provides digital video recording solutions security surveillance applications primarily north american banks purchase price consisted 95 million cash 22 million convertible note noninterest bearing matures february 1 2004 holder note may elect convert note whole part shares verints common stock conversion price 1606 per share note guaranteed cti june 2002 company acquired odigo inc odigo privatelyheld provider instant messaging presence management solutions service providers purchase price approximately 201 million cash prior acquisition company strategic partner odigo holding equity position previously acquired approximately 3 million acquisitions accounted purchase method accordingly consolidated statements operations include results operations date acquisition assets acquired liabilities assumed recorded estimated fair values determined companys management based information currently available assistance independent appraisal specialists applicable allocating purchase price including direct costs acquisition net tangible identifiable intangible assets excess cost fair value net assets acquired recorded goodwill included assets consolidated balance sheets summary assets acquired liabilities assumed acquisitions well pro forma results operations presented effects acquisitions deemed material july 2000 company acquired outstanding stock loronix information systems inc loronix company develops softwarebased digital video recording management systems 1994806 shares companys common stock assumption options purchase 370101 shares companys common stock combination accounted pooling interests six months ended june 30 2000 loronix sales approximately 181 million net loss including merger related expenses approximately 23 million loronixs net loss period july 1 2000 july 31 2000 approximately 705000 excluded companys consolidated statement operations year ended january 31 2001 result conforming fiscal years included adjustment retained earnings july 2000 company acquired outstanding stock syborg informationsysteme gmbh syborg company develops softwarebased digital voice internet recording systems 201251 shares companys common stock combination accounted pooling interests company restate prior financial statements acquisition due immateriality recorded book value net assets syborg approximately 475000 consolidated statements stockholders equity august 2000 company acquired outstanding stock exalink ltd exalink company specializing routerbased protocol gateways applications software delivery internetbased services types wireless devices 5261211 shares companys common stock assumption options warrants purchase 810377 shares companys common stock combination accounted pooling interests company restate prior financial statements acquisition due immateriality recorded book value net assets exalink approximately 973000 consolidated statements stockholders equity august 2000 company acquired outstanding stock gaya software industries ltd gaya company specializing softwarebased intelligent internet protocol ip gateways voiceoverip technology 283758 shares companys common stock assumption options warrants purchase 10505 shares companys common stock combination accounted pooling interests company restate prior financial statements acquisition due immateriality recorded book value net assets gaya approximately 1470000 consolidated statements stockholders equity connection acquisitions loronix syborg exalink gaya company charged approximately 15971000 operations year ended january 31 2001 merger related charges relate following asset writedowns impairments year ended january 31 2001 thousands inventory 3685 property equipment 1528 capitalized software costs 2186 total asset writedowns impairments 7399 connection acquisitions year ended january 31 2001 certain assets became impaired due existence duplicative technology property equipment inventory merged companies accordingly assets written net realizable value time merger professional fees direct merger expenses connection acquisitions year ended january 31 2001 company recorded charge approximately 8572000 professional fees lawyers investment bankers accountants well direct merger costs connection mergers printing costs filing fees 9 workforce reduction restructuring impairment charges years ended january 31 2002 2003 company took steps better align cost structure business environment improve efficiency operations steps included reduction workforce announced april 2001 restructuring plan included additional reduction workforce announced december 2001 course year ended january 31 2003 company took additional steps reduce workforce restructure operations writeoff impaired assets connection actions company charged approximately 63562000 66714000 operations years ended january 31 2002 2003 respectively primarily pertaining severance related costs elimination excess facilities related leasehold improvements writeoff certain property equipment analysis total charges approximately 63562000 incurred year ended january 31 2002 well rollforward workforce reduction restructuring accrual period follows analysis total charges approximately 66714000 incurred year ended january 31 2003 well rollforward workforce reduction restructuring accrual period follows severance related costs consist primarily severance payments terminated employees fringe related costs associated severance payments termination costs legal consulting costs balance severance related costs expected paid january 2004 facilities related costs consist primarily contractually obligated lease liabilities operating expenses related facilities vacated primarily united states israel result restructuring plan balance facilities related costs expected paid various dates january 2011 property equipment costs consist primarily writedown various assets current estimable fair value including value certain unimproved land israel written year ended january 31 2003 company acquired view future construction facilities israeli operations connection restructuring plan company changed organizational structure product offerings result certain inventory capitalized software became impaired writtenoff year ended january 31 2002 company expects continue reduce workforce three months ending april 30 2003 incur additional restructuring related charges period 10 accounts payable accrued expenses accounts payable accrued expenses consist january 31 2002 2003 thousands accounts payable 113566 88649 accrued compensation 48074 37054 accrued vacation 21092 20761 accrued royalties 41105 6596 accrued workforce reduction restructuring 36209 49821 accrued warranty 9742 12269 accrued expenses 52614 45660 322402 260810 11 convertible debentures november 2000 company issued 500000000 aggregate principal amount 150 convertible senior debentures due december 2005 debentures december 2000 company issued additional 100000000 debentures result initial purchaser exercising full overallotment option debentures unsecured senior obligations company ranking equally companys existing future unsecured senior indebtedness senior right payment companys existing future subordinated indebtedness debentures convertible option holders shares companys common stock conversion price 116325 per share subject adjustment certain events subject redemption time december 1 2003 whole part option company redemption prices expressed percentages principal amount 100375 redeemed twelvemonth period beginning december 1 2003 100 principal amount redeemed thereafter debenture holders may require company repurchase debentures par event common stock ceases publicly traded certain instances upon change control company upon occurrence change control instead paying repurchase price cash company may pay repurchase price common stock year ended january 31 2003 company acquired open market purchases 209162000 face amount debentures resulting pretax gain net debt issuance costs approximately 39374000 included interest income expense net consolidated statements operations refer note 24 subsequent events june 1998 company issued 300000000 convertible subordinated debentures bearing interest 450 per annum payable semiannually june 2001 company called debentures redemption debentures converted 13953462 shares common stock 12 liability severance pay liability severance pay consists primarily companys unfunded liability severance pay employees certain foreign subsidiaries accrued severance companys chief executive officer israeli law company obligated make severance payments employees israeli subsidiaries basis individuals current salary length employment liabilities currently provided primarily premiums paid company insurance providers company obligated agreement chief executive officer provide severance payment upon termination employment company approximately 2631000 3013000 accrued january 31 2002 2003 respectively relating liability 13 common stock splits april 15 1999 company effected threefortwo stock split paying 50 stock dividend stockholders record march 31 1999 april 3 2000 company effected twoforone stock split paying 100 stock dividend shareholders record march 27 2000 share per share information retroactively restated consolidated financial statements reflect splits increase authorized common shares annual meeting shareholders held september 15 2000 companys shareholders approved amendment companys certificate incorporation increase 300000000 600000000 aggregate number authorized common shares company issuance subsidiary stock april 2000 majorityowned subsidiary company ulticom inc ulticom issued 4887500 shares common stock initial public offering proceeds offering based offering price 1300 per share totaled approximately 58062000 net offering expenses october 2000 ulticom issued additional 2843375 shares common stock public offering proceeds ulticom offering based offering price 5000 per share totaled approximately 137169000 net offering expenses company recorded gain approximately 145854000 year ended january 31 2001 recorded increase stockholders equity result issuances january 31 2003 companys ownership interest ulticom approximately 716 may 2002 verint issued 4500000 shares common stock initial public offering proceeds offering based offering price 1600 per share totaled approximately 654 million net offering expenses company recorded gain approximately 481 million year ended january 31 2003 recorded increase stockholders equity result issuance january 31 2003 companys ownership interest verint approximately 786 14 stock options option exchange program may 2002 company announced commencement voluntary stock option exchange program eligible employees program approved companys shareholders participating employees given opportunity unexercised stock options previously granted cancelled exchange replacement options granted future date replacement options granted ratio 085 new options existing option cancelled exercise price equal fair market value companys stock date regrant exchange program designed accordance financial accounting standards board fasb interpretation 44 accounting certain transactions involving stock compensation interpretation apb opinion 25 grant replacement options less six months one day cancellation result variable compensation charges relating options date regrant december 23 2002 replacement options acquire 14208987 shares companys common stock granted 1052 per share closing fair market value companys stock date employee stock options january 31 2003 25079827 shares common stock reserved issuance upon exercise stock options outstanding 9235083 shares available future grant comverses stock option plans options may granted key employees directors persons rendering services company options designated incentive stock options option plans may granted exercise price less fair market value underlying shares date grant subject certain quantity limitations specified section 422 internal revenue code options intended qualify incentive stock options may granted price less par value underlying shares without restriction amount options underlying shares subject adjustment accordance terms plans event stock dividends recapitalizations similar transactions right exercise options generally vests increments periods four years date grant date commencement grantees employment company maximum term ten years options granted changes number options follows january 31 2003 options purchase aggregate 8003012 shares vested currently exercisable option plans options purchase additional 17076815 shares vest various dates extending year 2006 weighted average option exercise price information follows significant option groups outstanding january 31 2003 related weighted average price life information follows weighted average fair value options granted years ended january 31 2001 2002 2003 respectively estimated 5038 1085 466 date grant using blackscholes option pricing model following weighted average assumptions years ended january 31 2001 2002 2003 respectively volatility 65 76 75 riskfree interest rate 55 40 18 expected life 49 43 26 years options subsidiary shares company granted options certain employees acquire shares certain subsidiaries comverse inc option issuances tied performance subsidiaries intended incentivize employees units direct responsibility portion shares subsidiaries upon options granted varies among subsidiaries affected exceeding instance 20 shares outstanding assuming exercise full options terms 15 years become exercisable vest various periods ranging seven years date initial grant exercise price option equal higher book value underlying shares date grant fair market value shares date determined basis armslength transaction third party transactions occurred reasonable basis determined committee board directors 15 warrants november 1995 company entered agreement supply products customer pursuant agreement company issued warrants purchase shares common stock exercise price 718 per share january 31 2002 warrants exercised 16 employee stock purchase plans comverses employee stock purchase plans employees completed three months employment entitled payroll deductions amounts 10 base salary purchase shares companys common stock 85 lesser market price offering commencement date offering termination date number shares available 1997 employee stock purchase plan 2500000 approximately 2021000 issued january 31 2003 december 2002 company adopted 2002 employee stock purchase plan 1500000 additional shares available none issued january 31 2003 17 earnings per share eps basic earnings loss per share determined using weighted average number shares common stock outstanding period diluted earnings loss per share assumes issuance common shares dilutive potential common shares outstanding calculation earnings loss per share years ended january 31 2001 2002 2003 follows diluted earnings loss per share computation year ended january 31 2003 excludes incremental shares approximately 632000 related employee stock options shares excluded due antidilutive effect result companys loss period addition companys debentures included computation diluted earnings loss per share years ended january 31 2002 2003 effect including would antidilutive 18 interest income expense net interest income expense net consists following 19 income taxes provision income taxes consists following reconciliation us federal statutory tax rate companys effective tax rate follows deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes b operating loss carryforwards tax effects significant items comprising companys deferred tax asset liability january 31 2002 2003 follows january 31 2002 2003 thousands deferred tax liability expenses deductible tax purposes financial reporting purposes 1080 2666 deferred tax asset reserves currently deductible 43532 65194 tax loss carryforwards 253703 278364 inventory capitalization 118 51 297353 343609 less valuation allowance 285801 331090 total deferred tax asset 11552 12519 january 31 2003 company net operating loss carryforwards federal income tax purposes approximately 7116 million approximately 249 million expire 2004 balance begin expire 2019 income tax provided unrepatriated earnings foreign subsidiaries currently intention company reinvest foreign earnings operations 20 business segment information companys reporting segments follows enhanced services solutions products enable telecommunications service providers offer variety revenue traffic generating services accessible large numbers simultaneous users services include broad range messaging information distribution personal communications services call answering onetouch call return voicemail unified messaging voice fax text multimedia content email single mailbox media conversion email voice visual mailbox presentation valueadded services roamers prepaid wireless calling services wireless data internetbased services short messaging services wireless information entertainment services multimedia messaging services wireless instant messaging interactive voice response voice portal services part voicecontrolled portfolio services voice dialing voicecontrolled messaging applications service enabling signaling software products interconnect complex circuit switching database messaging systems manage vital number routing billing information form backbone todays public telecommunications networks products also embedded range packet softswitching products interoperate converge voice data networks facilitate services voice internet offload segment represents companys ulticom subsidiary security business intelligence recording products provides analytic solutions communications interception digital video security surveillance enterprise business intelligence software generates actionable intelligence collection retention analysis voice fax video email internet data transmissions multiple types communications networks segment represents companys verint subsidiary includes miscellaneous operations table presents information sales operating income loss total assets years ended january 31 2001 2002 2003 reconciling items consist following sales elimination intersegment revenues operating income loss elimination intersegment operating income corporate operations total assets elimination intersegment receivables unallocated corporate assets sales country based enduser location percentage total sales years ended january 31 2001 2002 2003 follows january 31 2001 2002 2003 united states 25 30 35 germany 11 12 5 foreign 64 58 60 total 100 customer accounted 10 sales years ended january 31 2001 january 31 2002 january 31 2003 longlived assets country domicile consist january 31 2002 2003 thousands united states 128681 79113 israel 158726 134514 10850 12899 298257 226526 21 commitments contingencies leases company leases office manufacturing warehouse space noncancelable operating leases rent expense leased premises approximated 28304000 36461000 36032000 years ended january 31 2001 2002 2003 respectively january 31 2003 minimum annual rent obligations company approximately follows twelve months ended january 31 amount thousands 2004 31632 2005 30437 2006 29332 2007 9584 2008 thereafter 29330 130315 employment agreements company obligated employment contracts kobi alexander chairman chief executive officer provide compensation insurance fringe benefits january 31 2004 minimum salary payments contracts currently amount 672000 per year following termination expiration term employment executive entitled receive severance payment equal 136411 times number years beginning employment company amount payment increases rate 10 per annum compounded year employment following december 31 2002 plus continued fringe benefits three years insurance coverage 10 years executives employment terminated company without cause executive good reason terms defined agreement executive entitled additional payments attributable compensation monetary equivalence benefits otherwise would expected receive period three years termination occurs following change control company required additional payment three times executives annual salary bonus executive additionally entitled accelerated vesting retirement benefits stock options payments sufficient reimburse associated excise tax liability income tax resulting reimbursement stock options granted executive become fully vested exercisable nonforfeitable event change control company termination executives employment company without cause executive good reason executives death disability insurance benefits include life insurance providing cumulative death benefits approximately 40000000 including amounts provided split dollar arrangement company reimbursed premiums benefit payments cash surrender value employment agreements company terminable without cause prior notice 90 days less certain instances termination employment agreements without cause entitles employees certain benefits including acceleration vesting stock options severance payments much one years compensation licenses royalties company licenses certain technology knowhow related rights use manufacture marketing products pays royalties third parties licenses agreements entered connection research development financing company currently pays royalties certain product sales varying amounts based upon revenues attributed various components products royalties typically range 6 net sales related products case royalties due government funding sources respect research development projects required paid funding organization received total royalties amounts received company approved project budgets dividend restrictions ability comverses israeli subsidiaries pay dividends governed israeli law provides cash dividends may paid israeli corporation retained earnings determined statutory purposes israeli currency event devaluation israeli currency dollar amount dollars available payment cash dividends prior years earnings decrease accordingly cash dividends paid israeli corporation united states residents subject withholding israeli income tax source rate 25 depending particular facilities generated earnings source dividends investments 1997 subsidiary cti quantum industrial holdings ltd organized two new companies make investments including investments high technology ventures participant committed total 37500000 capital new companies use suitable investment opportunities identified quantum industrial holdings ltd member quantum group funds managed soros fund management llc affiliated management companies january 31 2002 2003 company invested approximately 25026000 25259000 respectively related ventures included assets consolidated balance sheets addition company committed 21609000 various companies ventures funds may called option investee guaranties company obtained bank guaranties primarily performance certain obligations contracts customers guaranties aggregated approximately 29463000 january 31 2003 released companys performance specified contract milestones scheduled completed primarily 2003 litigation october 19 2001 securities class action complaint entitled kevin beier v comverse technology inc et al cv 016972 filed cti certain executive officers united states district court eastern district new york court amended consolidated complaint filed march 4 2002 amended consolidated complaint generally alleged violations federal securities laws behalf individuals alleged purchased ctis common stock purported class period april 30 2001 july 10 2001 amended consolidated complaint sought unspecified amount damages behalf persons purchased cti stock purported class period april 22 2002 cti filed motion dismiss amended consolidated complaint entirety september 30 2002 court granted ctis motion dismiss amended consolidated complaint november 8 2002 court entered final judgment dismissing amended consolidated complaint prejudice november 26 2002 plaintiffs agreed waive right appeal judgment exchange ctis agreement side bear costs legal fees plaintiffs time appeal expired appeal filed case closed time company subject claims legal proceedings arising normal course business company believe currently party pending legal action could reasonably expected material adverse effect business financial condition results operations 22 fair value financial instruments estimated fair value amounts determined company using available market information appropriate valuation methodologies however considerable judgment necessarily required interpreting market data develop estimates fair value accordingly estimates presented herein necessarily indicative amounts company could realize current market exchange use different market assumptions andor estimation methodologies may material effect estimated fair value amounts cash equivalents bank time deposits shortterm investments accounts receivable investments accounts payable carrying amounts items reasonable estimate fair value convertible debentures fair value securities estimated based quoted market prices recent sales similar securities fair value estimates presented herein based pertinent information available management january 31 2003 amounts comprehensively revalued purposes financial statements since january 31 2003 current estimates fair value may differ significantly amounts presented herein 23 effect new accounting pronouncements june 2001 fasb issued sfas 142 goodwill intangible assets sfas 142 addresses financial accounting reporting acquired goodwill intangible assets sfas 142 goodwill intangible assets longer amortized rather reviewed impairment periodic basis provisions statement required applied starting fiscal years beginning december 15 2001 beginning companys fiscal year goodwill intangible assets financial statements date impairment losses goodwill certain intangible assets arising due initial application statement reported resulting change accounting principle goodwill intangible assets acquired june 30 2001 subject immediately provisions statement adoption sfas 142 material effect companys consolidated financial statements august 2001 fasb issued sfas 143 accounting asset retirement obligations sfas 143 establishes accounting standards recognition measurement liability asset retirement obligation associated asset retirement cost sfas 143 applies legal obligations associated retirement tangible longlived asset result acquisition construction development andor normal operation longlived asset statement effective fiscal years beginning june 15 2002 however early adoption encouraged adoption sfas 143 expected material effect companys consolidated financial statements october 2001 fasb issued sfas 144 accounting impairment disposal longlived assets sfas 144 addresses financial accounting reporting impairment disposal longlived assets sfas 144 supercedes sfas 121 accounting impairment longlived assets longlived assets disposed certain provisions accounting principles board opinion 30 reporting results operationsreporting effects disposal segment business extraordinary unusual infrequently occurring events transactions sfas 144 effective financial statements issued fiscal years beginning december 15 2001 interim periods within fiscal years however early adoption encouraged adoption sfas 144 material effect companys consolidated financial statements april 2002 fasb issued sfas 145 rescission fasb statements 4 44 64 amendment fasb statement 13 technical corrections sfas 145 rescinds sfas 4 required gains losses extinguishment debt classified extraordinary item sfas 145 recognizes use debt extinguishment become part risk management strategy many companies therefore may considered part companys operating activities rescission sfas 4 effective fiscal years beginning may 15 2002 earlier application encouraged company adopted sfas 145 quarter ended july 31 2002 accordingly company intends periodically extinguish debt part risk management strategy gain approximately 394 million extinguishment debt relating companys 150 convertible debentures recorded continuing operations consolidated statements operations year ended january 31 2003 addition sfas 145 also rescinds sfas 44 accounting intangible assets motor carriers amends sfas 13 accounting leases require certain lease modifications economic effects similar saleleaseback transactions accounted manner saleleaseback transactions statement generally effective transactions occurring may 15 2002 earlier application encouraged items june 2002 fasb issued sfas 146 accounting exit disposal activities statement addresses recognition measurement reporting costs associated exit disposal activities statement includes restructuring activities currently accounted pursuant guidance set forth emerging issues task force eitf issue 943 liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring costs related terminating contract capital lease onetime benefit arrangements received employees involuntarily terminated nullifying guidance eitf issue 943 sfas 146 cost associated exit disposal activity recognized periods incurred rather date company committed exit plan statement effective exit disposal activities initiated december 31 2002 earlier application encouraged adoption sfas 146 material effect companys consolidated financial statements december 2002 fasb issued sfas 148 accounting stockbased compensationtransition disclosurean amendment fasb statement 123 sfas 148 amends sfas 123 accounting stockbased compensation provide alternative methods transition voluntary change fair value based method accounting stockbased employee compensation permit use original sfas 123 prospective method transition fiscal years beginning december 15 2003 addition sfas 148 amends disclosure requirements sfas 123 require prominent disclosures annual interim financial statements method accounting stockbased employee compensation effect method used reported results regardless whether entity adopts preferable fair value based method accounting sfas 148 improves prominence clarity pro forma disclosures required sfas 123 prescribing specific tabular format requiring disclosure summary significant accounting policies equivalent improves timeliness disclosures requiring inclusion financial reports interim periods disclosure requirements sfas 148 effective financial statements fiscal years ending interim periods beginning december 15 2002 adoption sfas 148 expected material effect companys consolidated financial statements november 2002 fasb issued fasb interpretation 45 guarantors accounting disclosure requirements guarantees including indirect guarantees indebtedness others interpretation fasb statements 5 57 107 rescission fasb interpretation 34 fin 45 fin 45 clarifies requirements sfas 5 accounting contingencies relating guarantors accounting disclosure issuance certain types guarantees specifically fin 45 requires guarantor recognize liability noncontingent component certain guarantees representing obligation stand ready perform event specified triggering events conditions occur provisions initial recognition measurement effective prospective basis guarantees issued modified december 31 2002 irrespective guarantors fiscal yearend however disclosure provisions fin 45 effective financial statements interim annual periods ending december 15 2002 adoption fin 45 expected material effect companys consolidated financial statements 24 subsequent events february 2003 verint repaid bank loan amount 42000000 march april 2003 company acquired open market purchases approximately 44550000 face amount debentures resulting pretax gain net debt issuance costs approximately 2809000 25 quarterly information unaudited following table shows selected results operations quarters years ended january 31 2002 2003item 15 exhibits financial statement schedules reports form 8k documents filed part report pages 1 financial statements index consolidated financial statements independent auditors report consolidated balance sheets january 31 2003 2004 consolidated statements operations years ended january 31 2002 2003 2004 consolidated statements stockholders equity years ended january 31 2002 2003 2004 consolidated statements cash flows years ended january 31 2002 2003 2004 notes consolidated financial statements 2 financial statement schedules none 3 exhibits index exhibits commences following page exhibits numbered 101 104 106 1011 comprise material compensatory plans arrangements registrant b reports form 8k fourth quarter 2003 company filed two reports form 8k 1 report form 8k dated december 3 2003 item 12 results operations financial condition report attached companys press release dated december 3 2003 announcing financial results fiscal quarter ended october 31 2003 2 report form 8k dated january 16 2004 item 5 events report announced time date companys 2004 annual meeting shareholders informed shareholders revised deadlines pursuant rule 14a5 f securities exchange act 1934 amended c index exhibits description 3 articles incorporation bylaws 31 certificate incorporation incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 32 certificate amendment certificate incorporation effective february 26 1993 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 33 certificate amendment certificate incorporation effective january 12 1995 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1994 34 certificate amendment certificate incorporation dated october 18 1999 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended january 31 2000 35 certificate amendment certificate incorporation dated september 19 2000 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended january 31 2001 36 bylaws amended incorporated reference registrants annual report form 10k securities exchange act 1934 year ended january 31 2003 4 instruments defining rights security holders including indentures 41 specimen stock certificate incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 42 indenture dated november 22 2000 comverse technology inc chase manhattan bank trustee incorporated reference registrants registration statement form s3 securities act 1933 registration 33355526 43 specimen 1 12 convertible senior debenture due 2005 incorporated reference registrants registration statement form s3 securities act 1933 registration 33355526 44 indenture dated may 7 2003 comverse technology inc jpmorgan chase bank trustee incorporated reference registrants registration statement form s3 securities act 1933 registration 333106391 45 specimen zero yield puttable securities due may 15 2023 incorporated reference registrants registration statement form s3 securities act 1933 registration 333106391 10 material contracts 101 form stock option agreement pertaining shares certain subsidiaries comverse technology inc incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1993 102 form incentive stock option agreement incorporated reference registrants registration statement form s1 securities act 1933 registration 339147 103 form stock option agreement options incentive stock options incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 104 form restricted stock agreement 105 form indemnity agreement comverse technology inc officers directors incorporated reference registrants annual report form 10k securities exchange act 1934 year ended january 31 2003 106 1997 employee stock purchase plan amended incorporated reference definitive proxy materials registrants annual meeting shareholders held june 15 2001 107 2004 management incentive plan incorporated reference definitive proxy materials registrants annual meeting shareholders held december 16 2003 108 2002 employee stock purchase plan amended incorporated reference definitive proxy materials registrants annual meeting shareholders held december 16 2003 109 1997 stock incentive compensation plan incorporated reference definitive proxy materials registrants annual meeting shareholders held january 13 1998 1010 1999 stock incentive compensation plan incorporated reference definitive proxy materials registrants annual meeting shareholders held october 8 1999 1011 2000 stock incentive compensation plan incorporated reference definitive proxy materials registrants annual meeting shareholders held september 15 2000 1012 2001 stock incentive compensation plan incorporated reference definitive proxy materials registrants annual meeting shareholders held june 15 2001 1013 lease dated november 5 1990 boston technology inc wakefield park limited partnership lease incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1991 1014 first amendment lease dated march 31 1993 boston technology inc wbam limited partnership incorporated reference quarterly report boston technology inc form 10q securities exchange act 1934 quarter ended october 31 1993 1015 second amendment lease dated august 31 1994 boston technology inc wbam limited partnership incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1995 1016 third amendment lease dated june 7 1996 boston technology inc wbam limited partnership incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1997 1017 fourth amendment lease dated december 21 1998 wakefield 100 llc comverse technology inc incorporated reference registrants annual report form 10k securities exchange act 1934 year ended january 31 2003 1018 fifth amendment lease dated september 5 2002 sc wakefield 200 inc comverse technology inc incorporated reference registrants annual report form 10k securities exchange act 1934 year ended january 31 2003 211 subsidiaries registrant 231 consent deloitte touche llp 241 powers attorney see signature page report 311 certification chief executive officer pursuant section 302 sarbanesoxley act 2002 312 certification chief financial officer pursuant section 302 sarbanesoxley act 2002 32 certification chief executive officer chief financial officer pursuant section 906 sarbanesoxley act 2002 incorporated reference filed herewith exhibit furnished pursuant item 601b32 sec regulation sk deemed filed securities exchange commission incorporated reference filing company securities act 1933 securities exchange act 1934 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized comverse technology inc registrant april 14 2004 kobi alexander kobi alexander chief executive officer kobi alexander chairman ceo principal executive officer know persons presents person whose signature appears constitutes appoints kobi alexander david kreinberg jointly severally attorneysinfact full power substitution capacities sign amendments form 10k file exhibits thereto documents connection therewith securities exchange commission hereby ratifying confirming said attorneysinfact substitutes may cause done virtue hereof pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated kobi alexander april 14 2004 kobi alexander chairman ceo director david kreinberg april 14 2004 david kreinberg executive vice president cfo raz alon april 14 2004 raz alon director itsik danziger april 14 2004 itsik danziger director john h friedman april 14 2004 john h friedman director ron hiram april 14 2004 ron hiram director sam oolie april 14 2004 sam oolie director william f sorin april 14 2004 william f sorin director comverse technology inc subsidiaries index consolidated financial statements page independent auditors report consolidated balance sheets january 31 2003 2004 consolidated statements operations years ended january 31 2002 2003 2004 consolidated statements stockholders equity years ended january 31 2002 2003 2004 consolidated statements cash flows years ended january 31 2002 2003 2004 notes consolidated financial statements independent auditors report board directors stockholders comverse technology inc woodbury new york audited accompanying consolidated balance sheets comverse technology inc subsidiaries company january 31 2003 2004 related consolidated statements operations stockholders equity cash flows three years period ended january 31 2004 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position comverse technology inc subsidiaries january 31 2003 2004 results operations cash flows three years period ended january 31 2004 conformity accounting principles generally accepted united states america deloitte touche llp new york new york march 31 2004 see notes consolidated financial statements see notes consolidated financial statements comverse technology inc subsidiaries consolidated statements stockholders equity years ended january 31 2002 2003 2004 thousands except share data see notes consolidated financial statements see notes consolidated financial statements comverse technology inc subsidiaries notes consolidated financial statements years ended january 31 2002 2003 2004 1 organization business comverse technology inc cti together subsidiaries company organized new york corporation october 1984 company engaged design development manufacture marketing support special purpose computer telecommunications systems software multimedia communications information processing applications 2 summary significant accounting policies principles consolidation consolidated financial statements include accounts cti whollyowned majorityowned subsidiaries material intercompany balances transactions eliminated cash equivalents bank time deposits company considers highly liquid investments purchased original maturities three months less cash equivalents bank deposits maturities excess three months classified bank time deposits shortterm investments company classifies shortterm investments availableforsale accounted fair value resulting unrealized gains losses reported separate component stockholders equity inventories stated lower cost market cost determined firstin firstout method property equipment net property equipment carried cost less accumulated depreciation amortization company depreciates property equipment primarily straightline basis periods generally ranging three seven years leasehold improvements amortized shorter estimated useful lives related lease term cost maintenance repairs charged operations incurred significant renewals improvements capitalized income taxes company accounts income taxes using asset liability method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities measured using enacted tax rates laws expected effect differences expected reverse revenue expense recognition company recognizes revenues accordance provisions statement position 972 software revenue recognition related interpretations companys systems generally bundled hardware software solution shipped together revenue generally recognized time shipment sales systems require significant customization performed company following criteria met 1 persuasive evidence arrangement exists 2 delivery occurred 3 fee fixed determinable 4 collectibility probable amounts received customers pursuant terms specified contracts revenue yet recognized recorded advance payments customers postcontract customer support pcs services sold separately part multiple element arrangement case related pcs element determined based upon vendorspecific objective evidence fair value portion total fee allocated pcs services generally recognized revenue ratably term pcs arrangement revenues certain development contracts recognized percentageofcompletion method basis physical completion date using actual costs incurred total expected costs contract revisions estimates costs profits reflected accounting period facts require revision become known time loss contract known entire amount estimated loss accrued amounts received customers excess revenues earned percentageofcompletion method recorded advance payments customers related contract costs include direct material labor costs indirect costs related contract performance included cost sales consolidated statements operations expenses incurred connection research development activities certain software development costs capitalized selling general administrative expenses charged operations incurred software development costs software development costs capitalized upon establishment technological feasibility amortized estimated useful life software date four years less amortization begins period related product available general release customers amortization expense amounted approximately 9129000 12594000 15149000 years ended january 31 2002 2003 2004 respectively functional currency foreign currency transaction gains losses united states dollar functional currency major portion companys foreign operations companys sales materials purchased manufacturing denominated linked dollar certain operating costs principally salaries foreign operations denominated local currencies instances foreign subsidiary functional currency dollar company records necessary foreign currency translation adjustment reflected stockholders equity end reporting period derivative financial instruments company exposed market risk changes foreign currency exchange rates may time use foreign currency exchange contracts derivative instruments reduce exposure risk eventual net cash inflows outflows resulting sale products foreign currency primarily euro adversely affected changes exchange rates objective contracts neutralize impact foreign currency exchange rate movements companys operating results instruments designated hedges change fair value included income currently january 31 2004 company approximately 31668000 notional amount foreign exchange forward contracts sell euros original maturity three months fair value contracts january 31 2004 approximately 183000 included interest income expense net consolidated statements operations january 31 2003 company outstanding foreign exchange contracts goodwill intangible assets goodwill represents excess purchase price fair value net assets acquired intangible assets include identifiable acquired software technology trade name noncompete agreements accordance provisions statement financial accounting standards sfas 142 goodwill intangible assets goodwill certain intangible assets longer amortized rather reviewed impairment least annual basis company performed reviews deemed impairment january 31 2003 2004 intangible assets finite lives amortized using straightline method estimated useful lives generally exceeding six years assets licenses patent rights acquired knowhow recorded cost amortized using straightline method estimated useful lives related technology generally exceeding four years debt issue costs amortized using effective interest method term related debt longlived assets company reviews impairment longlived assets whenever events changes circumstances indicate carrying amount asset may recoverable impairment loss would recognized estimated future undiscounted cash flows expected result use asset proceeds eventual disposition less carrying amount impairment measured fair value connection restructuring plan years ended january 31 2002 2003 2004 company identified certain impairment losses included workforce reduction restructuring impairment charges credits consolidated statements operations refer note 9 details concentration credit risk financial instruments potentially expose company concentration credit risk consist primarily cash investments accounts receivable company places cash investments highcredit quality financial institutions currently invests primarily money market funds placed major banks financial institutions bank time deposits corporate commercial paper corporate municipal shortterm notes corporate mediumterm notes mortgage asset backed securities us government us government corporation agency obligations mutual funds trusts closedend funds investing like common preferred stock accounts receivable generally diversified due number commercial government entities comprising companys customer base dispersion across many geographical regions january 31 2003 2004 single customer balance comprised 10 overall accounts receivable balance company believes significant concentration credit risk exists respect cash investments accounts receivable roll forward allowance doubtful accounts follows bank loans january 2002 majorityowned subsidiary cti verint systems inc verint took bank loan amount 42000000 loan matured february 2003 bore interest libor plus 055 guaranteed cti february 2003 verint repaid bank loan issuance subsidiary stock sales stock subsidiaries accounted capital transactions adjustment additional paidin capital gain loss recognized transactions stockbased compensation january 31 2004 company place comverse stock incentive plans fully described note 14 company accounts option grants recognition measurement principles accounting principles board opinion 25 accounting stock issued employees related interpretations accordingly stockbased employee compensation cost stock options reflected net income loss periods options granted plan exercise price least equal market value underlying common stock date grant year ended january 31 2004 company one subsidiaries granted shares restricted stock certain key employees years ended january 31 2002 2003 2004 respectively stockbased employee compensation expense approximately 0 214000 included selling general administrative expenses consolidated statements operations company estimated fair value employee stock options utilizing blackscholes option valuation model using assumptions described note 14 required accounting principles generally accepted united states america blackscholes model developed use estimating fair value traded options consider nontraded nature employee stock options vesting trading restrictions lack transferability ability employees forfeit options prior expiry addition option valuation models require input highly subjective assumptions including expected stock price volatility companys employee stock options characteristics significantly different traded options changes subjective input assumptions materially affect fair value estimate managements opinion existing models necessarily provide reliable single measure fair value companys employee stock options following table illustrates effect net income loss earnings loss per share company applied fair value recognition provisions sfas 123 accounting stockbased compensation stockbased employee compensation periods pervasiveness estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates reclassifications certain prior year amounts reclassified conform manner presentation current year 3 research development significant portion companys research development operations located israel company derives benefits participation programs sponsored government israel support research development activities conducted country certain companys research development activities include projects partially funded office chief scientist ministry industry trade state israel ocs funding organization reimburses portion companys research development expenditures approved project budgets certain companys subsidiaries accrue royalties ocs sale products incorporating technology developed projects year ended january 31 2003 one companys subsidiaries finalized agreement ocs whereby subsidiary agreed pay lump sum royalty approximately 26 million past amounts received ocs amount timing payments ocs agreement approximately 3 million march 2002 approximately 23 million june 2002 addition subsidiary began receive lower amounts ocs historically received required pay royalties future grants terms applicable funding agreements products resulting projects funded ocs may manufactured outside israel without government approval amounts reimbursed ocs years ended january 31 2002 2003 2004 approximately 9980000 10540000 10013000 respectively 4 shortterm investments company classifies shortterm investments availableforsale securities following summary availableforsale securities january 31 2004 1 investing us government us government corporation agency obligations corporate debt securities commercial paper assetbacked securities following summary availableforsale securities january 31 2003 1 investing us government us government corporation agency obligations corporate debt securities commercial paper assetbacked securities year ended january 31 2004 gross realized gains sales securities totaled approximately 5439000 gross realized losses totaled approximately 1558000 year ended january 31 2003 gross realized gains sales securities totaled approximately 3588000 gross realized losses totaled approximately 13644000 year ended january 31 2002 gross realized gains sales securities totaled approximately 25252000 gross realized losses totaled approximately 18855000 basis cost generally determined computing realized gain loss firstin firstout method cost estimated fair value debt securities january 31 2004 contractual maturity follows estimated cost fair value thousands due one year less 29829 30150 due one year three years 312932 311476 due three years 2343 2883 345104 344509 5 inventories consist 6 property equipment net property equipment consist 7 assets consist 8 business combinations may 2003 verint acquired issued outstanding shares smartsight networks inc smartsight canadian corporation develops ipbased video edge devices software wireless video transmission purchase price consisted approximately 7144000 cash 149731 shares verint common stock valued approximately 3063000 2046 per share february 2002 verint acquired digital video recording business lanex llc lanex business provides digital video recording solutions security surveillance applications primarily north american banks purchase price consisted 9510000 cash 2200000 noninterest bearing note guaranteed cti convertible whole part shares verints common stock conversion price 1606 per share note matured converted shares verint common stock february 1 2004 june 2002 company acquired odigo inc odigo privatelyheld provider instant messaging presence management solutions service providers purchase price approximately 20100000 cash prior acquisition company strategic partner odigo holding equity position previously acquired approximately 3000000 acquisitions accounted purchase method accordingly consolidated statements operations include results operations date acquisition assets acquired liabilities assumed recorded estimated fair values determined companys management based information available assistance independent appraisal specialists applicable allocating purchase price including direct costs acquisition net tangible identifiable intangible assets excess cost fair value net assets acquired recorded goodwill included assets consolidated balance sheets summary assets acquired liabilities assumed acquisitions well pro forma results operations presented effects acquisitions deemed material 9 workforce reduction restructuring impairment charges credits year ended january 31 2002 company committed began implementing restructuring program better align cost structure business environment improve efficiency operations via reductions workforce restructuring operations writeoff impaired assets connection actions years ended january 31 2002 2003 2004 company incurred net charges credits operations approximately 63562000 66714000 2123000 primarily pertaining severance related costs elimination excess facilities related leasehold improvements writeoff certain property equipment impaired assets analysis total charges approximately 63562000 incurred year ended january 31 2002 well rollforward workforce reduction restructuring accrual period follows analysis total charges approximately 66714000 incurred year ended january 31 2003 well rollforward workforce reduction restructuring accrual period follows analysis net credit approximately 2123000 incurred year ended january 31 2004 well rollforward workforce reduction restructuring accrual period follows severance related costs consist primarily severance payments terminated employees fringe related costs associated severance payments termination costs legal consulting costs balance severance related costs expected paid year ended january 31 2005 facilities related costs consist primarily contractually obligated lease liabilities operating expenses related facilities vacated primarily united states israel result restructuring year ended january 31 2004 company reversed approximately 8051000 previously taken restructuring charges facilities related costs primarily result sublet portion excess facilities balance facilities related costs expected paid various dates january 2011 property equipment costs consist primarily writedown various assets current estimable fair value including value certain unimproved land israel written year ended january 31 2003 company acquired view future construction facilities israeli operations connection restructuring company changed organizational structure product offerings result certain inventory capitalized software became impaired writtenoff year ended january 31 2002 10 accounts payable accrued expenses accounts payable accrued expenses consist january 31 2003 2004 thousands accounts payable 88649 67110 accrued compensation 37054 37088 accrued vacation 20761 21704 accrued royalties 6596 7704 accrued workforce reduction restructuring 49821 29495 accrued warranty 12269 8333 accrued expenses 45660 57862 260810 229296 11 convertible debt may 2003 company issued 420000000 aggregate principal amount zero yield puttable securities due 2023 zyps net proceeds approximately 4128 million zyps unsecured senior obligations company ranking equally companys existing future unsecured senior indebtedness senior right payment companys existing future subordinated indebtedness zyps convertible contingent upon occurrence certain events shares companys common stock conversion price 1797 per share ability holders convert zyps common stock subject certain conditions including among others closing price common stock exceeding 120 conversion price certain periods specified events zyps mature may 15 2023 company right redeem zyps cash time may 15 2008 principal amount holders series put options pursuant may require company repurchase portion zyps may 15 2008 2013 2018 upon occurrence certain events zyps holders may require company repurchase zyps par event common stock ceases publicly traded certain instances upon change control company upon occurrence change control instead paying repurchase price cash company may certain circumstances pay repurchase price common stock november december 2000 company issued 600000000 aggregate principal amount 150 convertible senior debentures due december 2005 debentures unsecured senior obligations company ranking equally companys existing future unsecured senior indebtedness senior right payment companys existing future subordinated indebtedness debentures convertible option holders shares companys common stock conversion price 116325 per share subject adjustment certain events subject redemption time december 1 2003 whole part option company redemption prices expressed percentages principal amount 100375 redeemed twelvemonth period beginning december 1 2003 100 principal amount redeemed thereafter debenture holders may require company repurchase debentures par event common stock ceases publicly traded certain instances upon change control company upon occurrence change control instead paying repurchase price cash company may certain circumstances pay repurchase price common stock years ended january 31 2003 2004 company acquired open market purchases 209162000 266115000 face amount debentures respectively resulting pretax gains net debt issuance costs approximately 39374000 10224000 respectively included interest income expense net consolidated statements operations january 31 2004 company outstanding debentures 124723000 refer note 24 subsequent events june 1998 company issued 300000000 convertible subordinated debentures bearing interest 450 per annum payable semiannually june 2001 company called debentures redemption debentures converted 13953462 shares common stock 12 liability severance pay liability severance pay consists primarily companys unfunded liability severance pay employees certain foreign subsidiaries accrued severance companys chief executive officer israeli law company obligated make severance payments employees israeli subsidiaries basis individuals current salary length employment liabilities currently provided primarily premiums paid company insurance providers company obligated agreement chief executive officer provide severance payment upon termination employment company approximately 3013000 3480000 accrued january 31 2003 2004 respectively relating liability 13 issuance subsidiary stock april october 2000 majorityowned subsidiary company ulticom inc ulticom issued shares common stock public offerings january 31 2004 companys ownership interest ulticom approximately 702 may 2002 verint issued 4500000 shares common stock initial public offering proceeds offering based offering price 1600 per share totaled approximately 654 million net offering expenses company recorded gain approximately 481 million year ended january 31 2003 recorded increase stockholders equity result issuance june 2003 verint completed public offering 5750000 shares common stock price 2300 per share shares offered included 149731 shares issued smartsights former shareholders connection acquisition proceeds offering approximately 1222 million net offering expenses company recorded gain approximately 629 million recorded increase stockholders equity result issuance january 31 2004 companys ownership interest verint approximately 618 14 stockbased compensation option exchange program may 2002 company announced commencement voluntary stock option exchange program eligible employees program approved companys shareholders participating employees given opportunity unexercised stock options previously granted cancelled exchange replacement options granted future date replacement options granted ratio 085 new options existing option cancelled exercise price equal fair market value companys stock date regrant exchange program designed accordance financial accounting standards board fasb interpretation 44 accounting certain transactions involving stock compensation interpretation apb opinion 25 grant replacement options less six months one day cancellation result variable compensation charges relating options date regrant december 23 2002 replacement options acquire 14208987 shares companys common stock granted 1052 per share closing fair market value companys stock date stock options january 31 2004 23287332 shares common stock reserved issuance upon exercise stock options outstanding 4928221 shares available future grant comverses stock incentive plans options restricted stock may granted key employees directors persons rendering services company options designated incentive stock options plans may granted exercise price less fair market value underlying shares date grant subject certain quantity limitations specified section 422 internal revenue code options intended qualify incentive stock options may granted price fair market value options underlying shares subject adjustment accordance terms plans event stock dividends recapitalizations similar transactions right exercise options generally vests increments periods four years date grant date commencement grantees employment company maximum term ten years options granted changes number options follows january 31 2004 options purchase aggregate 13377757 shares vested currently exercisable plans options purchase additional 9909575 shares vest various dates extending year 2007 weighted average option exercise price information follows significant option groups outstanding january 31 2004 related weighted average price life information follows weighted average fair value options granted years ended january 31 2002 2003 2004 respectively estimated 1085 466 988 date grant using blackscholes option pricing model following weighted average assumptions years ended january 31 2002 2003 2004 respectively volatility 76 75 73 riskfree interest rate 40 18 32 expected life 43 26 46 years options subsidiary shares company granted options certain employees acquire shares certain subsidiaries comverse inc option issuances tied performance subsidiaries intended incentivize employees units direct responsibility options outstanding subsidiary exceed 20 shares outstanding subsidiary assuming exercise full options terms 15 years become exercisable vest various periods ranging seven years date initial grant exercise price option equal higher book value underlying shares date grant fair market value shares date determined basis armslength transaction third party transactions occurred reasonable basis determined committee board directors restricted stock december 2003 company granted 314300 shares restricted stock certain key employees company unearned stock compensation approximately 5249000 recorded based fair market value companys common stock date grant 1670 per share unearned stock compensation shown separate component stockholders equity amortized expense prorata four year vesting period restricted stock amortization unearned stock compensation year ended january 31 2004 approximately 157000 included selling general administrative expenses consolidated statements operations restricted stock rights privileges companys common stock subject certain restrictions forfeiture provisions january 31 2004 total 314300 shares restricted stock granted subject restriction december 2003 verint granted shares common stock restricted stock certain key employees unearned stock compensation approximately 1672000 recorded based fair market value common stock date grant amortized expense prorata four year vesting period restricted stock amortization unearned stock compensation year ended january 31 2004 approximately 57000 included selling general administrative expenses consolidated statements operations 15 warrants november 1995 company entered agreement supply products customer pursuant agreement company issued warrants purchase shares common stock exercise price 718 per share january 31 2002 warrants exercised 16 employee stock purchase plans comverses employee stock purchase plans employees completed three months employment entitled payroll deductions amounts 10 base salary purchase shares companys common stock 85 lesser market price offering commencement date offering termination date total number shares available comverses employee stock purchase plans 5000000 approximately 2900000 issued january 31 2004 17 earnings per share eps basic earnings loss per share determined using weighted average number shares common stock outstanding period diluted earnings per share assumes issuance common shares dilutive potential common shares outstanding calculation earnings loss per share years ended january 31 2002 2003 2004 follows diluted loss per share computation years ended january 31 2003 2004 excludes incremental shares approximately 632000 5466000 respectively primarily related employee stock options shares excluded due antidilutive effect result companys loss periods shares issuable upon conversion debentures included computation diluted earnings loss per share periods effect including would antidilutive addition shares issuable upon conversion zyps included computation diluted earnings loss per share periods zyps convertible shares companys common stock contingent upon occurrence certain events yet occurred contingent conversion feature satisfied zyps currently considered dilutive accordance provisions sfas 128 earnings per share full conversion zyps would result issuance approximately 23367000 additional shares common stock 18 interest income expense net interest income expense net consists following 19 income taxes provision income taxes consists following reconciliation us federal statutory tax rate companys effective tax rate follows deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes b operating loss carryforwards tax effects significant items comprising companys deferred tax asset liability january 31 2003 2004 follows january 31 2004 company net operating loss carryforwards federal income tax purposes approximately 7352 million begin expire 2019 income tax provided unrepatriated earnings foreign subsidiaries currently intention company reinvest foreign earnings operations 20 business segment information companys reporting segments follows comverse network systems enable telecommunications service providers tsp offer products enhance communication experience generate tsp traffic revenue services comprise four primary categories call completion call management solutions advanced messaging solutions groups communities persontoperson communication solutions enablers management delivery data contentbased services realtime billing account management solutions dynamic service environments components applications service enabling signaling software enable equipment manufacturers application developers service providers deploy revenue generating infrastructure enhanced services wireline wireless internet communications services include global roaming voice text messaging prepaid calling emergency911 products also embedded range packet softswitching products interoperate converge voice data networks facilitate services voip hosted ip telephony virtual private networks segment represents companys ulticom subsidiary security business intelligence recording provides analytic softwarebased solutions communications interception networked video contact centers software generates actionable intelligence collection retention analysis voice fax video email internet data transmissions multiple types communications networks segment represents companys verint subsidiary includes miscellaneous operations reconciling items consists following sales elimination intersegment revenues income loss operations elimination intersegment income loss operations corporate operations depreciation amortization elimination corporate operations total assets elimination intersegment receivables unallocated corporate assets table presents information sales income loss operations depreciation amortization significant noncash items consisting operating asset writedowns impairments total assets years ended january 31 2002 2003 2004 sales country based enduser location percentage total sales years ended january 31 2002 2003 2004 follows january 31 2002 2003 2004 united states 30 35 34 germany 12 5 6 foreign 58 60 total 100 customer accounted 10 sales years ended january 31 2002 2003 2004 longlived assets country domicile consist january 31 2003 2004 thousands united states 79113 70317 israel 134514 123454 12899 11162 226526 204933 21 commitments contingencies leases company leases office manufacturing warehouse space noncancelable operating leases rent expense leased premises approximated 36461000 36032000 31616000 years ended january 31 2002 2003 2004 respectively january 31 2004 minimum annual rent obligations company approximately follows twelve months ended january 31 amount thousands 2005 30783 2006 27359 2007 11519 2008 9242 2009 thereafter 23858 102761 company entered various sublease agreements rent excess space january 31 2004 minimum annual sublease income obligation company agreements approximately 1392000 827000 875000 910000 876000 twelve months ending january 31 2005 2006 2007 2008 2009 thereafter respectively total approximately 4880000 employment agreements company obligated employment contracts kobi alexander chairman chief executive officer provide compensation insurance fringe benefits february 1 2007 minimum salary payments contracts currently amount 672000 per year following termination employment company executive entitled receive severance payment equal 165077 times number years january 1983 amount payment increases rate 10 per annum compounded year employment following december 31 2004 plus continued fringe benefits three years addition severance payment executives employment terminated company without cause executive good reason executive entitled salary prorata bonus date termination plus three times executives annual salary three times annual bonus termination occurs within three months within two years following change control company executive additionally entitled accelerated vesting stock options restricted stock payments sufficient reimburse associated excise tax liability income tax resulting reimbursement stock options restricted stock granted executive become fully vested exercisable nonforfeitable event executives death disability insurance benefits include life insurance providing cumulative death benefits approximately 30000000 including amounts provided arrangement company reimbursed premiums benefit payments cash surrender value company obligated employment contract david kreinberg executive vice president chief financial officer provide compensation insurance fringe benefits february 1 2007 minimum salary payments contract currently amount 325000 per year following termination employment company executive entitled receive severance payment equal 22000 times number years including 1994 first year employment company amount payment increases rate 10 per annum compounded year employment following january 31 2004 plus continued fringe benefits eighteen months addition severance payment executives employment terminated company without cause executive good reason executive entitled salary prorata bonus date termination plus one year additional annual salary bonus termination occurs within three months within two years following change control company executive entitled salary prorata bonus date termination plus three times executives annual salary three times annual bonus accelerated vesting stock options restricted stock payments sufficient reimburse associated excise tax liability income tax resulting reimbursement stock options restricted stock granted executive become fully vested exercisable nonforfeitable event executives death disability insurance benefits include life insurance providing cumulative death benefits approximately 12500000 including amounts provided arrangement company reimbursed premiums benefit payments cash surrender value company obligated agreement zeev bregman chief executive officer one subsidiaries provide compensation fringe benefits february 1 2007 minimum salary payments agreement amount approximately 275000 per year following termination employment company executive entitled continued fringe benefits eighteen months executives employment terminated company without cause executive good reason executive entitled salary prorata bonus date termination plus one year additional annual salary bonus termination occurs within three months within two years following change control company executive entitled salary prorata bonus date termination plus three times executives annual salary three times annual bonus accelerated vesting stock options restricted stock options restricted stock granted executive become fully vested exercisable nonforfeitable event executives death disability employment agreements company terminable without cause prior notice 90 days less certain instances termination employment agreements without cause entitles employees certain benefits including severance payments much one years compensation licenses royalties company licenses certain technology knowhow related rights use manufacture marketing products pays royalties third parties typically ranging 6 net sales related products licenses agreements entered connection research development financing including projects partially funded ocs funding organization reimburses portion companys research development expenditures approved project budgets certain companys subsidiaries accrue royalties ocs sale products incorporating technology developed projects varying amounts based upon revenues attributed various components products royalties due ocs respect research development projects required paid ocs received total royalties amounts received company approved project budgets plus interest certain circumstances january 31 2004 subsidiaries received approximately 538 million cumulative grants ocs recorded approximately 217 million cumulative royalties ocs dividend restrictions ability companys israeli subsidiaries pay dividends governed israeli law provides cash dividends may paid israeli corporation retained earnings determined statutory purposes israeli currency event devaluation israeli currency dollar amount dollars available payment cash dividends prior years earnings decrease accordingly cash dividends paid israeli corporation united states resident corporate parents subject convention avoidance double taxation israel united states terms convention dividends subject taxation israel united states case israel dividends income derived respect period israeli company entitled reduced tax rate applicable approved enterprise generally subject withholding israeli income tax source rate 15 israeli company also subject additional israeli taxes respect dividends generally equal tax benefits previously granted respect underlying income virtue approved enterprise status investments 1997 subsidiary cti quantum industrial holdings ltd organized two new companies make investments including investments high technology ventures participant committed total 37500000 capital new companies use suitable investment opportunities identified quantum industrial holdings ltd member quantum group funds managed soros fund management llc affiliated management companies january 31 2003 2004 company invested approximately 25259000 26420000 respectively related ventures included assets consolidated balance sheets addition company committed approximately 17364000 various funds ventures companies may called option investee guaranties company obtained bank guaranties primarily performance certain obligations contracts customers well guarantee certain payment obligations guaranties aggregated approximately 39631000 january 31 2004 generally released companys performance specified contract milestones scheduled completed primarily 2004 litigation march 16 2004 bellsouth intellectual property corp bellsouth filed complaint united states district court northern district georgia comverse technology inc alleging infringement patent nos 5857013 5764747 march 17 2004 bellsouth amended complaint include comverse inc action captioned bellsouth intellectual property corp v comverse technology inc comverse inc civil action 104cv0739 bellsouth alleges patent nos 5857013 5764747 cover certain aspects companys systems seeks among relief monetary damages injunctive relief company believes claims without merit vigorously defend claims time company subject claims legal proceedings arising normal course business company believe currently party pending legal action could reasonably expected material adverse effect business financial condition results operations 22 fair value financial instruments estimated fair value amounts determined company using available market information appropriate valuation methodologies however considerable judgment necessarily required interpreting market data develop estimates fair value accordingly estimates presented herein necessarily indicative amounts company could realize current market exchange use different market assumptions andor estimation methodologies may material effect estimated fair value amounts cash equivalents bank time deposits shortterm investments accounts receivable investments accounts payable carrying amounts items reasonable estimate fair value convertible debt fair value securities estimated based quoted market prices recent sales similar securities fair value estimates presented herein based pertinent information available management january 31 2004 amounts comprehensively revalued purposes financial statements since january 31 2004 current estimates fair value may differ significantly amounts presented herein 23 effect new accounting pronouncements august 2001 fasb issued sfas 143 accounting asset retirement obligations sfas 143 establishes accounting standards recognition measurement liability asset retirement obligation associated asset retirement cost sfas 143 applies legal obligations associated retirement tangible longlived asset result acquisition construction development andor normal operation longlived asset statement effective fiscal years beginning june 15 2002 adoption sfas 143 material effect companys consolidated financial statements april 2003 fasb issued sfas 149 amendment statement 133 derivative instruments hedging activities sfas 149 amends clarifies accounting derivative instruments including certain derivative instruments embedded contracts hedging activities sfas 133 accounting derivative instruments hedging activities sfas 149 generally effective derivative instruments including derivative instruments embedded certain contracts entered modified june 30 2003 hedging relationships designated june 30 2003 adoption sfas 149 material effect companys consolidated financial statements may 2003 fasb issued sfas 150 accounting certain financial instruments characteristics liabilities equity sfas 150 establishes standards classification measurement certain financial instruments characteristics liabilities equity sfas 150 effective financial instruments entered modified may 31 2003 adoption sfas 150 material effect companys consolidated financial statements 24 subsequent events february 2004 company acquired open market purchases 30495000 face amount debentures resulting pretax gain net debt issuance costs approximately 244000 march 31 2004 verint acquired certain assets assumed certain liabilities relating ectel ltds ectel communication interception business approximately 35000000 cash acquisition expected provide verint additional communication interception capabilities mass collection analysis voice data communications technologies integrated verints existing product offerings addition ectels existing customers new customers new countries verint asia pacific latin america regions 25 quarterly information unaudited following table shows selected results operations quarters years ended january 31 2003 2004item 15 exhibits financial statement schedules 2 financial statement schedules none 3 exhibits index exhibits commences following page exhibits numbered 101 104 106 1012 1019 1021 comprise material compensatory plans arrangements registrant c index exhibits exhibit description 3 articles incorporation bylaws 31 certificate incorporation incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 32 certificate amendment certificate incorporation effective february 26 1993 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 33 certificate amendment certificate incorporation effective january 12 1995 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1994 34 certificate amendment certificate incorporation dated october 18 1999 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended january 31 2000 35 certificate amendment certificate incorporation dated september 19 2000 incorporated reference registrants annual report form 10k securities exchange act 1934 year ended january 31 2001 36 bylaws amended incorporated reference registrants annual report form 10k securities exchange act 1934 year ended january 31 2003 4 instruments defining rights security holders including indentures 41 specimen stock certificate incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1992 42 indenture dated november 22 2000 comverse technology inc chase manhattan bank trustee incorporated reference registrants registration statement form s3 securities act 1933 registration 33355526 43 specimen 1 12 convertible senior debenture due 2005 incorporated reference registrants registration statement form s3 securities act 1933 registration 33355526 44 indenture dated may 7 2003 comverse technology inc jpmorgan chase bank trustee incorporated reference registrants registration statement form s3 securities act 1933 registration 333106391 45 specimen zero yield puttable securities due may 15 2023 incorporated reference registrants registration statement form s3 securities act 1933 registration 333106391 46 specimen new zero yield puttable securities due may 15 2023 incorporated reference registrants current report form 8k securities exchange act 1934 filed january 26 2005 47 indenture dated january 26 2005 comverse technology inc jpmorgan chase bank na trustee incorporated reference registrants current report form 8k securities exchange act 1934 filed january 26 2005 10 material contracts 101 form stock option agreement pertaining shares certain subsidiaries comverse technology inc incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1993 102 form incentive stock option agreement incorporated reference registrants registration statement form s1 securities act 1933 registration 339147 103 form stock option agreement options incentive stock options incorporated reference registrants annual report form 10k securities exchange act 1934 year ended december 31 1987 104 form restricted stock agreement incorporated reference registrants annual report form 10k securities exchange act 1934 year ended january 31 2004 105 form indemnity agreement comverse technology inc officers directors incorporated reference registrants annual report form 10k securities exchange act 1934 year ended january 31 2003 106 1997 employee stock purchase plan amended incorporated reference definitive proxy materials registrants annual meeting shareholders held june 15 2001 107 2004 management incentive plan incorporated reference definitive proxy materials registrants annual meeting shareholders held december 16 2003 108 2002 employee stock purchase plan amended incorporated reference definitive proxy materials registrants annual meeting shareholders held december 16 2003 109 1997 stock incentive compensation plan incorporated reference definitive proxy materials registrants annual meeting shareholders held january 13 1998 1010 1999 stock incentive compensation plan incorporated reference definitive proxy materials registrants annual meeting shareholders held october 8 1999 1011 2000 stock incentive compensation plan incorporated reference definitive proxy materials registrants annual meeting shareholders held september 15 2000 1012 2001 stock incentive compensation plan incorporated reference definitive proxy materials registrants annual meeting shareholders held june 15 2001 1013 lease dated november 5 1990 boston technology inc wakefield park limited partnership lease incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1991 1014 first amendment lease dated march 31 1993 boston technology inc wbam limited partnership incorporated reference quarterly report boston technology inc form 10q securities exchange act 1934 quarter ended october 31 1993 1015 second amendment lease dated august 31 1994 boston technology inc wbam limited partnership incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1995 1016 third amendment lease dated june 7 1996 boston technology inc wbam limited partnership incorporated reference annual report boston technology inc form 10k securities exchange act 1934 year ended january 31 1997 1017 fourth amendment lease dated december 21 1998 wakefield 100 llc comverse technology inc incorporated reference registrants annual report form 10k securities exchange act 1934 year ended january 31 2003 1018 fifth amendment lease dated september 5 2002 sc wakefield 200 inc comverse technology inc incorporated reference registrants annual report form 10k securities exchange act 1934 year ended january 31 2003 1019 employment nondisclosure noncompetition agreement dated august 19 2004 comverse technology inc david kreinberg incorporated reference registrants quarterly report form 10q securities exchange act 1934 quarter ended july 31 2004 1020 2004 stock incentive compensation plan incorporated reference definitive proxy materials registrants annual meeting shareholders held june 15 2004 1021 form agreement evidencing grant stock options comverse technology inc stock incentive compensation plans incorporated reference registrants current report form 8k securities exchange act 1934 filed december 7 2004 1022 form agreement evidencing grant stock options comverse technology inc stock incentive compensation plans directors incorporated reference registrants current report form 8k securities exchange act 1934 february 3 2005 211 subsidiaries registrant 231 consent deloitte touche llp 241 powers attorney see signature page report 311 certification chief executive officer pursuant section 302 sarbanesoxley act 2002 312 certification chief financial officer pursuant section 302 sarbanesoxley act 2002 32 certification chief executive officer chief financial officer pursuant section 906 sarbanesoxley act 2002 incorporated reference filed herewith exhibit furnished pursuant item 601b32 sec regulation sk deemed filed securities exchange commission incorporated reference filing company securities act 1933 securities exchange act 1934 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized comverse technology inc registrant april 4 2005 kobi alexander kobi alexander chairman board chief executive officer april 4 2005 david kreinberg david kreinberg executive vice president chief financial officer know persons presents person whose signature appears constitutes appoints kobi alexander david kreinberg jointly severally attorneysinfact full power substitution capacities sign amendments form 10k file exhibits thereto documents connection therewith securities exchange commission hereby ratifying confirming said attorneysinfact substitutes may cause done virtue hereof pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated kobi alexander april 4 2005 kobi alexander chairman ceo director david kreinberg april 4 2005 david kreinberg executive vice president cfo raz alon april 4 2005 raz alon director itsik danziger april 4 2005 itsik danziger director john h friedman april 4 2005 john h friedman director ron hiram april 4 2005 ron hiram director sam oolie april 4 2005 sam oolie director william f sorin april 4 2005 william f sorin director comverse technology inc subsidiaries index consolidated financial statements page management report internal control financial reporting report independent registered public accounting firm internal control financial reporting report independent registered public accouting firm consolidated financial statements consolidated balance sheets january 31 2004 2005 consolidated statements operations years ended january 31 2003 2004 2005 consolidated statements stockholders equity years ended january 31 2003 2004 2005 consolidated statements cash flows years ended january 31 2003 2004 2005 notes consolidated financial statements management report internal control financial reporting management company responsible establishing maintaining adequate internal control financial reporting defined rule 13a15f promulgated securities exchange act 1934 rules define internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate companys management assessed effectiveness companys internal control financial reporting january 31 2005 making assessment companys management used criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission based assessment criteria companys management believes january 31 2005 companys internal control financial reporting effective companys independent registered public accounting firm deloitte touche llp issued attestation report managements assessment companys internal control financial reporting appears pages report independent registered public accounting firm internal control financial reporting board directors stockholders comverse technology inc new york new york audited managements assessment included accompanying management report internal control financial reporting comverse technology inc subsidiaries company maintained effective internal control financial reporting january 31 2005 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission companys management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinion managements assessment opinion effectiveness companys internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting evaluating managements assessment testing evaluating design operating effectiveness internal control performing procedures considered necessary circumstances believe audit provides reasonable basis opinions companys internal control financial reporting process designed supervision companys principal executive principal financial officers persons performing similar functions effected companys board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting including possibility collusion improper management override controls material misstatements due error fraud may prevented detected timely basis also projections evaluation effectiveness internal control financial reporting future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion managements assessment company maintained effective internal control financial reporting january 31 2005 fairly stated material respects based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission also opinion company maintained material respects effective internal control financial reporting january 31 2005 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states consolidated financial statements year ended january 31 2005 company report dated april 1 2005 expressed unqualified opinion financial statements deloitte touche llp jericho new york april 1 2005 report independent registered public accounting firm consolidated financial statements board directors stockholders comverse technology inc new york new york audited accompanying consolidated balance sheets comverse technology inc subsidiaries company january 31 2005 2004 related consolidated statements operations stockholders equity cash flows three years period ended january 31 2005 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position comverse technology inc subsidiaries january 31 2005 2004 results operations cash flows three years period ended january 31 2005 conformity accounting principles generally accepted united states america also audited accordance standards public company accounting oversight board united states effectiveness companys internal control financial reporting january 31 2005 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated april 1 2005 expressed unqualified opinion managements assessment effectiveness companys internal control financial reporting unqualified opinion effectiveness companys internal control financial reporting deloitte touche llp jericho new york april 1 2005 see notes consolidated financial statements see notes consolidated financial statements comverse technology inc subsidiaries consolidated statements stockholders equity years ended january 31 2003 2004 2005 thousands except share data see notes consolidated financial statements see notes consolidated financial statements comverse technology inc subsidiaries notes consolidated financial statements years ended january 31 2003 2004 2005 1 organization business comverse technology inc cti together subsidiaries company organized new york corporation october 1984 company engaged design development manufacture marketing support special purpose computer telecommunications systems software multimedia communications information processing applications 2 summary significant accounting policies principles consolidation consolidated financial statements include accounts cti whollyowned majorityowned subsidiaries material intercompany balances transactions eliminated minority interest minority stockholders net assets consolidated subsidiaries relating primarily ctis verint systems inc verint ulticom inc ulticom majorityowned subsidiaries presented consolidated balance sheets separately liabilities stockholders equity minority interest included consolidated statements operations represents interest minority stockholders net income consolidated subsidiaries cash equivalents bank time deposits company considers highly liquid investments purchased original maturities three months less cash equivalents bank deposits maturities excess three months classified bank time deposits shortterm investments company classifies shortterm investments availableforsale accounted fair value resulting unrealized gains losses reported separate component stockholders equity connection preparation report company concluded appropriate classify investments auction rate securities ars shortterm investments ars generally longterm stated maturities however investments characteristics similar shortterm investments predetermined intervals generally every 7 90 days new auction process securities reset current interest rates previously investments classified cash equivalents due liquidity pricing reset feature accordingly company revised classification report securities shortterm investments consolidated balance sheets january 31 2005 company held approximately 1061121000 investments ars classified shortterm investments company reclassified approximately 907932000 717688000 245210000 investments ars january 31 2004 2003 2002 respectively previously included cash equivalents shortterm investments company also revised presentation consolidated statements cash flows years ended january 31 2004 2003 reflect purchases sales ars investing activities rather component cash equivalents consistent presentation year ended january 31 2005 previously reported consolidated statements cash flows years ended january 31 2004 2003 net cash used investing activities related shortterm investments approximately 190244000 472478000 respectively included cash equivalents change classification affect previously reported cash flows operations financing activities consolidated statements cash flows previously reported consolidated statements operations period inventories stated lower cost market cost determined firstin firstout method property equipment net property equipment carried cost less accumulated depreciation amortization company depreciates property equipment primarily straightline basis periods generally ranging three seven years leasehold improvements amortized shorter estimated useful lives related lease term cost maintenance repairs charged operations incurred significant renewals improvements capitalized income taxes company accounts income taxes using asset liability method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities measured using enacted tax rates laws expected effect differences expected reverse revenue expense recognition company recognizes revenues accordance provisions statement position 972 software revenue recognition related interpretations companys systems generally bundled hardware software solution shipped together revenue generally recognized time shipment sales systems require significant customization performed company following criteria met 1 persuasive evidence arrangement exists 2 delivery occurred acceptance determinable 3 fee fixed determinable 4 collectibility probable amounts received customers pursuant terms specified contracts revenue yet recognized recorded advance payments customers postcontract customer support pcs services sold separately part multiple element arrangement case related pcs element determined based upon vendorspecific objective evidence fair value portion total fee allocated pcs services generally recognized revenue ratably term pcs arrangement revenues certain development contracts recognized percentageofcompletion method basis physical completion date using actual costs incurred total expected costs contract revisions estimates costs profits reflected accounting period facts require revision become known time loss contract known entire amount estimated loss accrued amounts received customers excess revenues earned percentageofcompletion method recorded advance payments customers related contract costs include direct material labor costs indirect costs related contract performance included cost sales consolidated statements operations expenses incurred connection research development activities certain software development costs capitalized selling general administrative expenses charged operations incurred software development costs software development costs capitalized upon establishment technological feasibility amortized estimated useful life software date four years less amounts capitalized years ended january 31 2003 2004 2005 approximately 13391000 7759000 4198000 respectively amortization begins period related product available general release customers amortization expense amounted approximately 12594000 15149000 14311000 years ended january 31 2003 2004 2005 respectively addition year ended january 31 2005 company recorded writedowns approximately 5049000 capitalized software development costs estimated net realizable value primarily result companys transition newer product line well duplicative technology arose result verints acquisitions period functional currency foreign currency transaction gains losses united states dollar functional currency major portion companys foreign operations companys sales materials purchased manufacturing denominated linked dollar certain operating costs principally salaries foreign operations denominated local currencies instances foreign subsidiary functional currency dollar company records necessary foreign currency translation adjustment reflected stockholders equity end reporting period derivative financial instruments company exposed market risk changes foreign currency exchange rates may time use foreign currency exchange contracts derivative instruments reduce exposure risk eventual net cash inflows outflows resulting sale products foreign currency primarily euro adversely affected changes exchange rates objective contracts neutralize impact foreign currency exchange rate movements companys operating results instruments designated hedges change fair value included income currently january 31 2004 2005 company approximately 31668000 32583000 respectively notional amount foreign exchange forward contracts sell euros original maturity six months fair value contracts january 31 2004 2005 approximately 183000 66000 respectively included interest income net consolidated statements operations goodwill intangible assets goodwill represents excess purchase price fair value net assets acquired intangible assets include identifiable acquired software technology trade name customer relationships sales backlog noncompete agreements accordance provisions statement financial accounting standards sfas 142 goodwill intangible assets goodwill certain intangible assets longer amortized rather reviewed impairment least annual basis company performed reviews deemed impairment january 31 2004 2005 intangible assets finite lives amortized using straightline method estimated useful lives ten years assets licenses patent rights acquired knowhow recorded cost amortized using straightline method estimated useful lives related technology generally exceeding four years debt issue costs amortized using effective interest method term related debt longlived assets company reviews impairment longlived assets whenever events changes circumstances indicate carrying amount asset may recoverable impairment loss would recognized estimated future undiscounted cash flows expected result use asset proceeds eventual disposition less carrying amount impairment measured fair value connection restructuring plan years ended january 31 2003 2004 2005 company identified certain impairment losses included workforce reduction restructuring impairment charges credits consolidated statements operations refer note 9 details addition year ended january 31 2005 company recorded writedowns approximately 3849000 fixed assets estimated net realizable value primarily result obsolescence fixed assets concentration credit risk financial instruments potentially expose company concentration credit risk consist primarily cash investments accounts receivable company places cash investments highcredit quality financial institutions currently invests primarily money market funds placed major banks financial institutions bank time deposits corporate commercial paper ars corporate municipal short medium term notes mortgage asset backed securities us government us government corporation agency obligations mutual funds trusts closedend funds investing like common preferred stock company believes significant concentration credit risk exists respect cash investments accounts receivable generally diversified due large number commercial government entities comprising companys customer base dispersion across many geographical regions january 31 2004 2005 single customer balance comprised 10 overall accounts receivable balance company believes significant concentration credit risk exists respect accounts receivable company required estimate collectibility accounts receivable accounting period record reserve bad debts considerable amount judgment required assessing realization receivables including current creditworthiness customer current historical collection history related aging past due balances company evaluates specific accounts becomes aware information indicating customer may able meet financial obligations due deterioration financial condition lower credit ratings bankruptcy factors affecting ability render payment reserve requirements based facts available reevaluated adjusted additional information received companys policy account recoveries previously reserved doubtful accounts upon receipt cash evidence recoverability items specifically reserved prior receipt cash roll forward allowance doubtful accounts follows recoveries approximately 12200000 19425000 years ended january 31 2004 2005 respectively recorded result cash collected customers items previously reserved doubtful collection period cash received bank loans january 2002 verint took bank loan amount 42000000 loan matured february 2003 bore interest libor plus 055 guaranteed cti february 2003 verint repaid bank loan issuance subsidiary stock sales stock subsidiaries accounted capital transactions adjustment additional paidin capital gain loss recognized transactions stockbased compensation january 31 2005 company place comverse stock incentive plans fully described note 14 company accounts stock options recognition measurement principles accounting principles board opinion 25 accounting stock issued employees apb 25 related interpretations accordingly stockbased employee compensation cost stock options reflected net income loss periods options granted exercise price least equal market value underlying common stock date grant refer note 22 description pending changes accounting treatment years ended january 31 2004 2005 company one subsidiaries granted shares restricted stock certain key employees years ended january 31 2003 2004 2005 respectively stockbased employee compensation expense relating restricted stock approximately 0 214000 2097000 included selling general administrative expenses consolidated statements operations company estimated fair value employee stock options utilizing blackscholes option valuation model using assumptions described note 14 required accounting principles generally accepted united states america blackscholes model developed use estimating fair value traded options consider nontraded nature employee stock options vesting trading restrictions lack transferability ability employees forfeit options prior expiry addition option valuation models require input highly subjective assumptions including expected stock price volatility companys employee stock options characteristics significantly different traded options changes subjective input assumptions materially affect fair value estimate managements opinion existing models necessarily provide reliable single measure fair value companys employee stock options following table illustrates effect net income loss earnings loss per share company applied fair value recognition provisions sfas 123 accounting stockbased compensation stockbased employee compensation periods pervasiveness estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates reclassifications certain prior year amounts reclassified conform manner presentation current year refer description shortterm investments found earlier note 2 regarding revisions presentation certain investments consolidated financial statements 3 research development significant portion companys research development operations located israel company derives benefits participation conditional programs sponsored government israel support research development activities conducted country certain companys research development activities include projects partially funded office chief scientist ministry industry trade state israel ocs funding organization reimburses portion companys research development expenditures approved project budgets certain companys subsidiaries accrue royalties ocs sale products incorporating technology developed projects year ended january 31 2003 one companys subsidiaries finalized agreement ocs whereby subsidiary agreed pay lump sum royalty approximately 26 million past amounts received ocs amount timing payments ocs agreement approximately 3 million march 2002 approximately 23 million june 2002 addition subsidiary began receive lower amounts ocs historically received required pay royalties future grants terms applicable funding agreements permission government israel required company manufacture outside israel products resulting research development activities funded programs order obtain permission company would required increase royalties applicable funding agencies andor repay certain amounts received reimbursement research development costs transfer outside israel intellectual property rights resulting research development activities funded ocs programs permitted amounts reimbursed ocs years ended january 31 2003 2004 2005 approximately 10540000 10013000 9444000 respectively 4 shortterm investments previously noted shortterm investments note 2 company concluded appropriate classify investments ars shortterm investments ars generally longterm stated maturities however investments characteristics similar shortterm investments predetermined intervals generally every 7 90 days new auction process securities reset current interest rates previously investments classified cash equivalents due liquidity pricing reset feature accordingly company revised classification report securities shortterm investments consolidated balance sheets company classifies shortterm investments availableforsale securities following summary availableforsale securities january 31 2005 1 investing us government us government corporation agency obligations corporate debt securities commercial paper andor assetbacked securities following summary availableforsale securities january 31 2004 1 investing us government us government corporation agency obligations corporate debt securities commercial paper andor assetbacked securities january 31 2005 company held certain investments us government corporation agency bonds continuous unrealized loss position 12 months greater aggregating total estimated fair value approximately 196470000 total gross unrealized losses approximately 3528000 company held significant investments continuous unrealized loss position 12 months greater january 31 2005 company held significant investments continuous unrealized loss position 12 months greater january 31 2004 company evaluates investments unrealized losses determine losses otherthantemporary gross unrealized losses january 31 2005 due primarily changes interest rates company determined diminution value temporary making determination company considered ability hold investments maturity financial condition nearterm prospects issuers magnitude losses compared investments cost length time investments unrealized loss position year ended january 31 2005 gross realized gains sales securities totaled approximately 4163000 gross realized losses totaled approximately 3265000 year ended january 31 2004 gross realized gains sales securities totaled approximately 5439000 gross realized losses totaled approximately 1558000 year ended january 31 2003 gross realized gains sales securities totaled approximately 3588000 gross realized losses totaled approximately 13644000 basis cost generally determined computing realized gain loss firstin firstout method cost estimated fair value debt securities january 31 2005 contractual maturity follows substantially securities maturities three years ars 7 assets 8 business combinations march 31 2004 verint acquired certain assets assumed certain liabilities government surveillance business ectel ltd ectel provided verint additional communications interception capabilities mass collection analysis voice data communications purchase price approximately 35000000 cash verint incurred transaction costs consisting primarily professional fees amounting approximately 1107000 connection acquisition accounted using purchase method purchase price allocated assets liabilities ectel based estimated fair value assets liabilities march 31 2004 results operations ectel included companys results operations since march 31 2004 identifiable intangible assets consist sales backlog acquired technology customer relationships noncompetition agreements estimated useful lives ten years purchased inprocess research development represents value assigned research development projects acquired business commenced completed date acquisition technological feasibility established alternative future use research development activities otherwise accordance sfas 2 accounting research development costs interpreted financial accounting standards board fasb interpretation 4 amounts assigned purchased inprocess research development meeting criteria must charged expense acquisition date acquisition date estimated purchased inprocess research development approximately 40 complete expected remaining 60 would completed ensuing year fair value purchased inprocess research development determined assistance independent appraisal specialist using income approach reflects projected free cash flows generated purchased inprocess research development projects discounting projected net cash flows back present value using discount rate 21 result acquisition government surveillance business ectel verint certain capitalized software development costs became impaired due existence duplicative technology accordingly writtendown net realizable value date acquisition impairment charge amounted approximately 1481000 included inprocess research development acquisitionrelated charges consolidated statements operations following summary allocation purchase price acquisition thousands purchase price 35000 acquisition costs 1107 total purchase price 36107 fair value assets acquired 1417 fair value liabilities assumed 3282 inprocess research development 3154 sales backlog 854 acquired technology 5307 customer relationships 1382 noncompetition agreements 2221 goodwill 25054 total purchase price 36107 value allocated goodwill ectel deducted income tax purposes summary pro forma results operations presented effect acquisition deemed material september 2004 verint subsidiary acquired outstanding stock rp sicherheitssysteme gmbh rp security company business developing selling mobile digital video security solutions transportation applications purchase price consisted approximately 9028000 cash 90144 shares verints common stock addition shareholders rp security entitled receive earnout payments three years based verints worldwide sales profitability backlog mobile video products transportation market period shares issued part purchase price accounted value approximately 2977000 3303 per share connection acquisition verint incurred transaction costs consisting primarily professional fees amounting approximately 520000 may 2003 verint acquired issued outstanding shares smartsight networks inc smartsight canadian corporation develops ipbased video edge devices software wireless video transmission purchase price consisted approximately 7144000 cash 149731 shares verint common stock valued approximately 3063000 2046 per share february 2002 verint acquired digital video recording business lanex llc lanex business provides digital video recording solutions security surveillance applications primarily north american banks purchase price consisted 9510000 cash 2200000 noninterest bearing note guaranteed cti convertible whole part shares verints common stock conversion price 1606 per share note matured converted shares verint common stock february 1 2004 june 2002 company acquired odigo inc odigo privatelyheld provider instant messaging presence management solutions service providers purchase price approximately 20100000 cash prior acquisition company strategic partner odigo holding equity position previously acquired approximately 3000000 rp security smartsight lanex odigo acquisitions accounted using purchase method accordingly consolidated statements operations include results operations date acquisition assets acquired liabilities assumed recorded estimated fair values determined companys management based information available assistance independent appraisal specialists applicable allocating purchase price including direct costs acquisition net tangible identifiable intangible assets excess cost fair value net assets acquired recorded goodwill included assets consolidated balance sheets summary assets acquired liabilities assumed acquisitions well pro forma results operations presented effects acquisitions deemed material 9 workforce reduction restructuring impairment charges credits year ended january 31 2002 company committed began implementing restructuring program including changes organizational structure product offerings better align cost structure business environment improve efficiency operations via reductions workforce restructuring operations writeoff impaired assets connection actions years ended january 31 2003 2004 2005 company incurred net charges credits operations approximately 66714000 2123000 62000 respectively primarily pertaining severance related costs elimination excess facilities related leasehold improvements writeoff certain property equipment impaired assets analysis total charges approximately 66714000 incurred year ended january 31 2003 well rollforward workforce reduction restructuring accrual period follows analysis net credit approximately 2123000 incurred year ended january 31 2004 well rollforward workforce reduction restructuring accrual period follows analysis net charge approximately 62000 incurred year ended january 31 2005 well rollforward workforce reduction restructuring accrual period follows severance related costs consist primarily severance payments terminated employees fringe related costs associated severance payments termination costs legal consulting costs balance severance related costs expected paid july 2005 facilities related costs consist primarily contractually obligated lease liabilities operating expenses related facilities vacated primarily united states israel result restructuring years ended january 31 2004 2005 company reversed approximately 8051000 743000 respectively previously taken restructuring charges facilities related costs primarily result sublet portion excess facilities balance facilities related costs expected paid various dates january 2011 property equipment costs consist primarily writedown various assets current estimable fair value including value certain unimproved land israel written year ended january 31 2003 company acquired view future construction facilities israeli operations 10 accounts payable accrued expenses accounts payable accrued expenses consist 11 convertible debt may 2003 company issued 420000000 aggregate principal amount zero yield puttable securities zyps existing zyps january 26 2005 company completed offer holders outstanding existing zyps exchange existing zyps new zyps new zyps 420000000 worth existing zyps outstanding prior exchange offer approximately 417700000 aggregate principal amount representing approximately 995 original issue existing zyps validly tendered exchange equal principal amount new zyps connection offer company incurred transaction costs consisting primarily professional fees amounting approximately 903000 included selling general administrative expenses consolidated statements operations existing zyps new zyps conversion price 1797 per share ability holders convert either existing zyps new zyps common stock subject certain conditions including fiscal quarter closing price per share period least twenty days thirty consecutive tradingday period ending last trading day preceding fiscal quarter 120 conversion price per share effect thirtieth day ii may 15 2018 five businessday period following ten consecutive tradingday period daily average trading price existing zyps new zyps ten tradingday period less 105 average conversion value existing zyps new zyps period iii period following date credit rating assigned existing zyps new zyps standard poors rating services lower b upon withdrawal suspension existing zyps new zyps rating companys request iv company calls existing zyps new zyps redemption v upon specified corporate transactions existing zyps new zyps mature may 15 2023 addition company right redeem existing zyps cash time may 15 2008 principal amount holders series put options pursuant may require company repurchase par portion existing zyps may 15 2008 2013 2018 upon occurrence certain events existing zyps holders may require company repurchase existing zyps par event common stock ceases publicly traded certain instances upon change control company new zyps substantially similar terms existing zyps except new zyps net share settlement feature ii allow company redeem new zyps time may 15 2009 rather may 15 2008 provided existing zyps iii allow holders new zyps require company repurchase new zyps cash may 15 2008 2009 2013 2018 net share settlement feature new zyps provides upon conversion company would pay holder cash equal lesser conversion value principal amount new zyps converted currently 417700000 would issue holder remainder conversion value excess principal amount shares companys common stock new conversion method offer followed september 30 2004 conclusion emerging issues task force eitf fasb eitf issue 048 effect contingently convertible debt diluted earnings per share eitf 048 requiring contingently convertible debt included diluted earnings per share computations dilutive notes converted common shares time issuance converted method regardless whether market price triggers contingent features met eitf 048 effective reporting periods ending december 15 2004 recent accounting changes would required company include shares common stock underlying existing zyps diluted earnings per share computations pursuant exchange offer company offered existing zyps holders new zyps convertible new conversion method eitf 048 company required include shares issuable upon conversion new zyps issued exchange offer diluted shares outstanding unless market price companys common stock exceeds conversion price would include number shares would issuable based upon inthemoney value conversion rights new zyps therefore new zyps dilutive calculating diluted earnings per share companys common stock trading 1797 extent number shares company would required issue satisfy conversion right new zyps 417700000 year ended january 31 2005 resulted approximately 1610000 additional share dilution calculating diluted earnings per share existing zyps immediately dilutive calculating diluted earnings per share extent full number shares underlying existing zyps january 31 2005 128516 shares deemed outstanding purpose calculating diluted earnings per share whether existing zyps may converted pursuant terms therefore decreases companys diluted earnings per share adoption eitf 048 effect reported diluted earnings loss per share periods presented fourth quarter fiscal year 2004 closing price per share least 20 trading days 30 consecutive tradingday period ending january 31 2005 120 conversion price per share existing zyps new zyps conversion privilege existing zyps new zyps triggered existing zyps new zyps convertible cash andor companys common stock option holders first fiscal quarter 2005 november december 2000 company issued 600000000 aggregate principal amount 150 convertible senior debentures due december 2005 debentures unsecured senior obligations company ranking equally companys existing future unsecured senior indebtedness senior right payment companys existing future subordinated indebtedness debentures convertible option holders shares companys common stock conversion price 116325 per share subject adjustment certain events subject redemption time december 1 2003 whole part option company redemption prices expressed percentages principal amount 100375 redeemed twelvemonth period beginning december 1 2003 100 principal amount redeemed thereafter debenture holders may require company repurchase debentures par event common stock ceases publicly traded certain instances upon change control company upon occurrence change control instead paying repurchase price cash company may certain circumstances pay repurchase price common stock years ended january 31 2003 2004 2005 company acquired open market purchases 209162000 266115000 37470000 face amount debentures respectively resulting pretax gains net debt issuance costs approximately 39374000 10224000 341000 respectively included interest income net consolidated statements operations january 31 2005 company outstanding debentures 87253000 included current liabilities section consolidated balance sheets 12 liability severance pay liability severance pay consists primarily companys unfunded liability severance pay employees certain foreign subsidiaries accrued severance companys chief executive officer israeli law company obligated make severance payments employees israeli subsidiaries basis individuals current salary length employment liabilities currently provided primarily premiums paid company insurance providers company obligated agreements chief executive officer ceo chief financial officer cfo provide severance payment upon termination employment company approximately 3480000 220000 accrued january 31 2004 respectively approximately 4010000 266000 accrued january 31 2005 respectively relating agreements ceo cfo 13 issuance subsidiary stock april october 2000 ulticom issued shares common stock public offerings january 31 2005 companys ownership interest ulticom approximately 686 may 2002 verint issued 4500000 shares common stock initial public offering proceeds offering based offering price 1600 per share totaled approximately 654 million net offering expenses company recorded gain approximately 481 million year ended january 31 2003 recorded increase stockholders equity result issuance june 2003 verint completed public offering 5750000 shares common stock price 2300 per share shares offered included 149731 shares issued smartsights former shareholders connection acquisition proceeds offering approximately 1222 million net offering expenses company recorded gain approximately 629 million recorded increase stockholders equity result issuance january 31 2005 companys ownership interest verint approximately 589 february 2004 starhome bv starhome subsidiary cti received equity financing unaffiliated investor group approximately 14481000 net expenses company recorded gain approximately 11767000 recorded increase stockholders equity result issuance upon completion transaction companys ownership interest starhome approximately 695 interest unchanged january 31 2005 addition year ended january 31 2005 starhome received commitment additional 5000000 equity financing unaffiliated investor group funds currently held escrow 14 stockbased compensation option exchange program may 2002 company announced commencement voluntary stock option exchange program eligible employees program approved companys shareholders participating employees given opportunity unexercised stock options previously granted cancelled exchange replacement options granted future date replacement options granted ratio 085 new options existing option cancelled exercise price equal fair market value companys stock date regrant exchange program designed accordance fasb interpretation 44 accounting certain transactions involving stock compensation interpretation apb opinion 25 grant replacement options less six months one day cancellation result variable compensation charges relating options date regrant december 23 2002 replacement options acquire 14208987 shares companys common stock granted exercise price 1052 per share closing fair market value companys stock date stock options january 31 2005 22603387 shares common stock reserved issuance upon exercise stock options outstanding 4333276 shares available future grant comverses stock incentive plans options restricted stock may granted key employees directors persons rendering services company options designated incentive stock options plans may granted exercise price less fair market value underlying shares date grant subject certain quantity limitations specified section 422 internal revenue code options intended qualify incentive stock options may granted price fair market value options underlying shares subject adjustment accordance terms plans event stock dividends recapitalizations similar transactions right exercise options generally vests increments periods four years date grant date commencement grantees employment company maximum term ten years options granted changes number options follows january 31 2005 options purchase aggregate 13936807 shares vested currently exercisable plans options purchase additional 8666580 shares vest various dates extending year 2008 weighted average option exercise price information follows significant option groups outstanding january 31 2005 related weighted average price life information follows weighted average fair value options granted years ended january 31 2003 2004 2005 respectively estimated 466 988 1298 date grant using blackscholes option pricing model following weighted average assumptions years ended january 31 2003 2004 2005 respectively volatility 75 73 70 riskfree interest rate 18 32 36 expected life 26 46 years options subsidiary shares company granted options certain employees acquire shares certain subsidiaries comverse inc option issuances tied performance subsidiaries intended incentivize employees units direct responsibility options outstanding subsidiary exceed 20 shares outstanding subsidiary assuming exercise full options terms 15 years become exercisable vest various periods ranging seven years date initial grant exercise price option equal higher book value underlying shares date grant fair market value shares date determined basis armslength transaction third party transactions occurred reasonable basis determined committee board directors restricted stock december 2003 2004 cti granted 314300 327100 shares restricted stock respectively certain key employees company unearned stock compensation approximately 5249000 7541000 respectively recorded based fair market value companys common stock date grant unearned stock compensation shown separate component stockholders equity amortized expense prorata four year vesting period restricted stock amortization unearned stock compensation years ended january 31 2004 2005 approximately 157000 1596000 respectively included selling general administrative expenses consolidated statements operations restricted stock rights privileges companys common stock subject certain restrictions forfeiture provisions january 31 2005 total 641400 shares restricted stock granted subject restriction december 2003 2004 verint granted shares common stock restricted stock certain key employees unearned stock compensation approximately 1672000 2281000 respectively recorded based fair market value common stock date grant amortized expense prorata four year vesting period restricted stock amortization unearned stock compensation years ended january 31 2004 2005 approximately 57000 501000 respectively included selling general administrative expenses consolidated statements operations 15 employee stock purchase plans comverses employee stock purchase plans employees completed three months employment entitled payroll deductions amounts 10 base salary purchase shares companys common stock 85 lesser market price offering commencement date offering termination date total number shares available comverses employee stock purchase plans 5000000 approximately 3456000 issued january 31 2005 cti terminated plans effective april 1 2005 16 earnings per share eps basic earnings loss per share determined using weighted average number shares common stock outstanding period diluted earnings per share assumes issuance common shares dilutive potential common shares outstanding calculation earnings loss per share years ended january 31 2003 2004 2005 follows diluted loss per share computation years ended january 31 2003 2004 excludes incremental shares approximately 632000 5466000 respectively primarily related employee stock options shares excluded due antidilutive effect result companys loss periods shares issuable upon conversion debentures included computation diluted earnings loss per share periods effect including would antidilutive refer note 11 description eitf 048 impact adoption companys diluted earnings per share calculation new zyps existing zyps year ended january 31 2005 adoption eitf 048 resulted approximately 1739000 comprised approximately 1610000 new zyps approximately 129000 existing zyps additional share dilution calculating diluted earnings per share adoption eitf 048 effect reported diluted earnings loss per share periods presented 17 interest income net interest income net consists following 18 income taxes provision income taxes consists following reconciliation us federal statutory tax rate companys effective tax rate follows deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes b operating loss carryforwards tax effects significant items comprising companys deferred tax asset liability january 31 2004 2005 follows january 31 2005 company net operating loss carryforwards federal income tax purposes approximately 7310 million begin expire 2019 income tax provided unrepatriated earnings foreign subsidiaries currently intention company reinvest foreign earnings operations 19 business segment information companys reporting segments follows comverse network systems cns enable telecommunications service providers tsp offer products enhance communication experience generate tsp traffic revenue services comprise four primary categories call completion call management solutions advanced messaging solutions groups communities persontoperson communication solutions enablers management delivery data contentbased services realtime billing account management solutions dynamic service environments components applications service enabling signaling software enable equipment manufacturers application developers service providers deploy revenue generating infrastructure enhanced services wireline wireless internet communications services include global roaming voice text messaging prepaid calling emergency911 products also embedded range packet softswitching products interoperate converge voice data networks facilitate services voip hosted ip telephony virtual private networks segment represents companys ulticom subsidiary security business intelligence recording provides analytic softwarebased solutions communications interception networked video security business intelligence software generates actionable intelligence collection retention analysis unstructured information contained voice fax video email internet data transmissions voice video ip networks segment represents companys verint subsidiary includes miscellaneous operations reconciling items consists following sales elimination intersegment revenues income loss operations elimination intersegment income loss operations corporate operations depreciation amortization corporate operations total assets elimination intersegment receivables unallocated corporate assets table presents information sales income loss operations depreciation amortization significant noncash items consisting operating asset writedowns impairments total assets years ended january 31 2003 2004 2005 sales country based enduser location percentage total sales years ended january 31 2003 2004 2005 follows customer accounted 10 sales years ended january 31 2003 2004 2005 longlived assets country domicile consist 20 commitments contingencies leases company leases office manufacturing warehouse space noncancelable operating leases rent expense leased premises approximated 36032000 31616000 33279000 years ended january 31 2003 2004 2005 respectively january 31 2005 minimum annual rent obligations company approximately follows twelve months ended january 31 amount thousands 2006 28616 2007 24366 2008 21221 2009 11053 2010 thereafter 32767 118023 company entered various sublease agreements rent excess space january 31 2005 minimum annual sublease income obligation company agreements approximately 1217000 1008000 960000 252000 twelve months ending january 31 2006 2007 2008 2009 2010 thereafter respectively total approximately 4445000 employment agreements company obligated employment contracts kobi alexander chairman chief executive officer provide compensation severance insurance fringe benefits february 1 2007 minimum salary payments contracts currently amount 672000 per year mr alexander also eligible receive annual cash bonus determined specific quantitative targets established advance compensation committee board directors following termination employment company executive entitled receive severance payment equal 181585 times number years january 1983 amount payment increases rate 10 per annum compounded year employment following december 31 2005 plus continued fringe benefits three years addition severance payment executives employment terminated company without cause executive good reason executive entitled salary prorata bonus date termination plus three times executives annual salary three times annual bonus termination occurs within three months within two years following change control company executive additionally entitled accelerated vesting stock options restricted stock payments sufficient reimburse associated excise tax liability income tax resulting reimbursement stock options restricted stock granted executive become fully vested exercisable nonforfeitable event executives death disability insurance benefits include life insurance providing cumulative death benefits approximately 30000000 including amounts provided arrangement company reimbursed premiums benefit payments cash surrender value company obligated employment contract david kreinberg executive vice president chief financial officer provide compensation severance insurance fringe benefits february 1 2007 minimum salary payments contract currently amount 325000 per year mr kreinberg also eligible receive annual cash bonus determined specific quantitative targets established advance compensation committee board directors following termination employment company executive entitled receive severance payment equal 24200 times number years including 1994 first year employment company amount payment increases rate 10 per annum compounded year employment following january 31 2005 plus continued fringe benefits eighteen months addition severance payment executives employment terminated company without cause executive good reason executive entitled salary prorata bonus date termination plus one year additional annual salary bonus termination occurs within three months within two years following change control company executive entitled salary prorata bonus date termination plus three times executives annual salary three times annual bonus accelerated vesting stock options restricted stock payments sufficient reimburse associated excise tax liability income tax resulting reimbursement stock options restricted stock granted executive become fully vested exercisable nonforfeitable event executives death disability insurance benefits include life insurance providing cumulative death benefits approximately 17500000 including amounts provided arrangement company reimbursed premiums benefit payments cash surrender value company obligated agreement zeev bregman chief executive officer one subsidiaries provide compensation fringe benefits february 1 2007 minimum salary payments agreement amount approximately 275000 per year mr bregman also eligible receive annual cash bonus determined specific quantitative targets established advance compensation committee board directors following termination employment company executive entitled continued fringe benefits eighteen months executives employment terminated company without cause executive good reason executive entitled salary prorata bonus date termination plus one year additional annual salary bonus termination occurs within three months within two years following change control company executive entitled salary prorata bonus date termination plus three times executives annual salary three times annual bonus accelerated vesting stock options restricted stock options restricted stock granted executive become fully vested exercisable nonforfeitable event executives death disability employment agreements company terminable without cause prior notice 90 days less certain instances termination employment agreements without cause entitles employees certain benefits including severance payments much one years compensation licenses royalties company licenses certain technology knowhow related rights use manufacture marketing products pays royalties third parties typically ranging 6 net sales related products licenses agreements entered connection research development financing including projects partially funded ocs funding organization reimburses portion companys research development expenditures approved project budgets certain companys subsidiaries accrue royalties ocs sale products incorporating technology developed projects varying amounts based upon revenues attributed various components products royalties due ocs respect research development projects required paid ocs received total royalties amounts received company approved project budgets plus interest certain circumstances january 31 2005 subsidiaries received approximately 57700000 cumulative grants ocs recorded approximately 26700000 cumulative royalties ocs dividend restrictions ability ctis israeli subsidiaries pay dividends governed israeli law provides dividends may paid israeli corporation earnings defined accordance israeli companies law 1999 provided reasonable concern payment cause subsidiary fail meet current expected liabilities come due event devaluation israeli currency dollar amount dollars available payment cash dividends prior years earnings decrease accordingly cash dividends paid israeli corporation united states resident corporate parents subject convention avoidance double taxation israel united states terms convention dividends subject taxation israel united states case israel dividends income derived respect period israeli company entitled reduced tax rate applicable approved enterprise generally subject withholding israeli income tax source rate 15 israeli company also subject additional israeli taxes respect dividends generally equal tax benefits previously granted respect underlying income virtue approved enterprise status investments 1997 subsidiary cti quantum industrial holdings ltd organized two new companies make investments including investments high technology ventures participant committed total 37500000 capital new companies use suitable investment opportunities identified quantum industrial holdings ltd member quantum group funds managed soros fund management llc affiliated management companies january 31 2004 2005 company invested approximately 26420000 26451000 respectively related ventures included assets consolidated balance sheets addition company committed approximately 9807000 various funds ventures companies may called option investee guaranties company obtained bank guaranties primarily performance certain obligations contracts customers well guarantee certain payment obligations guaranties aggregated approximately 33884000 january 31 2005 generally released companys performance specified contract milestones scheduled completed various dates primarily 2008 litigation march 16 2004 bellsouth intellectual property corp bellsouth filed complaint united states district court northern district georgia comverse technology inc alleging infringement patent nos 5857013 5764747 patents subsequently amended complaint include comverse inc action captioned bellsouth intellectual property corp v comverse technology inc comverse inc civil action 104cv0739 bellsouth alleged patents cover certain aspects companys voicemail systems company retained outside legal counsel specializing patent litigation filed answer counterclaim denying allegations december 20 2004 company executed settlement agreement bellsouth related entities covering company companys customers time company subject claims legal proceedings arising normal course business company believe currently party pending legal action could reasonably expected material adverse effect business financial condition results operations 21 fair value financial instruments estimated fair value amounts determined company using available market information appropriate valuation methodologies however considerable judgment necessarily required interpreting market data develop estimates fair value accordingly estimates presented herein necessarily indicative amounts company could realize current market exchange use different market assumptions andor estimation methodologies may material effect estimated fair value amounts cash equivalents bank time deposits shortterm investments accounts receivable investments accounts payable carrying amounts items reasonable estimate fair value convertible debt fair value securities estimated based quoted market prices recent sales securities fair value estimates presented herein based pertinent information available management january 31 2004 2005 amounts comprehensively revalued purposes financial statements since january 31 2005 current estimates fair value may differ significantly amounts presented herein 22 effect new accounting pronouncements refer note 11 description eitf 048 impact companys diluted earnings per share calculation new zyps existing zyps year ended january 31 2005 adoption eitf 048 resulted approximately 1739000 comprised approximately 1610000 new zyps approximately 129000 existing zyps additional share dilution calculating diluted earnings per share adoption eitf 048 effect reported diluted earnings loss per share periods presented december 2004 fasb issued sfas 123 revised 2004 sharebased payment sfas no123r revises sfas 123 supersedes apb 25 sfas 123r requires sharebased payments employees including grants employee stock options valued fair value date grant expensed applicable vesting period pro forma disclosure income statement effects sharebased payments longer alternative sfas 123r effective reporting periods beginning june 15 2005 company august 1 2005 effective date beginning effective date company must expense options granted effective date applicable vesting period ii expense nonvested portions existing option grants going forward remaining vesting period compensation expense nonvested portions existing option grants effective date recorded based fair value awards previously calculated developing pro forma disclosures accordance provisions sfas 123 sfas 123r company required adopt fair valuebased method measuring compensation expense related employee stock options awards lead substantial additional compensation expense although affect companys cash flows material negative impact companys reported results operations november 2004 fasb issued sfas 151 inventory costs amendment arb 43 chapter 4 sfas 151 clarifies accounting abnormal amounts idle facility expense freight handling costs wasted material spoilage requiring items recognized currentperiod charges regardless whether meet arb 43 chapter 4 criterion abnormal addition sfas 151 requires allocation fixed production overheads costs conversion based normal capacity production facilities sfas 151 effective inventory costs incurred fiscal years beginning june 15 2005 adoption sfas 151 expected material effect companys consolidated financial statements december 2004 fasb issued sfas 153 exchanges nonmonetary assets amendment apb opinion 29 sfas 153 amends apb 29 eliminate exception nonmonetary exchanges similar productive assets replaces general exception exchanges nonmonetary assets commercial substance nonmonetary exchange commercial substance future cash flows entity expected change significantly result exchange sfas 153 effective reporting periods beginning june 15 2005 adoption sfas 153 expected material effect companys consolidated financial statements march 2004 eitf fasb reached consensus eitf issue 031 meaning otherthantemporary impairment application certain investments provides additional guidance assessing impairment losses investments additionally eitf 031 includes new disclosure requirements investments deemed temporarily impaired september 2004 fasb delayed accounting provisions eitf 031 however disclosure requirements remain effective annual periods ending june 15 2004 company evaluate impact eitf 031 final guidance issued however adoption eitf 031 current form expected material effect companys consolidated financial statements 23 quarterly information unaudited following table shows selected results operations quarters years ended january 31 2004 2005item 15 exhibits financial statement schedules documents filed part annual report 1 financial statements consolidated financial statements filed part annual report listed index consolidated financial statements page incorporated herein reference 2 financial statement schedules following financial statement schedules comverse technology inc subsidiaries included annual report read conjunction consolidated financial statements notes thereto schedule condensed financial information registrant s1 schedule ii valuation qualifying accounts reserves s5 financial statement schedules required regulation sx omitted applicable required information included applicable consolidated financial statements notes thereto 3 exhibits see b exhibits incorporated reference filed herewith exhibit “furnished” pursuant item 601b32 sec regulation sk deemed “filed” securities exchange commission incorporated reference filing registrant securities act 1933 securities exchange act 1934  constitutes management contract compensatory plan arrangement c financial statement schedules none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated comverse technology inc subsidiaries index consolidated financial statements report independent registered public accounting firm consolidated balance sheets consolidated statements operations consolidated statements shareholders’ equity consolidated statements cash flows notes consolidated financial statements schedule condensed financial information registrant s1 schedule ii valuation qualifying accounts reserves s5 report independent registered public accounting firm board directors shareholders comverse technology inc new york new york audited accompanying consolidated balance sheets comverse technology inc subsidiaries “company” january 31 2009 2008 2007 2006 related consolidated statements operations shareholders’ equity cash flows four years period ended january 31 2009 audits also included financial statement schedules listed index page item 15 financial statements financial statement schedules responsibility company’s management responsibility express opinion financial statements financial statement schedules based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position comverse technology inc subsidiaries january 31 2009 2008 2007 2006 results operations cash flows four years period ended january 31 2009 conformity accounting principles generally accepted united states america also opinion financial statement schedules considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed note 1 consolidated financial statements effective february 1 2006 company adopted statement financial accounting standards 123r sharebased payment discussed note 1 consolidated financial statements effective february 1 2007 company adopted financial accounting standards board interpretation 48 accounting uncertainty income taxes discussed note 3 consolidated financial statements certain opening balance sheet accounts january 31 2005 restated discussed note 27 consolidated financial statements substantial number subsequent events since january 31 2009 also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting january 31 2009 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission report dated october 4 2010 expressed adverse opinion company’s internal control financial reporting material weaknesses deloitte touche llp new york new york october 4 2010 comverse technology inc subsidiaries consolidated balance sheets thousands except share per share data accompanying notes integral part consolidated financial statements comverse technology inc subsidiaries consolidated statements operations thousands except share per share data accompanying notes integral part consolidated financial statements comverse technology inc subsidiaries consolidated statements shareholders’ equity thousands except share data accompanying notes integral part consolidated financial statements comverse technology inc subsidiaries consolidated statements shareholders’ equity continued thousands except share data accompanying notes integral part consolidated financial statements comverse technology inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part consolidated financial statements comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 1 organization business summary significant accounting policies basis presentation comverse technology inc “cti” together subsidiaries “company” holding company organized new york corporation october 1984 conducts business whollyowned subsidiary comverse inc together subsidiaries “comverse” majorityowned subsidiaries verint systems inc “verint systems” together subsidiaries “verint” ulticom inc together subsidiaries “ulticom” starhome bv together subsidiaries “starhome” consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 reflect effect adjustments prior periods disclosed note 3 prior period adjustments “prior period adjustments” effect prior period adjustments periods prior fiscal year ended january 31 2006 presented opening prior period adjustments shareholders’ equity january 31 2005 comverse leading provider softwarebased products systems related services provide prepaid postpaid converged billing active customer management wireless wireline cable network operators “business support systems” “bss” delivering value proposition designed ensure timely efficient service monetization enable realtime offers made end users based relevant customer profile information ii enable wireless wireline networkbased valueadded services “vas” comprised four categories voice messaging mobile internet mobile advertising include voicemail call completion visual voicemail ringback tones short messaging service “sms” text messaging “texting” multimedia picture video messaging mobile internet access mobile advertising internet protocol “ip” communications comverse’s products services designed generate carrier voice data network traffic revenue customer loyalty monetize network operators’ services improve operational efficiency 450 wireless wireline network communication service provider customers 125 countries including majority world’s 100 largest wireless network operators comverse comprises company’s comverse segment verint global leader actionable intelligence solutions valueadded services verint’s solutions enable organizations sizes make timely effective decisions improve enterprise performance enhance safety verint’s customers use verint’s actionable intelligence solutions capture distill analyze complex underused information sources voice video unstructured text enterprise market verint’s workforce optimization solutions help organizations enhance customer service operations contact centers branches backoffice environments increase customer satisfaction reduce operating costs identify revenue opportunities improve profitability security intelligence market verint’s video intelligence public safety communications intelligence solutions used government commercial organizations efforts protect people property neutralize terrorism crime verint comprises company’s verint segment ulticom provider network signaling information delivery solutions ulticom’s products used equipment manufacturers application developers communication service providers access signaling related information necessary deploy revenue generating infrastructure enhanced services within wireline wireless networks ii interoperate converge voice data networks iii bridge disparate signaling networks transfer route signaling information network elements ulticom comprises company’s ulticom segment comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued starhome provider wireless service mobility solutions enhance international roaming wireless operators use starhome’s softwarebased solutions generate additional revenue improve profitability directing international roaming traffic preferred networks providing wide range services subscribers traveling outside home network starhome part company’s segment principles consolidation consolidated financial statements accompanying notes prepared accordance accounting principles generally accepted united states america “us gaap” intercompany balances transactions eliminated minority interest net assets company’s consolidated subsidiaries relating primarily verint 571 owned january 31 2009 ulticom 678 owned january 31 2009 starhome 640 owned january 31 2009 presented separately liabilities shareholders’ equity consolidated balance sheets “minority interest equity earnings unconsolidated affiliates net tax” included consolidated statements operations represents portion net income attributable minority interest holders company’s equity earnings unconsolidated affiliates company uses equity method accounting account equity investments included “other assets” consolidated balance sheets owns common stock ability exercise significant influence control investee intercompany profit arising transactions affiliates eliminated extent company’s interest affiliates verint systems holds 50 equity interest variable interest entity primary beneficiary variable interest entity material consolidated financial statements company monitors equity method investments factors indicating otherthantemporary impairment loss recognized loss value affiliate considered otherthantemporary company includes results operations acquired businesses date acquisition use estimates preparation consolidated financial statements accompanying notes conformity us gaap requires company make estimates judgments affect reported amounts assets liabilities revenue expenses significant estimates include • determination vendor specific objective evidence fair value “vsoe” arrangement elements accordance american institute certified public accountants statement position 972 software revenue recognition amended related interpretations referred collectively “sop 972” • allowance doubtful accounts • fair value stockbased compensation comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued • valuation assets acquired liabilities assumed business combinations • fair value reporting units purpose goodwill impairment test • valuation intangible assets • valuation investments financial instruments • realization deferred tax assets • identification measurement uncertain tax positions company’s actual results may differ estimates company accounted certain items obtained additional information subsequent balance sheet date relates conditions existed date balance sheet affect estimates inherent process preparing consolidated financial statements subsequent information became available prior issuance consolidated financial statements assessed management evaluation conditions estimates based therefore consolidated financial statements adjusted significant changes estimates resulting use subsequent additional information applicable functional currency foreign currency translation transactions determination functional currency company’s foreign subsidiaries made based appropriate economic factors including currency subsidiary sells products sales market subsidiary operates currency subsidiary’s financing denominated foreign subsidiaries whose functional currency us dollar assets liabilities translated using current exchange rates balance sheet date income expense accounts using average exchange rates period except revenue previously deferred translated using historical rates resulting foreign currency translation adjustments reported separate component “accumulated comprehensive loss income” consolidated statements shareholders’ equity foreign subsidiaries whose functional currency local currency remeasurement gains losses recorded period “other expense income net” consolidated statements operations unrealized realized foreign currency transaction gains losses transactions denominated currencies functional currency entity included consolidated statements operations “other expense income net” period exchange rates changed business combinations company acquires business purchase price allocated tangible intangible assets acquired liabilities assumed based estimated fair values acquisition date residual purchase price recorded goodwill company’s determination fair values assets acquired liabilities assumed requires company make significant estimates primarily intangible assets estimates primarily derived historical experience information related acquired business estimates include limited cash flow projections acquired business appropriate weighted average cost capital results operations acquired business included company’s consolidated results operations date acquisition comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued minority interest minority shareholders obligation fund losses excess equity investment extent cumulative losses attributable minority interest holders exceed minority’s interest company recognizes 100 excess losses company’s majorityowned subsidiaries verint ulticom starhome sharebased payment award plans provide issuance company’s subsidiary common shares based service performance market conditions company elected account dilution may occur exercise awards granted sharebased payment award plans otherwise capital transactions corresponding gain loss consolidated statements operations segment reporting company determines reportable segments accordance statement financial accounting standards “sfas” 131 disclosures segments enterprise related information cti’s chief executive officer company’s chief operating decision maker “codm” company uses segment performance primary basis assessing financial results segments allocation resources see note 23 business segment information additional discussion including definition segment performance company four reportable segments comprised following comverse consisting comverse netcentrex reporting units ii verint consisting workforce optimization solutions video intelligence solutions communications intelligence investigative solutions reporting units iii ulticom iv consisting starhome reporting unit miscellaneous operations cti’s holding company operations cash equivalents cash primarily consists cash hand bank deposits cash equivalents primarily consist interestbearing money market accounts commercial papers agency notes highly liquid investments original maturity three months less purchased shortterm investments maturities three months less purchased classified cash equivalents 1857 million 3065 million 2955 million 2685 million january 31 2009 2008 2007 2006 respectively company maintains cash equivalents us dollars foreign currencies subject risks related foreign currency exchange rate fluctuations restricted cash bank time deposits restricted cash includes compensating cash balances related existing line credit deposits pledged collateral restricted use settle specified creditrelated bank instruments vendor payables general liability insurance workers’ compensation insurance warranty programs bank time deposits generally consist certificates deposit original maturities less twelve months accounts receivable net application company’s revenue recognition policies often results circumstances company unable recognize revenue relating sales transactions billed circumstances company recognize deferred revenue related account receivable amounts recognized consolidated balance sheets transactions exception certain arrangements recognized accordance statement position 811 accounting performance constructiontype certain productiontype contracts “sop 811” extent company recognized revenue received cash transactions amounts included “accounts receivable net” also extent company received cash transactions amount included “deferred revenue” consolidated balance sheets allowance doubtful accounts company estimates collectability accounts receivable balances accounting period adjusts allowance doubtful accounts accordingly company exercises judgment assessing collectability accounts receivable including consideration current economic conditions creditworthiness customers collection history related aging past due receivables balances company evaluates specific accounts becomes aware customer may experiencing deterioration financial condition due lower credit ratings bankruptcy factors may affect customer’s ability meet payment obligations comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued investments otherthantemporary impairments company accounts investments accordance sfas 115 accounting certain investments debt equity securities related pronouncements “sfas 115” company’s investments reported fair value designates marketable securities availableforsale purchased purchases recorded settlement date interest shortterm investments recognized consolidated statements operations earned realized gains losses availableforsale securities recognized securities sold calculated using specific identification method recorded “other expense income net” consolidated statements operations unrealized gains losses net taxes recorded component “accumulated comprehensive loss income” consolidated statements shareholders’ equity generally investments original maturities greater three months remaining maturities less one year classified shortterm investments company evaluates investments indications impairment value quarterly basis accordance sfas 115 related guidance including united states securities exchange commission “sec” staff accounting bulletin topic 5m temporary impairment certain investments debt equity securities company considers investment otherthantemporarily impaired estimated fair value less cost company determined probable unable collect contractual principal interest payments company intend hold investments recovers carrying amount otherthantemporary impairment assessments company considers many factors including severity duration decline fair value recent events specific issuer andor industry issuer security belongs external credit ratings recent downgrades otherthantemporary impairment charge reduces costbasis investment inventories net inventories stated lower cost market cost determined firstin firstout weightedaverage methods company reduces carrying value inventory holds excess obsolete inventories charges included component “product costs” consolidated statements operations identification excess obsolete inventories performed evaluation expected future demand comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued property equipment property equipment carried cost less accumulated depreciation amortization company depreciates property equipment straightline basis leasehold improvements capitalized amortized shorter estimated useful lives related lease term cost maintenance repairs expensed incurred estimated useful lives property equipment follows upon disposal asset related accumulated depreciation amortization removed related cost accumulated depreciation amortization accounts net amount less proceeds disposal charged credited consolidated statements operations fully depreciated assets retained cost accumulated depreciation accounts disposal retirement goodwill represents excess purchase price business combination fair value tangible intangible assets acquired net liabilities assumed company indefinitelived intangible assets goodwill carrying amount goodwill reviewed annually impairment november 1 whenever events changes circumstances indicate carrying value may recoverable goodwill impairment analysis comprised two steps first step company compares fair value reporting unit carrying value company considers incomebased approach using projected discounted cash flows marketbased approach using multiples comparable companies determine fair value company’s estimate fair value reporting unit based number subjective factors including appropriate weighting valuation approaches incomebased approach marketbased approach ii estimates future revenue cash flows iii discount rate estimated cash flows iv selection peer group companies marketbased approach v required levels working capital vi assumed terminal value vii time horizon cash flow forecasts viii control premium fair value reporting unit exceeds carrying value net assets assigned unit goodwill considered impaired analysis required performed carrying value net assets assigned reporting unit exceeds fair value second step performed determine implied fair value reporting unit’s goodwill carrying value reporting unit’s goodwill exceeds implied fair value impairment charge equal difference recorded company’s forecasts estimates based assumptions consistent plans estimates used manage business changes estimates may change conclusion regarding impairment goodwill impairment longlived assets company reviews recoverability longlived assets property equipment intangible assets finite lives whenever events changes circumstances occur indicate carrying value asset may recoverable impairment assets must considered prior conclusion impairment review goodwill assessment impairment based company’s ability recover carrying value asset analyzing expected future undiscounted pretax cash flows specific asset group comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued circumstances could trigger review include limited significant decrease market price asset significant adverse changes business climate legal factors accumulation costs significantly excess amount expected acquisition longlived asset current period cash flow operating losses combined history losses forecast continuing losses associated use asset company assesses recoverability carrying value longlived assets lowest level identifiable cash flows largely independent cash flows assets liabilities undiscounted cash flows less carrying value asset group impairment loss measured based difference estimated fair value carrying value assets disposed writtendown greater fair value salvage value estimated fair values based assumptions regarding amount timing estimated future cash flows appropriate discount rates reflect varying degrees perceived risk fair value financial instruments effective february 1 2008 company adopted sfas 157 fair value measurements “sfas 157” related interpretations established fair value hierarchy determining fair value measurements fiscal periods presented sfas 157 fair value defined price would received sale asset paid transfer liability orderly transaction market participants measurement date ie “the exit price” determining fair value company uses various valuation approaches including quoted market prices discounted cash flows sfas 157 also establishes hierarchy inputs used measuring fair value maximizes use observable inputs minimizes use unobservable inputs requiring observable inputs used available observable inputs market participants would use pricing asset liability developed based market data obtained independent sources unobservable inputs reflect company’s judgment concerning assumptions market participants would use pricing asset liability developed based best information available circumstances fair value hierarchy broken three levels based reliability inputs follows • level 1 valuations based quoted prices active markets identical instruments company able access since valuations based quoted prices readily regularly available active market valuation instruments entail significant degree judgment • level 2 valuations based quoted prices active markets instruments similar quoted prices markets active identical similar instruments modelderived valuations significant inputs significant value drivers observable active markets • level 3 valuations based inputs unobservable significant overall fair value measurement comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued extent valuation based models inputs less observable unobservable market determination fair value requires judgment accordingly company’s degree judgment exercised determining fair value greatest instruments categorized level 3 certain cases inputs used measure fair value may fall different levels fair value hierarchy cases sfas 157 requires asset liability classified entirety based lowest level input significant measurement fair value fair value marketbased measure considered perspective market participant holds asset owes liability rather entityspecific measure therefore even market assumptions readily available company’s assumptions set reflect market participants would use pricing asset liability measurement date company uses prices inputs current measurement date including periods market dislocation recent illiquidity auction rate securities market periods market dislocation observability prices inputs may reduced many instruments condition caused future may cause financial instruments company reclassified level 1 level 2 level 2 level 3 sfas 157 requires valuation techniques used consistent least one three possible approaches market approach income approach andor cost approach level 1 valuations based market approach consist primarily quoted prices identical items active securities exchanges company’s level 2 valuations also use market approach based significant observable inputs quoted prices financial instruments traded daily basis company’s level 3 valuations based income approach specifically discounted cash flow analyses utilize significant inputs observable active markets effective february 1 2008 company adopted sfas 159 fair value option financial assets financial liabilities including amendment fasb statement 115 “sfas 159” sfas 159 permits instrumentbyinstrument irrevocable election account selected financial instruments fair value company elected apply fair value option eligible financial assets financial liabilities fiscal year ended january 31 2009 derivative instruments hedge accounting part company’s risk management strategy uses derivative financial instruments including forward contracts interest rate swap agreements hedge certain foreign currency interest rate exposures respectively company accounts derivatives pursuant sfas 133 accounting derivative instruments hedging activities “sfas 133” amended interpreted recognizes derivatives either assets liabilities consolidated balance sheets fair value trade date basis derivatives gain position reported “prepaid expenses current assets” consolidated balance sheets derivatives loss position recorded “other current liabilities” “other longterm liabilities” applicable consolidated balance sheets hedge accounting purposes company formally documents inception hedging relationship hedging instrument hedged item risk management objective strategy undertaking hedging relationship method used assess hedge effectiveness accordance sfas 133 derivative financial instruments qualify cash flow hedge accounting sfas 133 company records effective portion changes fair value part “accumulated comprehensive loss income” consolidated statements shareholders’ equity hedged comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued item recognized consolidated statements operations related derivative gain loss reclassified “accumulated comprehensive loss income” consolidated statements shareholders’ equity consolidated statements operations within line item hedged item recorded derivative financial instruments qualify fair value hedge accounting sfas 133 company records changes fair value earnings derivative financial instrument qualify hedge accounting sfas 133 company records changes fair value derivative instruments “other expense income net” consolidated statements operations treasury stock repurchased shares common stock recorded treasury stock cost time company repurchases shares common stock upon vesting deferred stock unit restricted stock awards employees directors order provide funds payment associated minimum statutory withholding taxes fiscal years ended january 31 2009 2008 company repurchased 57659 49424 shares common stock respectively recorded treasury stock repurchases common stock took place fiscal years ended january 31 2007 2006 concentration credit risk financial instruments potentially expose company credit risk consist primarily shortterm investments accounts receivable company invests excess cash high creditquality financial institutions invests primarily money market funds placed major banks financial institutions ii bank time deposits iii corporate commercial paper iv corporate municipal short medium term notes v mortgage asset backed securities vi us government agency obligations vii repurchase agreements viii mutual funds company believes significant concentration credit risk exists respect investments beginning third quarter fiscal year ended january 31 2008 auctions supporting liquidity company’s investment auction rate securities “ars” failed curtailing liquidity investments company consequently limited ability manage exposure ars counterparty risk result change liquidity decline credit quality fair value ars declined company recorded otherthantemporary impairment charges investments see note 4 investments significant portion company’s accounts receivable primarily related comverse ulticom communication service providers however concentration credit risk diversified due large number commercial government entities comprising company’s customer base dispersion across many geographical regions company manages concentration credit risk trade accounts receivable performing ongoing credit evaluations customers’ financial condition limiting extension credit deemed necessary customer accounted 10 total revenue fiscal years ended january 31 2009 2008 2007 2006 company 127 190 consolidated accounts receivable january 31 2009 2006 respectively attributable comverse customer fiscal year ended significant concentration accounts receivable existed january 31 2008 2007 company believes significant credit risk exists revenue recognition company derives reports revenue two categories product revenue including hardware software products ii service revenue including revenue professional services training services postcontract customer support “pcs” professional services primarily include installation customization consulting services comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued vast majority company’s revenue accounted accordance sop 972 emerging issues task force “eitf” issue 035 applicability aicpa statement position 972 nonsoftware deliverables arrangement containing morethanincidental software “eitf 035” software component company’s multiple element arrangements incidental products sold applying provisions sop 972 company exercises judgment uses estimates determining revenue recognized accounting period arrangements require significant modification customization underlying software company recognizes revenue persuasive evidence arrangement product shipped services provided customer sales price fixed determinable collectability probable pertinent criteria met required sop 972 certain instances payment terms extend beyond company’s customary practices situations customer adequate history abiding contractual payment terms without concessions sales price considered fixed determinable revenue recognition commences upon collection provided revenue recognition criteria met certain contractual arrangements company required pay penalty liquidated damages delivery company’s products installation services completed certain date arrangements company guaranteed product performance warranty service response rates met result penalties company accounts penalties liquidated damages accordance sfas 5 accounting contingencies “sfas 5” shipping handling amounts billed company’s customers included product revenue related shipping handling costs included product costs company reports revenue net revenuebased taxes assessed governmental authorities imposed concurrent specific revenue producing transactions accordance eitf 063 taxes collected customers remitted government authorities presented income statement gross vs net presentation “eitf 063” following specific revenue recognition policies major category revenue multiple element arrangements majority company’s software license arrangements contain multiple elements including perpetual software licenses hardware pcs training professional services company allocates revenue delivered elements arrangement using residual method whereby revenue allocated undelivered elements based vendor specific objective evidence “vsoe” fair value undelivered elements prescribed sop 972 remaining arrangement fee allocated delivered elements recognized revenue assuming revenue recognition criteria met company unable establish vsoe fair value undelivered elements arrangement revenue recognition deferred entire arrangement elements arrangement delivered however undelivered element pcs company recognizes arrangement fee ratably pcs period pcs revenue derived primarily providing technical software support services unspecified software updates upgrades customers available basis pcs revenue recognized ratably term pcs period pcs included within multiple element arrangement company primarily utilizes substantive renewal rate establish vsoe fair value pcs much lesser extent bellshaped curve approach used certain company’s verint segment arrangements depending upon geographical region product line comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued company’s policy establishing vsoe fair value professional services training based upon analysis separate sales services compared fees charged elements included multiple element arrangement company’s comverse segment yet established vsoe fair value element pcs using substantive renewal rate method company may unable establish vsoe fair value pcs renewal rate deemed nonsubstantive contractuallystated renewal rates stated renewal rate nonsubstantive entire arrangement fee recognized ratably estimated economic life product five eight years beginning upon delivery elements pcs company believes estimated economic life product best estimate long customer renew pcs contractually stated renewal rate entire arrangement fee recognized ratably relevant contractual pcs term beginning upon delivery elements pcs bellshaped curve approach establishing vsoe fair value company’s verint segment performs vsoe fair value compliance test ensure substantial majority actual pcs renewals within narrow range pricing certain company’s verint segment arrangements explicit obligation provide pcs matter business practice provided implied pcs implied pcs accounted separate element vsoe fair value exist arrangements contain implied pcs recognized period implied pcs provided exceed estimated economic life product certain multipleelement arrangements company obligated provide training services customers related operation company’s software products comverse segment training services either provided customer “defined” basis limited specified number days training classes “asrequested” basis unlimited training contractual period comverse established vsoe fair value either type training multipleelement arrangements containing asrequested training obligations company recognizes total arrangement consideration ratably contractual period training company required “stand ready” perform training provided criteria revenue recognition met multipleelement arrangements containing defined training obligations training services typically provided customer prior completion installation services situations revenue recognition commence completion installation defined training obligations impact timing recognition revenue certain circumstances training provided end installation period company commences revenue recognition upon completion training provided criteria revenue recognition met fiscal years ended january 31 2009 2008 2007 company’s comverse segment information multipleelement arrangements determine training fulfilled however fiscal year ended january 31 2006 information respect timing fulfillment training comverse segment limited therefore company estimated required revenue deferral multipleelement arrangements due impact unfulfilled defined training obligations based information available comverse segment fiscal years ended january 31 2009 2008 2007 inherent estimates key assumptions related consistency percentage revenue subject deferral average number days provide defined training services completion installation company believes methodology key assumptions reasonable part comverse segment’s static stable customer base consistent training terms provided longterm contracts time consistent training practices time comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued multiple element arrangements company may offer discount future purchases products services discount considered additional element arrangement discount considered insignificant morethaninsignificant discount respect future purchases discount incremental range discounts reflected pricing elements arrangement ii incremental range discounts typically given comparable transactions iii significant insignificant discounts incremental affect revenue recognition discount considered insignificant portion fee received deferred recognized revenue future purchases made customer upon expiration period discount available company’s arrangements require significant customization product meet particular requirements customer arrangements revenue recognized accordance accounting research bulletin 45 longterm constructiontype contracts relevant guidance contained within sop 811 typically using percentageofcompletion “poc” method determination whether services entail significant customization requires judgment primarily based alterations features functionality standard release complex unusual interfaces well amount hours necessary complete customization solution relative size contract revenue arrangements recognized poc method based ratio total hours incurred date compared estimated total hours complete contract management required make judgments estimate total estimated costs progress completion changes estimates impact timing revenue recognition period company uses historical experience project plans assessment risks uncertainties inherent arrangement establish estimates uncertainties arrangements include implementation delays performance issues may within company’s control event profitability contract cannot assured completedcontract method revenue recognition applied level profitability assured related revenue costs cannot reasonably estimated revenue recognized extent costs incurred time project’s profitability estimated services completed vsoe fair value pcs exist revenues recognized equal extent costs incurred services completed provided company able make reliable cost estimates level profitability assured services completed remaining unrecognized portion arrangement fee recognized ratably remaining pcs period situations company able make reliable estimates level profitability assured revenue deferred completion professional services recognized ratably respective pcs period company determines based estimates costs exceed sales price entire amount estimated loss accrued period losses become evident revenue comverse segment derives sales distributors resellers valueadded resellers recognized resellers turn sell software product customers installation software product occurred provided sop 972 revenue recognition criteria met commonly referred sellthrough method contractual arrangements reseller end user reseller comverse generally obligate comverse provide services end user subject end user acceptance payment terms generally subject reseller’s receiving payment end user end user’s acceptance product therefore comverse defers recognition “sellthrough” reseller actual enduser customer comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued product revenue verint segment derives shipments resellers original equipment manufacturers “oems” purchase products resale generally recognized products shipped “sellin” basis verint historically experienced insignificant product returns resellers oems payment terms customers similar granted endusers reseller oem develops pattern payment delinquency seeks payment terms longer generally accepted verint defers recognition revenue receipt cash verint’s arrangements resellers oems periodically reviewed business products change verint segment’s shipment products include embedded firmware deemed incidental company recognizes revenue provided persuasive evidence arrangement exists delivery occurred services rendered fee fixed determinable collectability fee reasonably assured shipments hardware products delivery considered occurred upon shipment provided risks loss title certain jurisdictions transferred customer consolidated statements operations company classifies revenue product revenue service revenue prescribed sec rule 503 b regulation sx multiple element arrangements include product service elements company unable determine vsoe fair value elements arrangement management evaluates various available indicators fair value applies judgment reasonably classify arrangement fee product revenue service revenue amount multiple element arrangement fees classified product service revenue based management estimates fair value vsoe fair value elements arrangement exist could differ amounts classified product service revenue vsoe fair value elements existed allocation multiple element arrangement fees product revenue service revenue vsoe fair value elements exist consolidated financial statement presentation purposes affect timing amount revenue recognized determining amount multiple element arrangement fee classified product revenue service revenue comverse segment first allocates arrangement fee product revenue pcs classified service revenue based management’s estimate fair value elements remainder arrangement fee comprised service elements allocated service revenue estimate fair value product element based primarily management’s evaluation direct costs reasonable profit margins products determined appropriate methodology comverse segment historically productoriented respect pricing policies facilitates evaluation product costs related margins arriving reasonable estimate product element fair value management’s estimate reasonable profit margins requires significant judgment consideration various factors impact economic environment margins complexity projects stability product profit margins nature products estimate fair value pcs based management’s evaluation weighted average pcs rates arrangements vsoe fair value pcs exists determining classification revenue products services company’s verint segment reviews vsoe fair value training installation pcs services similar transactions stand alone services arrangements compares peers order determine reasonable consistent approximations fair values service revenue remaining amount allocated product revenue comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued postcontract customer support renewals company’s multiple element arrangements typically provide renewal pcs terms upon expiration original term amounts pcs renewals recognized revenue ratably specified pcs renewal period professional services arrangements based type nature professionalservicesonly arrangements company recognizes revenue using either proportional performance method completed performance method time materials basis fixedfee arrangements recognized based proportional performance method company typically measures progress completion based ratio hours incurred total estimated project hours input method fixedfee arrangements recognized based completed performance method company recognizes revenue services completed obligations company recognizes revenue time materials arrangements services performed based contractually stipulated billing rates product service costs company’s product service costs include costs materials compensation benefit costs operations service personnel subcontractor costs royalties license fees depreciation equipment used operations service amortization capitalized software costs certain purchased intangible assets related overhead costs revenue recognized multiple periods accordance company’s revenue recognition policies material cost including hardware thirdparty software license fees deferred amortized period product revenue recognized costs recognized “deferred cost revenue” consolidated balance sheets however company made accounting policy election whereby cost installation service costs expensed incurred except arrangements recognized accordance sop 811 certain contracts revenue recognized accordance sop 811 revisions estimates costs reflected accounting period facts require revision become known costs include direct material labor costs overhead related contract performance research development net research development expense primarily consists personnel costs involved product development research development expense also includes thirdparty development programming costs amortization purchased software code services content research development costs expensed incurred company receives nonrefundable grants fund portion research development expenditures grants recorded reduction “research development net” consolidated statements operations software costs software developed internal use capitalized accordance statement position 981 accounting costs computer software developed obtained internal use “sop 981” comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued application development stage amortized estimated useful life software date four years less software ready internal use costs included “property equipment net” consolidated balance sheets costs software developed sale customers capitalized accordance sfas 86 accounting costs computer software sold leased otherwise marketed “sfas 86” software costs incurred capitalized subsequent establishing technological feasibility continue general release software products capitalized costs included “other assets” consolidated balance sheets amortization capitalized costs begin period related product available general release customers recorded straightline basis estimated economic life related software products approximates pattern economic benefits expected realized economic life related software products generally seven years less sales marketing sales marketing expenses include payroll employee benefits stockbased compensation headcountrelated expenses associated sales marketing personnel costs advertising promotions programs addition company expenses customer acquisition origination costs including sales commissions incurred exception certain sales referral fees capitalized amortized ratably revenue recognition period advertising costs expensed incurred stockbased compensation prior february 1 2006 company accounted stockbased compensation options granted employees members board directors using intrinsic value method prescribed accounting principles board opinion 25 accounting stock issued employees “apb 25” related interpretations intrinsic value method stockbased compensation expense recognized company’s consolidated statements operations exercise price company’s stock options granted employees directors less market price underlying stock date grant february 1 2006 company adopted sfas 123 revised 2004 sharebased payment “sfas 123r” related interpretive guidance requires measurement recognition compensation expense sharebased payment awards made employees directors including employee stock options restricted stock deferred stock units employee stock purchases based estimated fair values sfas 123r supersedes company’s previous accounting apb 25 company adopted sfas 123r using modified prospective transition method requires application accounting standard february 1 2006 company’s consolidated financial statements fiscal year ended january 31 2007 subsequent years reflect impact adoption sfas 123r accordance modified prospective transition method company’s consolidated financial statements fiscal years prior january 31 2007 revised reflect include impact sfas 123r sfas 123r requires companies estimate fair value sharebased payment awards date grant using optionpricing model sfas 123r stockbased compensation expense measured grant date based fair value award cost recognized expense comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued ratably award’s vesting period company uses blackscholes optionpricing model measure fair value stock option awards blackscholes model requires company make judgments regarding assumptions used within model significant stock price volatility assumption term awards expected life option award based actual projected employee stock option behaviors assumptions include riskfree rate return dividends expected term sfas 123r company required estimate expected forfeitures stockbased awards grant date recognize compensation cost awards expected vest forfeiture assumption adjusted actual forfeitures occur therefore changes forfeiture assumptions may impact timing total amount expense recognized vesting period estimated forfeitures reassessed subsequent periods may change based new facts circumstances sfas 123r address measurement guidance stockbased transactions nonemployees accounting stockbased transactions nonemployees covered eitf 9618 accounting equity instruments issued employees acquiring conjunction selling goods services “eitf 9618” fair value equity instruments issued nonemployee measured using stock price measurement assumptions date earlier either commitment performance nonemployee reached ii counterparty’s performance complete expenses related nonemployee awards generally recognized period manner company incurs related liability goods services received fiscal year ended january 31 2007 company recorded cumulative effect change accounting principle 14 million expense recognized prior adoption sfas 123r awards expected forfeited upon adoption sfas 123r february 1 2006 company also reclassified 158 million related unvested portion restricted stock awards unearned stockbased compensation additional paidin capital “apic” apic pool november 10 2005 financial accounting standards board “fasb” issued fasb staff position fas 123r3 transition election related accounting tax effects sharebased payment awards “fsp fas 123r3” company elected adopt alternative transition method provided fasb staff position calculating tax effects stockbased compensation pursuant sfas 123r company elected apply longform method determine hypothetical apic pool company determined hypothetical pool excess tax benefits existed apic february 1 2006 date company’s adoption sfas 123r related historical stock option exercises future periods excess tax benefits resulting stock option exercises recognized additions apic period benefit realized event shortfall tax benefit realized less amount previously recognized periodic stockbased compensation expense recognition related deferred tax accounting shortfall would charged apic extent previous excess benefits including hypothetical apic pool tax expense pro forma presentation stockbased compensation following table presents pro forma effect net income earnings per share accordance sfas 148 accounting stockbased compensation transition disclosure amendment fasb statement 123 “sfas 148” company applied fair value comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued recognition provisions sfas 123 accounting stockbased compensation “sfas 123” options granted stock option plans fiscal year ended january 31 2006 prior adoption sfas 123r 1 includes pro forma stockbased compensation expense 131 million fiscal year ended january 31 2006 related amortization fair value replacement options granted december 23 2002 considered modified sfas 123 income taxes company accounts income taxes accordance sfas 109 accounting income taxes “sfas 109” fasb interpretation 48 accounting uncertainty income taxes interpretation fasb statement 109 “fin 48” company adopted fin 48 effective february 1 2007 income taxes provided using asset liability method income taxes ie deferred tax assets deferred tax liabilities taxes currently payablerefunds receivable tax expense recorded based amounts refundable payable current year include results difference us gaap tax reporting deferred income taxes reflect tax effect net operating losses capital losses general business credit carryforwards net tax effects temporary differences carrying amount assets liabilities financial statement income tax purposes determined enacted tax laws rates valuation allowances established management determines morelikelythannot portion deferred tax asset realized financial effect changes tax laws rates accounted period enactment subsequent realization net operating loss general business credit carryforwards acquired acquisitions accounted using purchase method accounting recognized consolidated statement operations research development credits recorded based amount benefit company believes morelikelythannot earned additionally company required recognize consolidated financial statements tax positions determined morelikelythannot sustained upon examination based technical merits positions time company engages transactions tax consequences may subject uncertainty examples transactions include business acquisitions dispositions comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued certain financing transactions significant judgment required assessing estimating tax consequences transactions company prepares files tax returns based interpretation tax laws regulations normal course business company’s tax returns subject examination various taxing authorities examinations may result future tax interest assessments taxing authorities determining company’s tax provision financial reporting purposes company establishes reserve uncertain tax positions unless positions determined morelikelythannot sustained upon examination based technical merits financial reporting purposes company recognizes tax benefits taken tax return believes morelikelythannot sustained considerable judgment involved determining whether positions taken tax return morelikelythannot sustained company adjusts tax reserve estimates periodically ongoing examinations settlements various taxing authorities well changes tax laws regulations interpretations consolidated tax provision given year includes adjustments prior year income tax accruals considered appropriate related estimated interest company’s policy recognize applicable interest penalties uncertain tax positions part income tax expense see note 22 income taxes part accounting business combinations purchase price allocated goodwill intangible assets impairment charges associated goodwill generally tax deductible result increased effective income tax rate quarter impairment recorded amortization expenses associated acquired intangible assets generally tax deductible pursuant company’s existing tax structure however deferred taxes recorded nondeductible amortization expenses part purchase price allocation process company taken account allocation identified intangibles among different taxing jurisdictions including nominal zero percent tax rates establishing related deferred tax liabilities income tax contingencies existing acquisition dates acquired companies evaluated quarterly adjustments recorded adjustments goodwill upon adoption fas 141r fiscal year ended january 31 2010 tax benefit future release acquisition date valuation allowances would reflected tax provision rather reduction goodwill loss earnings per share basic loss earnings per share computed using weightedaverage number cti’s shares common stock outstanding period diluted loss earnings per share computed using weightedaverage number cti’s shares common stock dilutive common equivalent shares outstanding period common equivalent shares consist shares common stock issuable respect stock options restricted stock deferred stock units “dsus” convertible debt obligations “convertible debt obligations” issued may 2003 convertible debentures treasury stock method used compute dilutive effect options dsus similar instruments asifconverted method used compute dilutive effect company’s convertible debt obligations issued may 2003 convertible debentures additionally purposes calculating diluted loss earnings per share net loss income adjusted difference verint’s ulticom’s starhome’s reported diluted basic earnings per share multiplied number shares common stock common share equivalents cti holds verint ulticom starhome comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued contingencies nature relate uncertainties require management exercise judgment assessing likelihood liability incurred well estimating amount potential loss company accrues costs relating litigation claims contingent matters liabilities become probable reasonably estimable accounting changes error corrections company accounted changes accounting principle error corrections accordance sfas 154 accounting changes error corrections “sfas 154” company utilizes retrospective application unless specific transition requirements provided required method accounting reporting change accounting principle correction error additionally company applied provisions sab 108 considering effects prior year misstatements quantifying misstatements current year financial statements “sab 108” provides guidance effects carryover reversal prior year financial statement misstatements considered quantifying current year misstatement company applied applicable provisions sfas 154 sab 108 presentation disclosure errors resulting corrective adjustments discussed note 3 prior period adjustments additional cash flow information following represents noncash activities supplemental information consolidated statements cash flows comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued 2 effect recent accounting pronouncements yet adopted december 2007 fasb issued sfas 141 revised 2007 business combinations “sfas 141r” replaces sfas 141 business combinations “sfas 141” sfas 141r significantly change accounting business combinations impact consolidated financial statements acquisition date subsequent periods sfas 141r requires acquiring entity recognize assets acquired liabilities assumed noncontrolling interest acquiree measured fair values acquisition date limited exceptions sfas 141r requires acquisition costs recognized separately business combination generally expensed incurred sfas 141r also includes substantial number new disclosure requirements sfas 141r applies prospectively company’s business combinations commencing february 1 2009 exception accounting changes valuation allowances acquired deferred taxes acquired tax contingencies applied retrospectively impact sfas 141r company’s consolidated financial statements depend nature size acquisitions completed company adopts standard company believes impact applying sfas 141r acquisition iontas february 2010 see note 27 subsequent events immaterial consolidated financial statements december 2007 fasb ratified consensus opinion reached eitf issue 071 accounting collaborative arrangements “eitf 071” guidance eitf 071 defines collaborative arrangements establishes presentation disclosure requirements transactions within collaborative arrangement third parties participants arrangement eitf 071 effective company fiscal years interim periods commencing february 1 2009 eitf 071 requires retrospective application collaborative arrangements existing effective date unless retrospective application impracticable impracticability evaluation exception performed arrangementbyarrangement basis company anticipate adoption eitf 071 material impact consolidated financial statements december 2007 fasb issued sfas 160 noncontrolling interests consolidated financial statements amendment arb 51 “sfas 160” sfas 160 establishes new accounting reporting standards noncontrolling interest subsidiary deconsolidation subsidiary sfas 160 also requires recognition noncontrolling interest minority interest equity consolidated financial statements separate parent’s equity amount net income attributable noncontrolling interest included consolidated net income face consolidated statements operations sfas 160 effective company fiscal years interim periods commencing february 1 2009 upon adoption sfas 160 company retrospectively present noncontrolling interest subsidiary within shareholders’ equity consolidated balance sheets net income noncontrolling interests presented consolidated net income consolidated statements operations march 2008 fasb issued sfas 161 disclosures derivative instruments hedging activities amendment fasb statement 133 “sfas 161” sfas 161 amends sfas 133 requiring increased qualitative quantitative creditrisk disclosures entity’s derivative instruments hedging activities change sfas 133’s scope accounting sfas 161 effective company commencing february 1 2009 adoption sfas 161 anticipated material impact consolidated financial statements april 2008 fasb issued fasb staff position “fsp” fas 1423 determination useful life intangible assets “fsp fas 1423” fsp fas 1423 amends factors considered developing renewal extension assumptions used determine useful life recognized intangible asset sfas 142 intent fsp fas 1423 improve consistency useful life recognized intangible asset sfas 142 period expected cash flows used comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued measure fair value asset sfas 141r us gaap fsp fas 1423 effective company commencing february 1 2009 company anticipate fsp fas 1423 material impact consolidated financial statements may 2008 fasb issued fsp apb 141 accounting convertible debt instruments may settled cash upon conversion including partial cash settlement “fsp apb 141” fsp apb 141 requires issuer certain convertible debt instruments may settled cash assets conversion account separately liability debt equity conversion option components instrument manner reflects issuer’s nonconvertible debt borrowing rate fsp apb 141 effective company fiscal years commencing february 1 2009 applied retrospectively beginning february 1 2009 company change accounting certain convertible debt obligations fsp apb 141 requires company separately account liability equity components liability component discounted manner reflect company’s nonconvertible debt borrowing rate company believes adoption result retrospective reclassification approximately 731 million carrying value certain convertible debt obligations date issuance january 26 2005 equity giving rise debt discount debt discount recognized interest expense using effective interest method first date holders securities exercise put rights may 15 2008 april 2009 fasb issued following three fsps intended provide additional application guidance enhance disclosures fair value measurements impairments securities • fsp fas 1574 determining fair value volume level activity asset liability significantly decreased identifying transactions orderly “fsp fas 1574” • fsp fas 1152 fas 1242 recognition presentation otherthantemporary impairments “fsp fas 1152” • fsp fas 1071 apb 281 interim disclosures fair value financial instruments “fsp fas 1071” fsp fas 1574 clarifies objective method fair value measurement even significant decrease market activity asset measured fsp fas 1152 establishes new model measuring otherthantemporary impairments debt securities including establishing criteria recognize writedown earnings versus comprehensive income fsp fas 1071 expands fair value disclosures required financial instruments within scope sfas 107 interim periods fsps effective company interim annual periods commencing may 1 2009 company anticipates adoption fsp fas 1574 fsp fas 1152 significant impact consolidated financial statements adoption fsp fas 1071 result increased disclosures future interim periods may 2009 fasb issued sfas 165 subsequent events “sfas 165” sfas 165 intended establish general standards accounting disclosure events occur balance sheet date consolidated financial statements issued specifically sfas 165 sets forth period balance sheet date management reporting entity evaluate events transactions may occur potential recognition disclosure consolidated financial statements circumstances entity recognize events transactions occurring balance sheet date consolidated financial statements disclosures entity make events transactions occurred balance sheet date sfas 165 effective comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued company commencing interim filing period ended july 31 2009 annual filing period ended january 31 2010 company currently anticipate statement materially impact consolidated financial statements june 2009 fasb issued sfas 167 amendments fasb interpretation 46r “sfas 167” modifies approach determining primary beneficiary variable interest entity “vie” modified approach enterprise required make qualitative assessment whether power direct activities vie significantly impact entity’s economic performance ii obligation absorb losses vie right receive benefits vie could potentially significant vie enterprise characteristics enterprise considered primary beneficiary must consolidate vie modified approach determining primary beneficiary vie effective company commencing february 1 2010 expected material impact consolidated financial statements june 2009 fasb issued sfas 168 fasb accounting standards codification hierarchy generally accepted accounting principles “sfas 168” sfas 168 source authoritative accounting principles recognized fasb supersedes existing nonsec accounting reporting standards upon effective date subsequently fasb issue new standards form statements fasb staff positions eitf abstracts upon adoption sfas 168 references previous literature removed consolidated financial statements accompanying footnotes sfas 168 effective company commencing interim filing period ended october 31 2009 annual filing period ended january 31 2010 september 2009 fasb ratified consensuses reached eitf regarding following issues involving revenue recognition • eitf issue 081 revenue arrangements multiple deliverables “eitf 081” previously titled revenue recognition single unit accounting • eitf issue 093 certain revenue arrangements include software elements “eitf 093” eitf 081 addresses separate consideration multipledeliverable arrangements significantly expands disclosure requirements excluding software arrangements eitf 0801 establishes hierarchy determining selling price deliverable eliminates residual method allocation requires arrangement consideration allocated inception arrangement deliverables using relative selling price method eitf 093 applies multipledeliverable revenue arrangements contain software hardware elements focusing determining revenue arrangements within scope software revenue guidance sop 972 eitf 093 removes tangible products scope software revenue guidance provides guidance determining whether software deliverables arrangement includes tangible product within scope software revenue guidance eitf 081 eitf 093 effective prospective basis revenue arrangements entered materially modified company commencing february 1 2011 company elected early adopt eitf 081 eitf 093 company assessing impact adoption eitf 081 eitf 093 may consolidated financial statements comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued january 2010 fasb issued guidance amend disclosure requirements related recurring nonrecurring fair value measurements guidance requires new disclosures transfers assets liabilities level 1 quoted prices active market identical assets liabilities level 2 significant observable inputs fair value measurement hierarchy including reasons timing transfers additionally guidance requires gross presentation activity within level 3 significant unobservable inputs roll forward presenting information purchases sales issuance settlements separately guidance effective company interim annual periods commenced february 1 2010 except gross presentation level 3 rollforward become effective company interim annual periods commencing february 1 2011 adoption guidance anticipated result additional disclosures comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued 3 prior period adjustments prior period adjustments company’s consolidated historical financial information resulted principally following investigations evaluations march 14 2006 cti disclosed board directors formed special committee composed outside directors review matters relating cti’s historic stock option grant practices including limited accuracy stated dates option grants whether proper corporate procedures followed investigation referred “phase investigation” november 14 2006 cti disclosed special committee’s investigation expanded financial accounting matters including recognition revenue related certain contracts errors recording certain deferred tax accounts misclassification certain expenses misuse accounting reserves intentional inaccurate presentation backlog investigation referred “phase ii investigation” november 2007 cti initiated separate evaluation application us gaap connection recognition revenue softwarerelated arrangements separate evaluation prompted concerns arose connection audit cti’s consolidated financial statements evaluation part investigations conducted special committee addition verint systems ulticom inc also conducted separate management audit committee reviews investigations stock option grant practices certain nonoption accounting issues including accounting reserves income statement expense classification conducted evaluation application us gaap connection recognition revenue accordance sop 972 verint systems’ review stock option grant practices referred “verint phase review” investigation earnings manipulation referred “verint phase ii investigation” ulticom inc’s investigation stock option grant practices referred “ulticom phase investigation” investigation earnings manipulation referred “ulticom phase ii investigation” investigations conducted cti’s special committee audit committees verint systems ulticom inc referred collectively “investigations” revenue recognition evaluations conducted cti verint systems ulticom inc referred collectively “evaluations” investigations revenue recognition evaluations together company’s preparation consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 resulted prior period adjustments financial results fiscal periods january 31 2005 classified follows adjustments summarized “phase stockbased compensation” consist adjustments resulting cti’s special committee’s phase investigation ulticom’s phase investigation adjustments attributable cti’s stock options reflect additional compensation expense related corrections stock option grant measurement dates corrections errors accounting stockbased compensation fiscal year ended december 31 1991 fiscal year ended january 31 2005 include adjustments related cti stock options granted employees cti’s subsidiaries including verint ulticom addition category includes adjustments related errors accounting stockbased compensation relating stock option grants made ulticom inc ii adjustments summarized “phase ii reserves” consist adjustments resulting cti’s special committee phase ii investigation verint phase ii investigation ulticom phase ii investigation adjustments include corrections errors related inappropriate creation release reserves fiscal year ended december 31 comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued 1996 fiscal year ended january 31 2004 additionally investigations certain expenses including product costs service costs research development expenses selling general administrative expenses found inappropriately classified unsupported adjustments backlog discovered reclassification expenses backlog adjustments impact company’s net income accumulated deficit iii adjustments summarized “revenue recognition evaluations” consist adjustments resulting revenue recognition evaluations conducted verint ulticom cti including subsidiaries related cost revenue adjustments made appropriately recognize revenue accordance us gaap fiscal year ended january 31 2000 fiscal year ended january 31 2005 iv adjustments summarized “other prior period adjustments” include corrections errors cti subsidiaries corrections summarized “phase stockbased compensation” “phase ii reserves” “revenue recognition evaluations” adjustments additional paidin capital include reduction deferred income tax valuation allowance associated net operating losses generated stock compensation expense remaining adjustments primarily correct accounting errors identified allowance doubtful accounts accrued bonuses sales commissions accruals restructuring initiatives goodwill value added tax “vat” write certain deferred financing fees v adjustments summarized “minority interest net tax” represent adjustments reflecting impact prior period adjustments minority interests cti’s majorityowned subsidiaries vi adjustments summarized “income tax provision” represent corrections errors related certain historical tax positions adjustments cti subsidiaries related tax effect aforementioned prior period adjustments following table presents cumulative effect prior period adjustments shareholders’ equity january 31 2005 phase stockbased compensation special committee’s phase investigation covered 39 stock option grants general grants directors made january 1991 october 2005 last stock option grant made prior commencement special committee’s phase investigation special comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued committee concluded 29 grants made january 1991 october 2002 backdated obtain advantageous exercise prices addition management reviewed four general restricted stock award grants december 2005 special committee’s phase investigation management’s review revealed errors improprieties associated accounting administration cti’s equity awards granted cti employees subsidiary employees nonemployees incorrect measurement dates stock options connection investigation special committee reviewed evidence determine accuracy stated dates option grants whether correct measurement dates used us gaap stock option grants measurement date applicable stock options period investigation defined apb 25 date following first known individual employee entitled receive option grant ii number options individual employee entitled receive iii option exercise price apb 25 stockbased compensation expense required recorded stock options exercise price stock options least equal market value underlying common stock measurement date review general grants comprising approximately 82253000 shares 17201 individual awards revealed five general grants consisting approximately 21404000 shares 4916 individual awards previously accounted using correct measurement dates vast majority awards approved means unanimous written consents effective “as of” earlier purported grant date unanimous written consents lacked execution dates special committee’s phase investigation revealed 1991 2002 signatures members compensation committee prior reconstitution entirety december 2006 “former compensation committee” likely obtained stated “as of” dates grants awarded employees consultants senior executives special committee found inappropriate backdating options perpetrated knowledge participation cti’s former chairman chief executive officer jacob “kobi” alexander former director general counsel william sorin 1998 2002 former executive vice president chief financial officer david kreinberg mr alexander knowledge participation mr sorin 1998 2002 mr kreinberg backdated stock options selecting earlier grant date stock price lower purpose practice grant recipients options exercise price lower fair market value underlying shares grant date without recognizing stockbased compensation expense required recorded us gaap special committee found evidence grantees messrs alexander kreinberg sorin involved aware improprieties surrounding grants concluded grants employees consultant grantees honored similarly although special committee found irregularities concerning grants nonemployee directors concluded product intentional wrongdoing none nonemployee directors aware irregularities special committee determined honor prior grants well special committee determined limited evidence regarding actual dates general grants approved former compensation committee management developed method determining proper measurement dates backdated grant management believes consistent apb 25 january 2007 illustrative letter chief accountant sec approach included review relevant documentary evidence gathered special committee process one million documents identified possibly relevant reviewed special committee key documents regarding general grants ranked terms evidentiary quality management company considered evidence conjunction circumstances surrounding award many cases subjective judgments comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued made order select appropriate measurement date consideration relevant information different dates selected resulting amount expense may differed materially management believes measurement date review process resulting expense calculations reasonable accordance us gaap january 2007 illustrative letter chief accountant sec general measurement dates cti determined 34 general grants comprising approximately 60849000 shares 12285 individual awards approved unanimous written consent approved date later original effective date grant grants 29 backdated made prior january 31 2003 five grants made january 31 2003 comprising approximately 6929000 shares 1709 individual awards approved assigned measurement dates later original “as of” effective date grant due minor administrative delays approximately one week less general grants special committee management reviewed relevant documentary evidence using approach described determined 34 general grants described new measurement date referred new general measurement date representative date actual grant approval among 39 general grants reviewed cti’s may 2002 voluntary stock option exchange program measurement date regrant change result review therefore additional intrinsic value recorded related exchange individual measurement dates cti determined 349 individual option awards included 39 general grants distributed dates later new general measurement date cti researched exceptions ensure nature number imply awards associated general grant subject adjustment reallocation new general measurement date cti concluded based examination evidence described relation circumstances surrounding award exceptions identified imply open allocation process beyond new general measurement date ii impact completion required granting actions general grant therefore impact measurement date general grant 349 individual option awards distributed general grant date five different circumstances certain awards six noted general grants pooled fictitious account awards distributed individuals later dates time awards partially fully vested pooled account primarily funded fictitious names included grant lists attached unanimous written consents furnished former compensation committee approval former compensation committee unaware individuals actual employees approved grants result special committee’s phase investigation remaining undistributed awards later canceled compensation expense recorded ii individual option awards recycled unexercised grants forfeited grantees whose employment terminated transferred new recipients without approval former compensation committee stockbased compensation expense associated recycled awards attributed recipients whose awards ultimately vested comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued iii certain cti’s business units took additional time finalize grantee lists case company used measurement date last award entire business unit iv certain individuals hired grant date company used individuals’ respective dates hire measurement dates v prior final distribution quantity awards modified amounts depicted original list approved former compensation committee measurement dates used awards dates final quantity awards determined final distribution awards sometimes months general grant date portion stockbased compensation expense related service period prior final distribution recognized measurement date individual award management accounted aforementioned grants apb 25 fasb interpretation 44 accounting certain transactions involving stock compensation interpretation apb opinion 25 new measurement dates resulted new intrinsic values based difference market price cti’s common stock new measurement date award strike price stockbased compensation expense based new intrinsic values recognized straightline basis revised measurement date final vesting date anniversary date full amount vested obligation recognized incorrect measurement dates restricted stock prior recording prior period adjustments stockbased compensation expense stockbased compensation expense cti recorded related restricted stock awards cti reviewed restricted stock awards granted certain key employees granted fiscal years ended january 31 2004 2005 2006 determined measurement dates two awards incorrect due minor administrative delays incorrect measurement dates cumulative effect evidence differences actual dates measurement recorded dates measurement respect verint systems’ stock option grants discovered course verint systems’ management review subsequent review verint systems’ audit committee ulticom inc’s audit committee however concluded improper procedures followed respect eight 22 stock option grants ulticom inc made management employees april 2000 april 2004 cumulative noncash pretax impact prior period adjustments related incorrect measurement dates cti stock options restricted stock charge 2314 million accumulated deficit january 31 2005 addition cumulative noncash pretax impact prior period adjustments related incorrect measurement dates ulticom inc’s stock options additional charge 38 million accumulated deficit january 31 2005 comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued award accounting matters addition matters described errors cti accounting stock option administration including related • acceleration vesting terminated individuals original award terms allow acceleration • extension exercise term awards beyond term designated provisions applicable plan agreement certain individuals upon termination employment • inappropriate classification certain consultants employees accounting purposes correction errors required certain awards accelerated extended accounted modifications incremental intrinsic values date modification awards granted consultants accounted fair value instead intrinsic value cumulative noncash pretax impact prior period adjustments related errors accounting administration cti stockbased compensation charge 303 million accumulated deficit january 31 2005 withholding taxes result revised measurement dates referred many options formerly designated incentive stock options “isos” tax purposes longer eligible classification isos reclassified nonqualified stock options “nsos” additionally cti inadvertently exceeded qualifying limits established internal revenue service isos instances resulting conversions nsos resulted additional withholding taxes interest penalties failing properly withhold taxes past employees’ option exercises cumulative pretax impact us federal state foreign withholding taxes related penalties interest pertaining mentioned adjustments including award accounting matters resulted charge 27 million accumulated deficit january 31 2005 cumulative pretax impact accumulated deficit us federal state withholding taxes related penalties interest pertaining ulticom’s measurement date adjustment 02 million january 31 2005 addition internal revenue code section 409a imposes numerous requirements nonqualified deferred compensation plans including nsos extent requirements satisfied cases isos converted nsos participants may liable tax deferred compensation together interest penalties certain jurisdictions result relief provided transitional guidance internal revenue code section 409a impact prior period adjustments phase ii reserves phase investigation special committee received information alleging company’s financial results least 1996 2003 intentionally misstated way aligning performance wall street expectations result special committee initiated comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued phase ii investigation separate investigation conducted 50 interviews reviewed million documents additionally special committee reviewed company accounted certain deferred tax accounts corrections related income taxes discussed heading “income tax provision benefit” special committee concluded least 1996 october 2003 messrs alexander kreinberg manipulated company’s financial statements portray company one steady measured growth manipulation helped company meet exceed wall street expectations every quarter 1996 first quarter 2001 result initiation special committee’s phase ii investigation verint systems ulticom inc commenced phase ii investigations creation release excess reserves accruals special committee found achieve desired financial metrics messrs kreinberg alexander directed creation excess reserves later could released income kept running track “excess” “cushion” dozens reserve accounts cti’s special committee found due reserve manipulations pretax income understated fiscal year fiscal year ended december 31 1996 fiscal year ended january 31 2000 pretax income overstated fiscal year fiscal year ended january 31 2001 least fiscal year ended january 31 2003 verint system’s audit committee found certain accounting reserves overstated certain expenses misclassified ulticom inc’s audit committee found accounting practices related excess accruals improper deferral revenue implemented ulticom direction mr kreinberg purpose achieving upward trend growth ulticom’s revenue income result findings verint systems ulticom inc made adjustments included consolidated prior period adjustments accumulated deficit january 31 2005 cumulative pretax impact prior period adjustments relating phase ii reserves reduction 30 million accumulated deficit january 31 2005 including 07 million attributable verint inappropriate reclassification certain expenses special committee found mr kreinberg directed unsupported reclassification certain expenses cti certain whollyowned subsidiaries unsupported expense reclassifications occurred least first quarter fiscal year ended january 31 1999 third quarter fiscal year ended january 31 2004 reclassifications affect company’s net loss income retained earnings accumulated deficit effect presenting consistent operating performance trends reclassifications principally product service costs ii research development costs iii selling general administrative expenses verint systems’ audit committee’s investigation revealed verint also misclassified certain expenses review classifications within consolidated statements operations found certain periods certain royalties license fees misclassified either selling expenses general administrative expenses research development expenses instead classified components cost revenue inappropriate reclassification certain expenses impact company’s net income loss retained earnings accumulated deficit comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued backlog special committee found corporate level mr kreinberg subordinate directed mr kreinberg repeatedly made unsupported downward adjustments company’s sales backlog reported annual reports filed sec discussed regularly quarterly earnings conference calls analysts verint systems’ audit committee’s investigation revealed verint manipulate backlog company historically defined sales backlog signed purchase orders firm customer commitments yet recognized revenue balance sheet date expected recognized next twelve months inappropriate backlog adjustments impact company’s net income loss retained earnings accumulated deficit revenue recognition evaluations company performed comprehensive review revenue recognition arrangements pursuant review company found accounting revenue accordance certain provisions sop 972 result evaluations company concluded insufficient evidence existed support prior determination vsoe fair value existed certain elements contracts prior period adjustments related revenue recognition evaluations primarily impact timing revenue recognition generally call question validity underlying transactions isolated instances however total revenue certain contracts impacted significant findings resulting company’s revenue recognition evaluations outlined professional services company’s multiple element arrangements typically include professional services primarily related installation company began account installation separately element fiscal year ended january 31 2004 fiscal year ended january 31 2004 october 2005 company previously determined vsoe fair value installation services existed result revenue recognition evaluations company concluded installation services separate element revenue transactions prior fiscal year ended january 31 2004 addition company concluded vsoe fair value installation services exist period vsoe fair value could determined company’s installation services typically last element contracts besides pcs delivered revenue previously recognized upon product delivery deferred completion installation services exception arrangements accounted sop 811 adjustment impacted revenue recognition nearly company’s multipleelement arrangements postcontract support pcs fiscal year ended january 31 2004 company began account separately pcs however perform sufficient analysis support assertion vsoe fair value beginning fiscal year ended january 31 2004 existed pcs result revenue recognition evaluations company concluded pcs services separate element revenue transactions prior fiscal year ended january 31 2004 company subsequently performed comprehensive evaluation comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued sales arrangements determine vsoe fair value pcs could established based existence substantive renewal rates company unable establish vsoe fair value pcs certain sales arrangements renewal rate deemed nonsubstantive contractually stated renewal rates entire arrangement fee recognized ratably upon completion professional services estimated economic life product stated renewal rate nonsubstantive recognized contractual term contractually stated renewal rate vsoe fair value exist revenue recorded delivered elements provided revenue recognition criteria met training certain company’s multiple element arrangements company obligated provide customers training services related operation software solutions historically company considered training insignificant concluded deliverable evaluated revenue recognition purposes however connection revenue recognition evaluations company determined training identified deliverable sop 972 vsoe fair value training exist fiscal years ended january 31 2009 2008 2007 company reviewed substantially multipleelement arrangements determined training fulfilled arrangements fiscal year ended january 31 2006 company reviewed larger multipleelement arrangements determined training fulfilled arrangements company estimated required revenue deferral remaining multipleelement arrangements fiscal year ended january 31 2006 well multipleelement arrangements prior years impact unfulfilled defined training obligations company utilized information available fiscal years ended january 31 2009 basis conclude duration training contracts information respect timing fulfillment training limited due fact training previously considered separate element tracked sufficient detail arrangement deferred revenue estimated remaining arrangements based percentage revenue subject deferral following year relative total revenue certain multipleelement arrangements using average number days training fulfilled completion installation inherent company’s estimates key assumptions related consistency percentage revenue subject deferral average number days provide defined training services completion installation management believes methodology key assumptions reasonable part static stable customer base consistent training terms provided longterm contracts time consistent training practices time management also believes estimate deferred revenue fiscal year ended january 31 2006 prior years would materially different amount would determined company actual training information fiscal years extended payment terms prior company’s evaluations comverse treated arrangements payment terms one year extended revenue generated arrangements recognized upon collection result revenue recognition evaluation comverse established agreement payment terms 5 total arrangement value due 120 days completion professional services deemed exceeded comverse’s standard terms therefore analyzed concessions customer history making timely payments due dates revenue recognized date collection provided revenue recognition criteria met comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued pursuant company’s review revenue recognition practices company determined miscellaneous revenue recognition adjustments necessary categories included litigation customer settlements contract aggregation servicesonly arrangements penalties addition company incorrectly translated deferred revenue denominated foreign currencies using current exchange rates opposed historical exchange rates company reviewed direct incremental costs arrangements requiring revenue recognition deferral review resulted corresponding deferral material costs classified “deferred costs revenue” company’s consolidated balance sheets order match costs related revenue recognition arrangements involving significant customization software additional project expenses deferred similar manner consistent guidance sop 811 cumulative noncash pretax impact prior period adjustments related revenue recognition evaluations increase 4854 million accumulated deficit january 31 2005 including 1313 million 71 million attributable verint ulticom respectively prior period adjustments prior period adjustments relating additional paidin capital resulted reduction valuation allowance associated net operating losses generated tax deductible stock compensation expenses morelikelythannot realized prior period adjustments relating retained earnings resulted miscellaneous items accounted properly related investigations evaluations adjusted accordingly items include errors identified allowance doubtful accounts accrued bonuses sales commissions accruals restructuring initiatives goodwill vat write certain deferred financing fees cumulative pretax impact prior period adjustments related errors increase accumulated deficit 16 million january 31 2005 including 19 million reduction retained earnings attributable verint minority interest net tax prior period adjustments related minority interest net tax represent portion prior period adjustments attributable holders minority shares cti’s majorityowned subsidiaries primarily verint ulticom cumulative impact prior period adjustments related minority interest net tax 175 million reduction accumulated deficit january 31 2005 income tax provision tax effect related prior period adjustments 207 million january 31 2005 includes 546 million cti subsidiaries verint ulticom starhome 297 million verint 42 million ulticom significant components adjusted provision described cti subsidiaries verint ulticom starhome • adjustments deferred tax assetliabilities previously recorded including release valuation allowances recorded federal nonus deferred tax assets comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued • utilization net operating losses offset taxable income generated federal various state jurisdictions taxable income primarily generated due following among others • disallowance stock compensation tax deductions resulting backdating stock options • geographic allocation revenue expenses • nonus income subject us tax deemed dividends • identification contingent tax liabilities accounted accordance sfas 5 • prior period adjustments related phase investigation internal revenue code section 162m limits amount tax deductions public company take related compensation paid five highly compensated executives changes grants described deductions overstated resulting cumulative additional tax expense 15 million january 31 2005 addition additional paid capital overstated due excess tax benefits related section 162m disallowance 408 million january 31 2005 • conversely conversion iso nso described partially offset company’s section 162m tax obligation resulting cumulative income tax benefit increases additional paid capital 114 million january 31 2005 4 investments company accounts investments accordance sfas 115 related pronouncements classifies debt equity securities availableforsale auction rate securities company invested ars supported corporate issuers student loans portion ars portfolio supported corporate issuers consists collateralized debt obligations preferred stock collateralized mortgage obligations company’s ars supported corporate issuers rated aaa aa standard poor’s “sp” aaa a3 moody’s investor service “moody’s” purchased certain holdings downgraded fiscal quarter ended july 31 2008 resulting ratings spread encompassing aaa bbb sp aaa baa1 moody’s one corporate issue ars downgraded aaa b2 moody’s ars portfolio supported student loans mostly guaranteed federal family education loan program company’s ars supported student loans rated aaa sp aaa moody’s purchased none ars holdings collateralized student loans experienced ratings downgrade comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued classification ars longterm stated maturities prior january 31 2008 company classified ars shortterm investments due liquid nature evidenced successful auctions occurring every seven ninety days beginning third quarter fiscal year ended january 31 2008 auctions ars began fail although auctions began fail ars except ars fair value 64 million january 31 2009 continued pay interest stated terms january 31 2009 principal associated failed auctions accessible company one following successful auction occurs ii active secondary market develops iii security called iv security matures therefore company believes may able access underlying principal amounts par within twelvemonth period accordingly company reclassified ars experienced failed auctions shortterm investments longterm assets beginning period failure terms consolidated shareholder class action settlement entered subsequent fiscal year ended january 31 2009 amended approved court action pending june 23 2010 cti granted security interest benefit plaintiff class account cti holds ars 516 million aggregate principal amount ars held account ubs proceeds sales thereof restricting cti’s ability use proceeds sales ars amounts payable settlement agreement paid full see note 27 subsequent events company sold 233 million aggregate principal amount ars fiscal year ended january 31 2009 resulting gain 51 million recognized “other expense income net” otherthantemporary impairment result auction failures declines credit quality fair value ars declined fair value ars determined quarterly basis company utilizing discounted cash flow model considers among factors assumptions underlying collateral ii credit risk associated issuer iii contractual maturity discounted cash flow model considers contractual future cash flows representing interest principal payments future interest payments projected using us treasury swap curves remaining term ars accordance terms specific security principal payments assumed made estimated contractual maturity date taking account applicable prepayments yields used discount payments determined based specific characteristics security key considerations determination appropriate discount rate include securities’ remaining term maturity capital structure subordination quality level collateralization complexity payout structure credit rating issuer presence absence additional insurance enhancement monoline insurers certain ars company determined probable unable collect contractual principal interest payments addition certain ars company could assert intended hold ars recovered previous carrying amount accordingly company recorded otherthantemporary impairment charges 865 million 479 million pretax basis fiscal years ended january 31 2009 2008 respectively component “other expense income net” consolidated statements operations see note 21 expense income net otherthantemporary impairment charges recognized fiscal years ended january 31 2007 2006 company recorded otherthantemporary impairment charges related ars subsequent january 31 2009 see note 27 subsequent events carrying amount company’s ars january 31 2009 1203 million classified longterm availableforsale investments corresponding principal amount 2365 million comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued carrying amount company’s ars january 31 2008 2147 million 1539 million included “shortterm investments” 608 million included “auction rate securities” consolidated balance sheets corresponding principal amount 2621 million january 31 2007 2006 company 6904 million 4152 million aggregate principal amount ars respectively recorded par value recorded within “shortterm investments” ubs put november 2008 company accepted offer ubs ag “ubs” providing rights related 516 million aggregate principal amount ars held account ubs “ubs put” terms ubs put company right obligation sell eligible ars par value ubs time period june 30 2010 july 2 2012 additionally ubs right discretion time july 2 2012 purchase ars company par value defined price equal principal amount ars plus accrued unpaid dividends interest ubs purchased approximately 416 million aggregate principal amount ars cti prior june 30 2010 pursuant purchase right terms settlement agreement consolidated shareholder class action amended cti required exercise ubs put june 30 2010 apply proceeds exercise toward amounts payable settlement effective june 30 2010 cti exercised ubs put balance ars subject ubs put see note 27 subsequent events fourth quarter ended january 31 2009 company recorded put right fair value 136 million “other assets” corresponding gain recorded “other expense income net” company elected fair value option sfas 159 consequently ubs put carried historical cost assessed impairment january 31 2009 fair value related ars 345 million consideration ubs put corresponding principal amount 516 million investments temporary declines fair value regard availableforsale securities company evaluated investments unrealized losses determine losses otherthantemporary gross unrealized losses securities january 31 2009 2007 2006 related primarily debt securities resulted changes interest rates gross unrealized losses january 31 2008 related equity securities company reviews investments identify evaluate investments indications possible impairments company determined based facts circumstances unrealized losses temporary nature making determination company considered intent ability hold investments period time sufficient allow anticipated recovery market value financial condition nearterm prospects issuers magnitude losses compared investments’ cost length time investments unrealized loss position comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued following summary availableforsale securities january 31 2009 2008 2007 2006 comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued 1 see note 10 assets comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued following table presents fair value company’s investments unrealized loss positions aggregated length time period company sold investments proceeds 4635 million 22625 million 32578 million 43032 million fiscal years ended january 31 2009 2008 2007 2006 respectively gross realized gains losses company’s investments follows fiscal years comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued components comprehensive loss income related availableforsale securities follows cost estimated fair value debt securities january 31 2009 contractual maturity follows 5 inventories net inventories net reserves 269 million 248 million 236 million 249 million january 31 2009 2008 2007 2006 respectively consist comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued 6 property equipment net property equipment net january 31 2009 2008 2007 2006 consist depreciation amortization property equipment 508 million 553 million 489 million 471 million fiscal years ended january 31 2009 2008 2007 2006 respectively company also wrote property equipment net 46 million 21 million 18 million 08 million fiscal years ended january 31 2009 2008 2007 2006 respectively 7 business combinations company accounts acquisitions using purchase method accounting results operations acquired entities included respective dates acquisition excess purchase prices sum amounts assigned identifiable tangible intangible assets liabilities recorded goodwill comverse segment december 9 2005 comverse completed acquisition business operations gss division csg systems international inc also referred kenan global software services “kenan” provider softwarebased billing solutions comverse acquired kenan expand technology product offering presence communication service provider billing market including position emerging converged prepaidpostpaid billing product area aggregate purchase price kenan 2510 million consisting 2446 million cash 64 million direct transaction costs acquisition expected create synergies comverse’s legacy prepaid product kenan’s postpaid softwarebased billing solutions identifiable intangible assets consist technology customer relationships trade names estimated useful lives ten years weighted average life six years approximately 1117 million 1239 million goodwill recorded kenan acquisition deductible tax purposes fifteen year period may 23 2006 comverse completed acquisition outstanding shares netcentrex sa “netcentrex” company organized laws france netcentrex develops next comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued generation network voice video solutions enable telecom operators service providers deliver voicevideodata fixedmobile converged services consumer enterprise markets comverse acquired netcentrex broaden technology product offering presence voice internet protocol “voip” communication service provider market aggregate purchase price 1734 million consisting 1587 million cash ii 16 million acquisition costs iii additional contingent consideration payments 131 million january 31 2009 contingent consideration earned completion contingent consideration period identifiable intangible assets consist technology trade names customer relationships intangible assets amortized estimated useful lives five ten years weighted average life six years september 7 2006 comverse completed acquisition netonomy inc “netonomy” provider customer selfservice bill analysis point sale solutions communication service providers operated europe north america asia comverse acquired netonomy add customer selfservice products billing active customer management solutions portfolio aggregate purchase price 197 million consisting 191 million cash 06 million direct acquisition costs identifiable intangible assets consist technology customer relationships trade names intangible assets amortized estimated useful lives three six years weighted average life five years verint segment january 9 2006 verint acquired substantially networked video security business multivision intelligent surveillance limited acquisition company’s hong kong based subsidiary multivision holdings limited “multivision” verint purchased multivision business among objectives acquire local product development customer support solutions focused regional requirements asia pacific market expand overall worldwide geographic presence provide opportunities effectively market existing networked video solutions region total purchase price multivision 489 million consisting 473 million cash 16 million direct transaction costs identifiable intangible assets primarily consist technology customer relationships intangible assets amortized estimated useful lives five years july 14 2006 verint acquired stock mercom systems inc “mercom” privately held company based lyndhurst new jersey verint acquired mercom among objectives expand offering interaction recording performance evaluation solutions small midsize enterprises contact centers public safety centers purchase price mercom 393 million consisting 350 million cash 37 million additional contingency payments earned january 31 2009 addition incurring 06 million acquisition costs contingent consideration earned completion contingent consideration period identifiable intangible assets primarily consist technology distribution network noncompetition agreements intangible assets amortized estimated useful lives ten years weighted average life seven years may 25 2007 verint acquired witness systems inc “witness” formerly publicly held company based roswell georgia verint acquired witness among objectives expand business enterprise workforceoptimization market verint paid 10851 million consisting 9665 million acquire 100 352 million outstanding shares witness common stock 2750 per share ii additional 979 million settle outstanding witness options iii 148 million acquisition costs iv 58 million additional contingency payments earned january 31 2009 cti acquired 2930 million verint’s series convertible perpetual preferred stock par value 0001 per share comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued finance part verint’s acquisition witness addition verint used available cash verint witness 6500 million financed proceeds term loan credit agreement entered verint group lenders connection transaction contingent consideration earned paid recorded additional goodwill value assigned inprocess research development 64 million determined considering importance project company’s overall future development plans identifiable intangible assets primarily consist customer relationships technology trade names intangible assets amortized estimated useful lives one year ten years weighted average life nine years verint also assumed several contingent consideration arrangements related businesses previously acquired witness one arrangement provided potential additional consideration 185 million earned quarterly july 31 2009 based upon previously acquired business achieving certain performance metrics fiscal years ended january 31 2009 2008 11 million 27 million contingent consideration earned respectively recorded additional goodwill verint also paid 20 million additional consideration fiscal year ended january 31 2008 related separate business previously acquired witness contingent consideration earned completion contingent consideration periods arrangements verint also acquired several smaller companies specifically viewlinks euclipse ltd 76 million february 2007 cm insight limited 105 million february 2006 opus group llc 123 million september 2005 contingent consideration 18 million related viewlinks euclipse acquisition earned substantially paid fiscal year ended january 31 2009 contingent consideration 39 million related cm insight limited acquisition earned paid fiscal year ended january 31 2008 contingent consideration earned completion contingent consideration period summary assets liabilities presented acquisitions considered significant company comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued allocation purchase price following summary final allocation purchase price significant acquisitions described inprocess research development purchased inprocess research development represents value assigned research development projects acquired business commenced completed date acquisition technological feasibility established alternative future use accordance sfas 2 accounting research development costs interpreted fasb interpretation 4 applicability fasb statement 2 business combinations accounted purchase method interpretation fasb statement 2 amounts assigned purchased inprocess research development meeting criteria charged expense acquisition date fiscal years ended january 31 2008 2006 company wrote 67 million 29 million respectively inprocess research development costs primarily associated verint’s purchases witness multivision businesses inprocess research development purchased fiscal years ended january 31 2009 january 31 2007 comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued unaudited pro forma financial information unaudited pro forma financial information presented summarizes combined results company’s operations witness netcentrex kenan pro forma basis though companies combined beginning relevant periods presented pro forma impact acquisitions material overall consolidated operating results pro forma financial information subject various assumptions estimates presented informational purposes pro forma information purport represent indicative consolidated operating results would reported transactions completed described herein data taken indicative future consolidated operating results following presents selected pro forma information witness acquisition occurred beginning fiscal year following presents selected pro forma information netcentrex acquisition occurred beginning fiscal year following presents selected pro forma information kenan acquisition occurred beginning fiscal year comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued 8 goodwill changes carrying amount goodwill comverse verint segments fiscal years ended january 31 2009 2008 2007 2006 follows 1 amount goodwill “all other” segment related starhome consolidated fiscal year ended january 31 2003 2 see note 3 prior period adjustments 3 acquisitions include opus group llc fiscal year ended january 31 2006 cm insight fiscal year ended january 31 2007 4 fiscal years ended january 31 2009 2008 2007 2006 goodwill related certain acquisitions adjusted due earnout payments recoveries tax adjustments lease abandonment settlement comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued company tests goodwill impairment annually november 1 frequently events circumstances indicate potential impairment company performed goodwill impairment tests reporting units november 1 2008 2007 2006 2005 annual goodwill impairment tests resulted charges 1351 million fiscal year ended january 31 2008 interim goodwill impairment test performed july 31 2008 resulted additional impairment charges 214 million recorded fiscal year ended january 31 2009 impairment charges fiscal years ended january 31 2009 2008 resulted writedowns goodwill netcentrex reporting unit comverse segment fiscal year ended january 31 2008 netcentrex reporting unit experienced decrease results operations compared prior performance addition netcentrex reporting unit experienced significant reduction orders key customer necessitating interim impairment test july 31 2008 factors adversely affected projected future cash flows estimated fair value netcentrex reporting unit verint recorded noncash goodwill impairment charges 260 million 206 million 203 million consolidated statements operations fiscal years ended january 31 2009 2008 2007 respectively company’s consolidated reporting units combined higher level verint standalone consolidated financial statements fair value company’s verint reporting units exceeded carrying value accordingly impairment charge recorded company’s consolidated financial statements comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued 9 intangible assets net acquired intangible assets january 31 2009 2008 2007 2006 follows acquired intangible assets operating segment january 31 2009 2008 2007 2006 follows amortization intangible assets 603 million 568 million 351 million 97 million fiscal years ended january 31 2009 2008 2007 2006 respectively impairments intangible assets 270 million 127 million 48 million fiscal years ended january 31 2009 2008 2007 respectively impairment intangible assets fiscal year ended january 31 2006 impairments 04 million 40 million related acquired technology recorded within “product costs” fiscal years ended january 31 2008 2007 respectively impairment recorded “product costs” fiscal year ended january 31 2009 connection testing goodwill company also tested longlived assets including finitelived intangible assets netcentrex reporting unit result company recorded noncash pretax impairment charges 270 million consolidated statements operations fiscal year ended january 31 2009 100 million fiscal year ended january 31 2008 charges reflect impairment substantially netcentrex reporting unit’s intangible assets comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued connection testing goodwill company’s verint subsidiary also tested longlived intangible assets including finitelived intangible assets result reviews verint recorded 27 million 45 million impairment charge finitelived assets fiscal years ended january 31 2008 2007 respectively reflected consolidated statements operations 27 million impairment charge principally related customerrelated intangible assets 45 million impairment charge resulted verint’s decision replace certain acquired technology new technology sooner originally planned 37 million related acquired technology 08 million related customerrelated intangible assets estimated amortization expense five succeeding fiscal years follows 10 assets january 31 2009 2008 2007 2006 consist 1 represents deposits insurance policies fund severance liability see note 17 long term liabilities 2 ubs put recorded fair value acquisition fourth quarter fiscal year ended january 31 2009 see note 4 investments 3 fiscal year ended january 31 2008 company began liquidate certain investment positions accounted cost basis 4 company reclassified longterm securities shortterm investments fiscal year ended january 31 2007 based underlying maturities securities see note 4 investments comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued capitalized software costs included assets capitalized software costs represent costs incurred primarily develop verint’s commercial software products rollforward net capitalized software costs follows 11 accounts payable accrued expenses accounts payable accrued expenses january 31 2009 2008 2007 2006 consist 1 liabilities related company’s 401k plans included accrued expenses cti comverse verint ulticom maintains 401k plan fulltime employees plans allow eligible employees elect contribute 60 percent annual compensation subject prescribed maximum amount respective company matches employee contributions rate 50 percent limited maximum annual matched contribution ranging 2000 3500 per employee contributions always fully vested respective company’s matching contributions year vest last day calendar year providing employee remains employed respective company day fiscal years ended january 31 2009 2008 2007 2006 company’s matching contributions 401k plan amounted 66 million 60 million 45 million 40 million respectively comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued 12 workforce reduction restructuring impairment charges credits company continually reviews business manages costs aligns resources market demand conjunction various acquisitions result company taken several actions reduce fixed costs eliminate redundancies strengthen operational focus better position respond market pressures unfavorable economic conditions following restructuring initiatives taken place company’s comverse verint segments comverse initiatives 2001 initiative fiscal year ended january 31 2002 comverse committed began implementing restructuring program including changes organizational structure product offerings better align cost structure business environment improve efficiency operations reductions workforce restructuring operations abandoning facilities writeoff impaired assets february 1 2005 remaining accrual primarily certain facilitiesrelated costs remaining lease terms balance facilitiesrelated costs expected paid various dates january 2011 2007 initiative fiscal year ended january 31 2008 comverse management approved restructuring plan close certain facilities wakefield massachusetts eliminate associated staff positions plan implemented realign operational activities reduce facilities total plan expected approximately 176 million comprised 140 million severance related costs 36 million facilities related costs severance payments primarily completed fiscal year ended january 31 2009 facilities related payments expected completed fiscal year ending january 31 2011 2008 initiative fiscal year ended january 31 2009 comverse management approved restructuring plan consolidate certain facilities eliminate number staff positions plan implemented realign sales force product development staff response shifts customer expectations regarding service delivery relationship management total plan expected 96 million 72 million severancerelated costs 13 million facilitiesrelated costs recorded fiscal year ended january 31 2009 remaining severance facilitiesrelated payments primarily completed fiscal year ended january 31 2010 last facility lease expire fiscal year ending january 31 2017 verint initiatives fiscal year ended january 31 2008 verint implemented certain restructuring initiatives intended reduce overall cost structure predominantly north america hong kong verint recorded restructuring charges 03 million 18 million fiscal years ended january 31 2009 2008 respectively charges 12 million 09 million paid fiscal years ended january 31 2009 2008 respectively comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued conjunction witness acquisition fiscal year ended january 31 2008 verint took several actions extended fiscal year ended january 31 2010 reduce fixed costs eliminate redundancies strengthen operational focus better position respond market pressures unfavorable economic conditions result verint incurred restructuring charges 09 million 15 million fiscal year ended january 31 2009 2008 respectively charges 13 million 11 million paid fiscal years ended january 31 2009 2008 respectively fiscal year ended january 31 2009 result reduced demand consulting services europe verint implemented substantially completed cost reduction plan resulted elimination approximately 30 positions verint recorded paid charges 14 million fiscal year ended january 31 2009 addition fiscal year ended january 31 2009 verint implemented global cost reduction plan order reduce operating costs response uncertainty global economic environment cost reduction initiatives included restructuring plan included elimination approximately 90 positions throughout functional areas global workforce reducing utilization outside contractors consultants closing one leased facility verint recorded majority restructuring expenses charges 32 million including 28 million severance related benefits 04 million exit leased facility costs amount accrued 27 million paid fiscal year ended january 31 2009 remaining 05 million paid fiscal year ended january 31 2010 initiatives fiscal years ended january 31 2009 2008 2007 2006 various smaller initiatives occurred comverse ulticom starhome following table represents rollforward workforce reduction restructuring activities noted comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued 13 debt january 31 2009 2008 2007 2006 debt comprised following convertible debt obligations may 2003 cti issued 4200 million aggregate principal amount convertible debt obligations “existing convertible debt obligations” january 26 2005 cti completed offer holders outstanding existing convertible debt obligations exchange existing convertible debt obligations new convertible debt obligations “new convertible debt obligations” 4200 million aggregate principal amount existing convertible debt obligations outstanding prior exchange offer approximately 4177 million aggregate principal amount representing approximately 995 original issue existing convertible debt obligations validly tendered exchange equal principal amount new convertible debt obligations may 15 2009 cti completed tender offer pursuant purchased 4173 million aggregate principal amount new convertible debt obligations see note 27 subsequent events convertible debt obligations mature may 15 2023 bear interest convertible debt obligations secured assets company guaranteed cti’s subsidiaries 1000 principal amount existing convertible debt obligations convertible option holder upon circumstances described shares cti’s common stock conversion price approximately 179744 per share equal conversion rate 556347 shares per 1000 principal amount existing convertible debt obligations subject adjustment certain events 1000 principal amount new convertible debt obligations convertible option holder upon circumstances described based net share settlement feature cash shares cti’s common stock conversion price 179744 per share equal conversion rate 556347 shares per 1000 principal amount new convertible debt obligations subject adjustment certain events net share settlement feature new convertible debt obligations provides upon conversion cti would pay holder cash equal lesser conversion value principal amount new convertible debt obligations converted would issue holder remainder conversion value excess principal amount shares cti’s common stock comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued convertible debt obligations convertible quarter closing price per share period least twenty days thirty consecutive tradingday period ending last trading day preceding fiscal quarter 120 conversion price per share effect thirtieth day ii may 15 2018 five businessday period following ten consecutive tradingday period daily average trading price convertible debt obligations ten tradingday period less 105 average conversion value convertible debt obligations period iii period following date credit rating assigned convertible debt obligations sp lower “b” upon withdrawal suspension convertible debt obligations rating cti’s request iv cti calls convertible debt obligations redemption v upon specified corporate transactions addition cti right redeem new convertible debt obligations existing convertible debt obligations cash time may 15 2009 may 15 2008 respectively principal amount indentures governing convertible debt obligations provide may 15 2008 may 15 2013 may 15 2018 indenture governing new convertible debt obligations may 15 2009 holder convertible debt obligations right principal amount convertible debt obligations portion principal amount thereof repurchased cti cash purchase price 100 principal amount holder’s convertible debt obligations addition indentures governing convertible debt obligations provide following termination trading cti’s common stock national securities exchange established automated overthecounter trading market united states certain instances upon change control holder convertible debt obligations right principal amount convertible debt obligations portion principal amount thereof repurchased cti cash purchase price 100 principal amount holder’s convertible debt obligations effective february 1 2007 cti’s shares delisted nasdaq due delisting terms indentures cti obligation offer purchase cash convertible debt obligations result company classified cti’s convertible debt obligations shortterm debt obligations january 31 2007 meet obligations indentures cti commenced tender offer march 2 2007 tender offer expired march 30 2007 de minimis principal amount convertible debt obligations tendered addition noted terms indentures cti obligation offer purchase cash convertible debt obligations may 15 2008 result company continued classify convertible debt obligations shortterm debt obligations january 31 2008 meet obligations indentures cti commenced tender offer april 16 2008 tender offer expired may 15 2008 de minimis principal amount convertible debt obligations tendered addition noted terms indenture governing new convertible debt obligations cti obligation offer purchase cash new convertible debt obligations may 15 2009 result company continued classify convertible debt obligations shortterm debt obligations january 31 2009 meet obligations indenture cti commenced tender offer april 17 2009 upon completion tender offer may 15 2009 cti purchased cash 4173 million aggregate principal amount new convertible debt obligations following repurchase new convertible debt obligations january 31 2010 cti 22 million aggregate principal amount convertible debt obligations outstanding comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued verint revolving credit facility term loan may 25 2007 verint entered 6750 million secured credit facility “credit facility” partially finance acquisition witness credit facility comprised 6500 million sevenyear term loan maturing may 25 2014 “term loan” 250 million sixyear revolving credit facility maturing may 25 2013 “revolving credit facility” july 2010 certain terms credit facility amended see note 27 subsequent events disclosure amended terms borrowings credit facility bear interest one following rates verint’s election higher prime rate ii federal funds rate plus 050 plus either case margin 175 b applicable london interbank offered rate “libor” plus margin 275 margins subject increase 025 verint failed receive corporate credit ratings moody’s sp failed deliver certain financial statements credit facility administrative agent february 25 2008 additional 025 verint failed august 25 2008 verint timely comply conditions abovereferenced applicable margins increased 025 february 25 2008 another 025 august 25 2008 225 325 respectively may 2010 verint delivered audited financial statements fiscal year ended january 31 2010 lenders verint obtained referenced corporate credit ratings applicable margins would subsequently range 100 175 200 275 respectively depending verint’s corporate credit ratings moody’s sp accordingly applicable margin reduced 050 june 2010 verint obtained corporate credit ratings optional prepayments loans permitted without premium penalty customary breakage costs associated prepayment loans bearing interest based libor loans also subject mandatory payment requirements based upon certain asset sales excess cash flow certain events term loan originally amortized 27 consecutive quarterly installments 16 million beginning august 1 2007 followed final amortization payment remaining outstanding principal amount term loan matures may 25 2014 july 31 2007 verint made optional prepayment 400 million 130 million applied toward eight immediately following principal payments 270 million applied pro rata remaining principal payments january 31 2009 41 million term loan classified current liability reflecting 41 million mandatory “excess cash flow” payment made may 2009 see note 27 subsequent events january 31 2009 2008 interest rate term loan 359 738 respectively verint’s 250 million revolving credit facility reduced 150 million quarter ended october 31 2008 result bankruptcy lehman brothers one lenders related subsequent termination commitment credit facility june 2009 january 31 2008 outstanding borrowings revolving credit facility quarter ended january 31 2009 verint borrowed full 150 million available revolving credit facility repayment borrowings required upon expiration facility may 2013 january 31 2009 interest rate borrowings revolving credit facility 364 verint’s obligations credit facility guaranteed certain domestic subsidiaries including witness secured substantially assets verint credit facility secured assets cti guaranteed cti comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued verint paid debt issuance costs 136 million associated credit facility deferred classified within assets deferred debt issuance costs amortized life credit facility amortization deferred costs associated term loan recorded using effective interest rate method amortization deferred costs associated revolving credit facility recorded straightline basis may 25 2007 concurrently entry credit facility verint entered receivevariablepayfixed interest rate swap agreement multinational financial institution notional amount 4500 million mitigate portion risk associated variable interest rates term loan part verint required lenders interest rate swap agreement scheduled terminate may 2011 see note 14 derivative financial instruments interest rate swap agreement terminated july 2010 see note 27 subsequent events disclosures relating termination interest rate swap agreement fiscal years ended january 31 2009 2008 verint incurred 352 million 344 million interest expense respectively borrowings credit facility verint also recorded 17 million fiscal year ended january 31 2009 19 million fiscal year ended january 31 2008 amortization deferred debt issuance costs reported within interest expense included deferred debt issuance cost amortization fiscal year ended january 31 2008 08 million additional amortization associated prepayment 400 million principal made july 2007 credit facility contains customary affirmative negative covenants credit facilities type including limitations verint subsidiaries respect indebtedness liens dividends distributions acquisitions dispositions assets investments loans transactions affiliates nature business accordingly verint precluded paying cash dividends cti including cash dividends payable terms preferred stock held cti see note 24 related party transactions credit facility also prohibits company exceeding specified consolidated leverage ratio tested rolling fourquarter periods credit facility also includes requirement verint submit audited consolidated financial statements lenders within 90 days end fiscal year beginning financial statements fiscal year ended january 31 2010 april 27 2010 verint entered amendment waiver consent lenders extended due date delivery audited consolidated financial statements related documentation fiscal year ended january 31 2010 may 1 2010 june 1 2010 consideration amendment verint paid approximately 09 million verint filed annual report form 10k fiscal year ended january 31 2010 containing requisite financial statements may 19 2010 accordingly delivered audited consolidated financial statements lenders compliance terms amended credit facility verint fail future deliver audited consolidated financial statements required agreement provides thirty day period cure default event default occurs credit facility contains customary events default corresponding grace periods event default occurs continuing lenders may terminate andor suspend obligations make loans issue letters credit facility andor accelerate amounts due andor exercise rights remedies case certain events default related insolvency receivership commitments lenders automatically terminated outstanding loans become immediately due payable comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued comverse ltd line credit january 31 2009 comverse ltd whollyowned israeli subsidiary comverse inc 200 million line credit bank used borrowings various performance guarantees customers vendors letters credit execute foreign currency transactions ordinary course business line credit bears interest subject renewal annual basis comverse ltd required maintain cash balances least 200 million bank times regardless amounts borrowed utilized line credit january 31 2009 comverse ltd borrowings line credit utilized entire capacity line credit 200 million guarantees execution foreign currency transactions see note 27 subsequent events comverse ltd’s requirement maintain cash balances bank disclosed line credit financial covenant provisions debentures february 1 2005 company 873 million aggregate principal amount 15 convertible senior debentures “debentures” outstanding december 1 2005 maturity date company paid outstanding debentures interest expense debentures fiscal year ended january 31 2006 11 million debt maturities company’s debt maturities follows 14 derivatives financial instruments company entered derivative arrangements manage variety risk exposures fiscal years ended january 31 2009 2008 2007 2006 including interest rate risk associated verint’s term loan foreign currency risk related forecasted foreign currency denominated payroll costs company’s comverse verint subsidiaries company significant counterparty credit risk related derivative financial instruments periods presented interest rate swap agreement may 2007 verint entered fouryear receivevariable payfixed 4500 million notional amount interest rate swap agreement partially mitigate risks associated term loan part verint required lenders interest rate swap economic effect modifying variable interest obligation threemonth libor associated portion term loan interest payable portion fixed rate 518 period four years comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued instrument settled counterparty quarterly basis scheduled maturity date may 1 2011 verint’s interest rate swap meet requirements hedge accounting therefore derivative markedtomarket end accounting period gains losses whether realized unrealized recognized component “other expense income net” consolidated statements operations net losses recorded interest rate swap fiscal years ended january 31 2009 2008 115 million inclusive 99 million realized losses 16 million unrealized losses 292 million inclusive 293 million unrealized losses offset 01 million realized gain respectively see note 21 expense income net losses reflect decline market interest rates occurred second half fiscal year ended january 31 2008 persisted january 31 2009 verint terminated interest rate swap agreement july 2010 see note 27 subsequent events disclosures relating termination interest rate swap agreement forward contracts cti entered series various foreign currency forward contracts manage risk attributable foreign currency exchange rate fluctuations associated forecasted payroll costs denominated new israeli shekel “nis” euro us dollar “usd” forward contracts meet requirements hedge accounting accordingly markedtomarket end accounting period gains losses whether realized unrealized recognized consolidated statements operations total realized unrealized gains losses contracts recognized fiscal years ended january 31 2007 2006 19 million loss 14 million gain respectively included “other expense income net” consolidated statements operations cti forward contracts fiscal years ended january 31 2009 2008 fiscal years ended january 31 2009 2008 comverse entered series shortterm foreign currency forward contracts shortterm participating foreign currency forward contracts notional value 917 million 716 million respectively limit variability exchange rates usd nis hedge probable cash flow exposure expected future payroll expense transactions qualified cash flow hedge accounting sfas 133 hedge ineffectiveness accordingly company recorded changes fair value forward contracts part “accumulated comprehensive loss income” consolidated statements shareholders’ equity payroll expense recognized consolidated statements operations related derivative gain 49 million reclassified “accumulated comprehensive loss income” consolidated statements operations fiscal year ended january 31 2008 amounts reclassified fiscal year ended january 31 2009 fiscal years ended january 31 2009 2008 verint entered shortterm currency forward contracts mitigate risk fluctuations foreign currency exchange rates primarily relating payroll costs denominated currencies usd primarily nis canadian dollar foreign currency forward contracts designated hedging instruments therefore gains losses changes fair values reported “other income expense net” consolidated statements operations verint realized net losses 21 million net gains 18 million fiscal years ended january 31 2009 2008 respectively settlements foreign currency forward contracts verint 19 million net unrealized losses outstanding foreign currency forward contracts january 31 2009 notional amounts totaling 359 million verint 03 million unrealized losses outstanding foreign currency forward contracts january 31 2008 notional amounts totaling 117 million exception verint’s interest rate swap derivatives outstanding january 31 2009 shortterm nature due contractually settle within next twelve months comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued following table summarizes company’s derivative positions fair value related gains losses reported comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued 1 total notional amount interest rate swap 450000 derivative financial instruments qualified hedge accounting treatment fiscal years ended january 31 2007 2006 components comprehensive loss income related cash flow hedges follows comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued 15 fair value financial instruments fair value financial instruments estimated company using available market information appropriate valuation methodologies however considerable judgment required interpreting market data develop estimates fair value accordingly estimates presented herein necessarily indicative amounts company could realize market exchange use different market assumptions andor estimation methodologies may material effect estimated fair value amounts following table presents financial instruments according fair value hierarchy defined sfas 157 january 31 2009 following table summary changes fair value level 3 financial assets consisting ars fiscal year ended january 31 2009 comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued following table presents fair value financial instruments january 31 2009 2008 2007 2006 carried historical cost consolidated balance sheets carrying amounts cash equivalents bank time deposits restricted cash accounts receivable bank loans debt accounts payable reasonable estimates fair values ubs put recorded inception fair value 136 million company determined fair value ubs put 171 million january 31 2009 using discounted cash flow technique incorporates market interest yield curve adjustments duration optionality risk profile determining market interest yield curve company considered credit rating ubs see note 4 investments fair value longterm portion term loan january 31 2009 2008 estimated 3599 million 5830 million respectively estimates based upon pricing used trades portions loan secondary market near january 31 2009 2008 respectively january 31 2009 carrying amount revolving credit facility 150 million reasonable estimate fair value carrying amount reported consolidated balance sheet january 31 2009 convertible debt obligations 4195 million company determined fair value 4112 million january 31 2009 utilizing quoted market prices common stock trailing three months low trading volumes 16 leases company leases office warehouse space well certain equipment vehicles noncancelable operating leases gross rent expense 463 million 479 million 423 million 310 million fiscal years ended january 31 2009 2008 2007 2006 respectively sublease income 43 million 50 million 25 million 30 million fiscal years ended january 31 2009 2008 2007 2006 respectively majority company’s leases include options allow renew extend lease term beyond initial lease period subject terms conditions agreed upon inception lease terms conditions include rental rates agreed upon inception lease could represent abovemarket rental rates later life lease depending upon market conditions time renewal extension comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued company entered various sublease agreements lease excess space january 31 2009 minimum annual rent obligations excluding taxes maintenance passthroughs sublease income received noncancelable subleases minimum net rentals company follows fiscal years ending january 31 17 longterm liabilities longterm liabilities january 31 2009 2008 2007 2006 consist following severance israeli law company obligated make severance payments employees israeli subsidiaries basis individual’s current salary length employment company’s liability severance pay calculated pursuant israel’s severance pay law recent salary employee multiplied number years employment balance sheet date employees entitled one month’s salary year employment portion thereof gross severance liability january 31 2009 2008 2007 2006 596 million 661 million 560 million 445 million respectively portion liability funded monthly deposits insurance policies amount deposits classified “other assets” severance pay fund amounts 369 million 432 million 370 million 320 million fiscal years ended january 31 2009 2008 2007 2006 respectively see note 10 assets comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued 18 research development arrangements significant portion company’s research development operations located israel certain company’s subsidiaries derive benefits participation programs sponsored government israel support research development activities israel certain company’s research development activities include projects partially funded office chief scientist ministry industry trade state israel “ocs” funding organization reimburses portion company’s research development expenditures approved project budgets certain company’s subsidiaries accrue royalties ocs based sale products incorporating technology successfully developed ocs program amount funding although government israel proprietary rights ocsfunded products specific restriction ocs regard export ocsfunded products certain circumstances may limitations ability transfer technology knowhow manufacture ocsfunded products outside israel limitations could result requirement pay significantly increased royalties redemption fee calculated according regulations company’s gross research development expenses fiscal years ended january 31 2009 2008 2007 2006 3520 million 3844 million 3586 million 2531 million respectively amounts reimbursed ocs fiscal years ended january 31 2009 2008 2007 2006 66 million 75 million 69 million 89 million respectively recorded reduction “research development” july 31 2006 verint exited royaltybearing program ocs agreed accept lump sum payment approximately 360 million settle estimated royalty obligations program prior settlement verint accrued approximately 168 million royalties related interest due original terms program charges “product costs” corresponding periods related revenue net previous royalty payments verint recorded charge approximately 192 million component “product costs” remaining amount lump sum settlement excess royalties previously accrued consolidated balance sheets recorded component “other current liabilities” “other longterm liabilities” conjunction settlement verint entered new funding program fiscal year ended january 31 2007 subsequent january 31 2007 company significant royaltybearing obligations ocs comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued 19 stockbased compensation stockbased compensation expense associated awards made cti subsidiaries included company’s consolidated statements operations follows consolidated stockbased compensation expense consists expense recognized awards related separate cti verint ulticom starhome stock incentive plans following table presents company’s stockbased compensation expense included consolidated statements operations based underlying subsidiary plans fiscal years ended january 31 2009 2008 2007 2006 1 stock options purchase cti’s common stock awarded employees cti’s subsidiaries including employees verint ulticom starhome accordingly related stockbased compensation expense recognized respective subsidiary statements operations 2 stockbased compensation expense related stock options purchase cti’s common stock fiscal year ended january 31 2007 includes 696 million related modifications awards reflecting additional time exercise options afforded employees whose employment terminated restricted period described section set forth entitled “restricted period” 3 verint’s stockbased compensation expense consists stock options purchase verint common stock verint phantom stock units verint restricted stock awards restricted stock units comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued company subsidiaries recognized excess tax benefits realized exercise sharebased payment awards 03 million 81 million fiscal years ended january 31 2007 2006 company subsidiaries recognize excess tax benefits fiscal years ended january 31 2009 2008 following discussion material stockbased compensation plans company cti plans overview cti’s stock incentive plans cti granted stock options restricted stock deferred stock units “dsus” awards various stock incentive plans fiscal years ended january 31 2009 2008 2007 2006 plans generally permit issuance incentive nonqualified stock options dsu awards restricted stock appreciation rights “sars” employees officers directors cti subsidiaries expire ten years plans generally dictate unexercised options expire within 90 days termination service company stock options designated “incentive stock options” plans may granted exercise price less fair market value underlying shares date grant subject certain limitations specified section 422 internal revenue code stock options intended qualify incentive stock options may granted price fair market value stock options underlying shares subject adjustment accordance terms plans event stock dividends recapitalizations similar transactions stock options generally vest fouryear period date grant right exercise maximum term ten years stock options granted stockbased compensation expense recognized straightline basis life vesting period reduced estimated forfeitures upon exercise stock options issuance restricted stock dsu awards issuance shares stock incentive plans cti issues authorized unissued common stock unless treasury stock available 1996 stock option plan cti’s 1996 stock option plan provided stock options qualify incentive stock options section 422a internal revenue code may granted key employees nonqualifying options may granted employees independent contractors directors company plan authorized 3 million shares cti’s common stock granted plan provided qualified awards exercise price based fair value cti’s common stock date grant except individuals hold 10 percent interest cti exercise price less 110 percent share price plan also provided nonqualified awards exercise price lower 010 per share plan terminated october 2006 1997 1999 stock incentive compensation plans cti’s 1997 1999 stock incentive compensation plans authorized granting awards form stock options qualified nonqualified well cti’s common stock form dsu restricted stock awards additionally plan provided sars may issued officer key employee company plans authorized 75 70 million shares options respectively purchase shares cti’s common stock granted plans provided qualified awards exercise price based fair value cti’s common stock date grant except individuals hold 10 percent interest cti exercise price less 110 percent share price plans also provided exercise price nonqualified awards form stock options may less fair market value cti’s common stock date grant determined compensation committee plans terminated november 2007 may 2009 respectively comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued 2000 2001 2004 2005 stock incentive compensation plans cti’s 2000 2001 2004 2005 stock incentive compensation plans currently place plans authorize granting awards form stock options qualified nonqualified well cti’s common stock form dsu restricted stock awards additionally plans provide sars may issued officer key employee company plans authorize 90 97 25 60 million shares options respectively purchase shares cti’s common stock granted plans maximum term 10 years scheduled expire 2010 2011 2014 2015 respectively plans provide qualified awards exercise price based fair value cti’s common stock date grant except individuals hold 10 percent interest cti exercise price less 110 percent share price plans also provided exercise price nonqualified awards form stock options may less fair market value cti’s common stock date grant determined compensation committee cti’s board directors provided discount expressly granted lieu reasonable amount salary bonus discount shall exceed 15 percent fair market value cti’s common stock date grant april 17 2006 january 31 2009 cti grant stock options purchase cti’s common stock restricted stock grant dsu awards previously cti employee stock purchase plan employees completed three months employment entitled payroll deductions 10 base salary purchase shares cti’s common stock plan terminated effective april 1 2005 restricted period result cti’s inability current periodic reporting obligations federal securities laws since april 2006 cti ineligible use registration statements form s8 offer sale equity securities including stock options employees consequently ensure violate applicable securities laws cti prohibited exercise vested stock options april 2006 time determined current periodic reporting obligations effective registration statement form s8 file sec period referred “restricted period” april 2006 modification restricted period certain employees left company whose vested stock options lapsed result prohibition exercise stock options planmandated postemployment exercise period order accommodate former employees company extended exercise rights respect vested stock options later occur 90 days date termination employment ii 30 days restricted period expired however accommodation extend stock option’s term beyond contractual termination date typically ten years date grant company accounted additional time exercise afforded employees modifications original awards date restricted period commenced certain individuals received additional time exercise terminated employees time comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued modification modifications accounted using liability method accounting resulting modification expense fiscal year ended january 31 2007 696 million including 12 million related modifications accounted using liability method referred “april 2006 modification” july 2006 modification consistent commitment employees upon approval board directors cti voluntarily compensated cash current employees holding inthemoney options whose original 10year terms expired restricted period resulting modification charge fiscal year ended january 31 2007 additional compensation expense 104 million recognized modification subsequent changes fair value awards fiscal year ended january 31 2008 2009 reduced company’s liability compensation expense 36 million 39 million respectively cti made cash payments expired stock options 19 million 10 million 14 million fiscal years ended january 31 2009 2008 2007 respectively referred “july 2006 modification” liability awards primarily result aforementioned decision made restricted period settle cash expired cti options held current employees modification certain cti awards held employees terminated april 2006 modification could still exercise awards april 2006 modification awards accounted liability method accounting liability method cti measures award balance sheet date based estimated fair value compensation expense period thereafter based change fair value award january 31 2009 2008 2007 2006 company liability related awards 07 million 69 million 115 million 05 million respectively related stockbased compensation expense fiscal years ended january 31 2009 2008 2007 2006 includes expense credits 37 million 36 million 112 million 05 million respectively related cti’s liability awards january 31 2009 liability awards substantially settled restricted awards cti grants restricted stock dsu awards subject vesting provisions collectively “restricted awards” certain key employees fiscal years ended january 31 2009 2008 2007 2006 cti granted restricted awards valued 168 million 143 million 102 million 84 million respectively based fair market value cti’s common stock date grant cti’s stockbased compensation associated restricted awards net credits forfeitures fiscal years ended january 31 2009 2008 2007 2006 103 million 131 million 28 million 40 million respectively primarily included “selling general administrative” consolidated statements operations comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued january 31 2009 12898673 stock options purchase cti’s common stock 1364447 restricted awards outstanding 9961202 shares available future grant cti’s stock incentive compensation plans following table summarizes exercisable options vested restricted awards january 31 2009 cti committed issue 173948 shares restricted award holders elected deferred delivery vested awards comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued following table presents combined activity cti stock incentive plans fiscal years ended january 31 2009 2008 2007 2006 1 see note 3 prior period adjustments explanation prior period adjustments 2 see “fair value assumptions” information stock options purchase cti’s common stock granted fiscal year ended january 31 2006 3 total intrinsic value stock options purchase cti’s common stock exercised fiscal years ended january 31 2007 2006 129 million 507 million respectively cti received 115 million cash associated tax benefit fiscal year ended january 31 2007 415 million cash 45 million tax benefit realized fiscal year ended january 31 2006 associated exercise stock options 4 total fair value restricted awards vested fiscal years ended january 31 2009 2008 2007 2006 82 million 126 million 20 million 26 million respectively comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued 5 august 17 2006 company announced providing notice jacob “kobi” alexander former chairman board chief executive officer david kreinberg former executive vice president chief financial officer william sorin former director cti’s former general counsel revoking vested unvested unexercised options restricted awards equity compensation previously granted result company forfeited 749834 nonvested stock options purchase cti’s common stock canceled 4522169 vested stock options purchase cti’s common stock 407067 shares nonvested restricted awards third quarter fiscal year ended january 31 2007 6 outstanding stock options january 31 2009 include 321769 nonvested shares weightedaverage grant date fair value 793 expected term 44 years total fair value 26 million total unrecognized compensation cost related remaining nonvested shares 23 million expected recognized weighted average period 07 years 7 january 31 2009 unrecognized compensation expense related nonvested restricted awards 163 million expected recognized weightedaverage period 19 years 8 january 31 2009 options purchase aggregate 12576904 shares cti’s common stock vested exercisable plans 9 total fair value options vested 93 million 208 million 274 million 325 million fiscal years ended january 31 2009 2008 2007 2006 respectively 10 fiscal year ended january 31 2009 cti canceled 920146 stock options granted previous years replaced fiscal year address internal revenue code section 409a noncompliance associated previously backdated stock options vested remained unexercised december 31 2004 following table summarizes information cti’s stock options january 31 2009 january 31 2009 aggregate intrinsic value 05 million outstanding exercisable stock options fair value assumptions cti estimated fair value stock options date grant modification utilizing blackscholes option valuation model assumptions grants significant modifications detailed new cti stock options granted fiscal years ended january 31 2008 2007 weighted average fair value 813 stock options granted fiscal year ended january 31 2006 determined using blackscholes option pricing model following weighted average assumptions expected volatility 325 riskfree interest rate 43 expected life 44 years expected dividend yield 0 fair value awards modified april 2006 modification 1093 determined using blackscholes option pricing model following weighted average assumptions 3519 implied volatility cti shares applying 10 day trailing average april 26 2006 atthemoney options longest time maturity risk free interest rate 502 expected life 476 years expected dividend yield 0 comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued fair value assumptions july 2006 modification period july 2006 january 31 2009 follows cti based riskfree interest rate implied yields us treasury zerocoupon issues equivalent remaining term time grant cti used implied volatility approach believes implied volatility better indicator expected volatility generally reflective historical volatility expectation future volatility differ historical volatility cti used options traded exchange estimate implied volatility stock subsequent february 1 2007 cti could determine implied volatility trading options ceased due delisting common stock nasdaq historical price stock volatility used proxy expected volatility sufficient volume trading traded options cti revert back using implied volatility expected life represents period time awards granted expected outstanding based historical exercise patterns assumption dividend yield zero cti historically paid dividends expect foreseeable future verint plans overview verint’s stock incentive plans verint consolidated subsidiary cti whose common stock publicly traded granted stock options restricted stock various stock incentive plans generally permit issuance awards deferred stock restricted stock awards “rsas” restricted stock units “rsus” incentive nonqualified stock options sars verint’s employees directors consultants awards granted plans generally subject multiyear vesting periods generally expire 10 years less date grant verint recognizes compensation expense awards straightline basis life vesting period reduced estimated forfeitures upon exercise stock options issuance restricted stock issuance shares plans verint issue authorized unissued common stock unless treasury shares available january 31 2009 5225246 stock options purchase shares verint systems’ common stock outstanding 4372927 shares available future grants verint’s stock incentive plans comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued restricted period result verint’s inability current periodic reporting obligations federal securities laws since april 2006 verint ineligible use registration statements form s8 offer sale equity securities including stock options employees consequently verint prohibited exercise vested stock options since april 2006 verint modified grants held terminated employees extending time terminated employee would normally exercise vested stock option awards modification communicated employees time termination verint accounted additional time exercise afforded employees modifications original awards date employee termination resulting modification expense fiscal years ended january 31 2009 2008 2007 07 million 17 million 29 million respectively fiscal year ended january 31 2007 verint recorded excess tax benefit 01 million financing cash flow required sfas 123r excess tax benefits recorded fiscal years ended january 31 2009 2008 2006 excess tax benefits represents reduction income taxes otherwise payable period attributable actual gross tax benefits excess expected tax benefits restricted awards verint grants restricted stock plans includes grants rsas rsus principal difference instruments rsus shares verint systems’ common stock rights privileges thereof including voting dividend rights applicable vesting date holder rsu becomes entitled share verint systems’ common stock rsas rsus subject certain restrictions forfeiture provisions prior vesting unrecognized compensation expense related unvested rsas rsus expected vest january 31 2009 approximately 222 million remaining weighted average vesting periods approximately 078 years 140 years respectively expense expected recognized total fair value restricted stock awards units vested fiscal years ended january 31 2009 2008 2007 2006 29 million 67 million 16 million 08 million respectively following table summarizes verint’s exercisable options vested restricted awards comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued following table presents combined activity verint stock incentive plans fiscal years ended january 31 2009 2008 2007 2006 1 see note 3 prior period adjustments explanation prior period adjustments 2 total intrinsic value stock options purchase verint systems’ common stock exercised fiscal years ended january 31 2007 2006 05 million 147 million respectively verint systems received 04 million 80 million cash realized associated tax benefits 01 million 36 million fiscal years ended january 31 2007 2006 respectively associated exercise stock options 3 total fair value restricted shares vested fiscal years ended january 31 2009 2008 2007 2006 29 million 67 million 16 million 08 million respectively 4 outstanding stock options purchase verint systems’ common stock january 31 2009 include 763971 nonvested shares weightedaverage grant date fair value 1475 expected term 15 years total fair value 113 million total unrecognized compensation cost related remaining nonvested shares 99 million expected recognized weighted average period 15 years comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued 5 january 31 2009 unrecognized compensation expense related nonvested rsas rsus 222 million expected recognized weightedaverage period 08 14 years respectively 6 january 31 2009 stock options purchase aggregate 4461275 shares verint systems’ common stock vested currently exercisable plans 7 total fair value vested stock options purchase verint systems’ common stock 683 million 527 million 266 million 153 million fiscal years ended january 31 2009 2008 2007 2006 respectively 8 others includes addition 8485 shares deduction 2542 shares verint systems’ common stock cancelled one verint’s stock incentive plans available grant following table summarizes information verint’s stock options january 31 2009 january 31 2009 aggregate intrinsic value 01 million outstanding exercisable stock options fair value assumptions weighted average fair value 1903 stock options granted fiscal year ended january 31 2006 determined using blackscholes optionpricing model following weighted average assumptions expected volatility 55 riskfree interest rate 427 expected life 586 years expected dividend yield 0 connection verint’s acquisition witness may 25 2007 stock options purchase witness common stock converted stock options purchase approximately 31 million shares verint system’s common stock verint estimated weighted average fair value stock options 1502 date acquisition utilizing blackscholes option valuation model following assumptions expected volatility 4050 riskfree interest rate 488 expected life 262 years expected dividend yield 0 comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued verint bases riskfree interest rate implied yields us treasury zerocoupon issues equivalent remaining term time grant expected life represents period time awards granted expected outstanding based historical exercise patterns assumption dividend yield zero verint historically paid dividends expect foreseeable future 20 loss earnings per share purposes computing basic earnings loss per share nonvested shares restricted stock issued company vest solely basis service condition excluded weighted average number shares common stock outstanding incremental potential common shares stock options nonvested restricted stock dsus included computation diluted earnings per share except effect would antidilutive calculation loss earnings per share fiscal years ended january 31 2009 2008 2007 2006 follows holders nonvested shares restricted stock issued company vest solely basis service condition excluded weighted average number shares common stock outstanding used computation basic earnings loss per share restricted stock allow holders receive dividends participate undistributed earnings incremental potential common shares stock options nonvested restricted stock dsus included computation diluted earnings per share except effect would antidilutive result company’s net loss fiscal years ended january 31 2009 2008 2007 diluted loss per share computation excludes 11 million 53 million 91 million contingently issuable shares respectively effect would antidilutive comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued eitf 048 effect contingently convertible instruments diluted earnings per share addresses contingently convertible instruments included diluted earnings per share eitf requires contingently convertible instruments included diluted earnings per share dilutive regardless whether market price trigger met convertible debt obligations meet definition contingently convertible instrument convertible debt obligations antidilutive fiscal years ended january 31 2009 2008 2007 fiscal year ended january 31 2006 convertible debt obligations resulted additional share dilution calculating earnings per share 67 million shares 21 expense income net expense income net fiscal years ended january 31 2009 2008 2007 2006 comprised following 22 income taxes components united states foreign loss income continuing operations income taxes follows provision benefit income taxes consists following reconciliation us federal statutory income tax rate effective tax rate income loss income taxes follows significant differences impact effective tax rate relate changes valuation allowance tax contingencies difference us federal statutory rate rates foreign jurisdictions us tax effect foreign earnings remeasurement certain foreign assets addition significant changes include impairment goodwill intangible assets investments subsidiaries certain nondeductible executive compensation expenses comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued deferred income taxes provided effects temporary differences amounts assets liabilities recognized financial reporting purposes amounts recognized income tax purposes significant components company’s deferred tax assets deferred tax liabilities follows company’s operations israel granted “approved enterprise” status investment center israeli ministry industry trade labor makes company eligible tax benefits israeli law encouragement capital investments 1959 terms program income attributable approved enterprise exempt income tax period two years subject reduced income tax rate subsequent five fifteen years generally 1015 depending percentage foreign investment company us income foreign withholding taxes recorded permanently reinvested earnings certain subsidiaries aggregating 2706 million 3161 million 3892 million 4666 million january 31 2009 2008 2007 2006 respectively time determination amounts deferred us federal state income taxes foreign withholding taxes related foreign subsidiaries practicable january 31 2009 1292 million earnings certain subsidiaries considered permanently reinvested therefore related deferred us income taxes foreign withholding taxes provided portion earnings subsidiaries following countries considered permanently reinvested israel brazil hong kong new zealand mexico portugal united kingdom company net operating loss carryforwards tax purposes “nols” deferred tax benefits available offset future taxable income comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued company’s gross nols tax return purposes follows us federal net operating loss carry forwards expire various years ending january 31 2016 january 31 2029 us state net operating loss carry forwards expire various years ending january 31 2010 january 31 2029 january 31 2009 582 million foreign nols indefinite carryforward periods certain federal state foreign loss carryforwards credits subject internal revenue code section 382 similar provisions impose limitations utilization following certain changes ownership entity generating loss carryforward table reflects gross nols tax return purposes different nols financial statement purposes gross nols differ nols used financial statement purposes result application fin 48 company us federal state foreign tax credit carryforwards approximately 161 million 147 million 109 million 80 million january 31 2009 2008 2007 2006 respectively utilization carryforwards subject limitations federal amt credit expiration date credit carryforwards expire various years ending january 31 2010 2029 february 1 2007 company adopted fin 48 company recognized 744 million net 14 million effect minority interest increase noncurrent tax liabilities decrease deferred tax assets unrecognized tax benefits recorded corresponding charge retained earnings addition company recognized 1190 million net 07 million effect minority interest increase noncurrent tax liabilities reductions deferred tax assets unrecognized tax benefits recorded corresponding charge additional paidin capital following table reconciles amounts recorded unrecognized tax benefits fiscal years ended january 31 2009 2008 balances unrecognized tax benefits january 31 2009 2008 3683 million 4065 million 317 million 1829 million represent amounts recognized may impact effective income tax rate future periods company recognized interest penalties related unrecognized tax benefits income tax provision company accrued 407 million 478 million interest penalties january 31 2009 2008 respectively comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued company estimates reasonably possible balance unrecognized tax benefits january 31 2009 may decrease approximately 109 million next twelve months result lapse statutes limitation settlements tax authorities unrecognized tax benefits relate permanent establishment transfer pricing events related majorityowned subsidiaries tax positions amounts 54 million 07 million 25 million 23 million respectively significant tax jurisdictions company currently examination tax authorities include israel india united kingdom new york state new york city california texas company longer subject examination israel years prior january 31 2005 result settlement agreement company currently discussions israeli tax authorities regarding tax adjustments years ended january 31 2006 january 31 2009 company anticipates reasonably possible new tax matters could raised tax authorities may require increases decreases balance unrecognized tax benefits however estimate increases decreases cannot made company files income tax returns us federal various state local foreign tax jurisdictions january 31 2009 company subject income tax examination major jurisdictions company regularly assesses adequacy provisions income tax contingencies accordance fin 48 result company may adjust reserves unrecognized tax benefits impact new facts developments changes interpretations relevant tax law assessments taxing authorities settlements taxing authorities lapses statutes limitations company maintains valuation allowances morelikelythannot portion deferred tax asset may realized changes valuation allowances included comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued company’s tax provision period change unless valuation allowances established purchase accounting business combination items related additional paidin capital determining whether valuation allowance warranted company evaluates factors prior earnings history expected future earnings reversal existing taxable temporary differences carryback carryforward periods tax strategies could potentially enhance likelihood realization deferred tax asset upon adoption fas 141r fiscal year ended january 31 2010 tax benefit future release acquisition date valuation allowances would reflected tax provision rather reduction goodwill required prior accounting standards company’s activity valuation allowance follows comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued 23 business segment information cti four reportable segments comverse verint ulticom segment comprised starhome bv subsidiaries provider wireless service mobility solutions enhance international roaming miscellaneous operations cti’s holding company operations company evaluates business assessing performance segments cti’s chief executive officer chief operating decision maker chief operating decision maker uses segment performance defined primary basis assessing financial results segments allocation resources segment performance company defines accordance sfas 131 disclosures segments enterprise related information necessarily comparable similarly titled captions companies segment performance defined management represents operating results segment without impact significant expenditures incurred segment connection investigations evaluations efforts become current periodic reporting obligations federal securities laws certain noncash charges certain insignificant charges segment performance segment performance defined management loss income operations adjusted following stockbased compensation expense ii amortization acquisitionrelated intangibles iii compliancerelated professional fees iv compliancerelated compensation expenses v impairment charges vi litigation settlements related costs vii acquisitionrelated charges viii restructuring integration charges ix certain insignificant charges compliancerelated professional fees compliancerelated compensation expenses relate fees expenses incurred connection investigations evaluations b identification measurement recording prior period adjustments c company’s efforts become current periodic reporting obligations federal securities laws evaluating segment’s performance management uses segment revenue consists revenue generated segment including intercompany revenue certain segment performance adjustments relate expenses included calculation loss income operations time certain segment performance adjustments may presented adjustments revenue calculating comverse’s segment performance fiscal years ended january 31 2009 2008 2007 2006 presentation segment revenue gives effect segment revenue adjustment reflecting elimination negative impact revenue attributable patent litigation settlement addition calculating verint’s segment performance fiscal years ended january 31 2009 2008 presentation segment revenue gives effect segment revenue adjustments related acquisitions represent 1 impact fair value adjustments required us gaap relating acquired customer support contracts would otherwise recognized revenue standalone basis 2 certain sales concession adjustments relating accounts receivable balances existed prior acquisition date case respect acquisition witness may 2007 comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued tables presents information total revenue total costs expenses loss income operations interest expense depreciation amortization significant noncash items total assets segment performance fiscal years ended january 31 2009 2008 2007 2006 comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued 1 significant noncash items consist primarily writeoffs impairments goodwill intangible assets property equipment 2 fiscal years ended january 31 2009 2008 total assets “all other” includes 2930 million series convertible perpetual preferred stock issued verint systems held cti see note 24 related party transactions 3 fiscal year ended january 31 2007 verint’s segment expense adjustments includes 192 million expense reflecting cost verint’s settlement ocs exit royaltybearing program excess royalties previously accrued comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued revenue major geographical region based upon geographic location customers purchase company’s products services geographical locations distributors resellers systems integrators purchase products utilize company’s services may different geographical locations end customers revenue geographic region percentage total revenue fiscal years ended january 31 2009 2008 2007 2006 follows 1 foreign consists numerous countries none represents 5 total revenue fiscal year revenue similar type product line solution fiscal years ended january 31 2009 2008 2007 2006 follows 1 consists product lines solutions less 5 total revenue fiscal year presented longlived assets primarily consist property equipment net capitalized software development costs deferred costs revenue company believes property equipment net exposed geographic area risks uncertainties longlived assets tangible assets difficult move relatively illiquid comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued property equipment net country domicile consists following january 31 2009 2008 2007 2006 24 related party transactions sonus networks inc dr nottenburg member cti’s board directors compensation leadership committee served president chief executive officer sonus networks inc telecommunications company since june 13 2008 sonus networks customer comverse verint ulticom company wellestablished ongoing business relationship sonus networks prior appointment dr nottenburg cti’s board directors fiscal year ended january 31 2009 revenue derived comverse verint ulticom sonus networks 05 million 04 million 68 million respectively january 31 2009 comverse ulticom accounts receivable sonus networks 04 million verint accounts receivable sonus networks january 31 2009 former general counsel william sorin cti’s former senior general counsel corporate secretary nonemployee basis former member cti’s board directors capacity director fiscal year ended january 31 2006 cti granted mr sorin options purchase 17000 shares cti’s common stock exercise price 2404 per share april 28 2006 mr sorin resigned positions became interim advisor cti purpose providing transitional assistance senior management cooperating special committee advisory relationship mr sorin reflected cooperation agreement contemplating sixmonth term unless terminated either party providing party less 10 days’ prior written notice terms cooperation agreement mr sorin entitled receive salary cti continued provide mr sorin right participate insurance 401k benefit plans arrangements available employees generally august 17 2006 mr sorin given notice termination prior employment similar agreements arrangements including cooperation agreement without severance payments outstanding vested unvested unexercised stock options restricted stock awards equity cti previously granted revoked addition mr sorin signed release claims cti part settlement shareholder derivative actions comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued verint’s series convertible perpetual preferred stock may 25 2007 connection verint’s acquisition witness cti entered securities purchase agreement verint “securities purchase agreement” whereby cti purchased cash aggregate 293000 shares verint’s series convertible perpetual preferred stock “preferred stock” aggregate purchase price 2930 million represents verint’s outstanding preferred stock proceeds issuance preferred stock used partially finance acquisition preferred stock eliminated consolidation preferred stock issued purchase price 1000 per share ranks senior verint’s common stock preferred stock initial liquidation preference equal 1000 per share purchase price event voluntary involuntary liquidation dissolution windingup verint cti entitled receive assets available distribution verint’s stockholders distribution assets holders verint’s common stock amount equal thencurrent liquidation preference includes accrued unpaid dividends january 31 2009 cumulative undeclared dividends preferred stock 206 million result liquidation preference preferred stock 3136 million date terms preferred stock provide upon fundamental change defined cti would right require verint repurchase preferred stock 100 liquidation preference effect fundamental change events include sale substantially verint’s assets certain changes beneficial ownership board directors’ representation business reorganizations event fundamental change conversion rate described section entitled voting conversion increased provide additional shares common stock issuable cti based sliding scale depending acquisition price defined ranging none 37 additional shares common stock every share preferred stock converted shares common stock cti holder preferred stock various rights preferences follows dividends cash dividends preferred stock cumulative calculated quarterly specified dividend rate liquidation preference effect time dividends paid declared verint’s board directors initially specified annual dividend rate 425 per share quarter ended january 31 2008 variable interest rate verint’s term loan decreased 50 basis points initial interest rate accordingly dividend rate preferred stock reset 3875 effective february 1 2008 rate subject future change event verint unable obtain approval issuance common shares underlying preferred stock’s conversion feature verint prohibited paying cash dividends preferred stock terms credit facility verint may elect make dividend payments shares common stock common stock used dividends declared would valued 95 volume weightedaverage price verint’s common stock five consecutive trading days ending second trading day immediately prior record date dividend january 31 2009 dividends declared paid preferred stock date cumulative undeclared dividends preferred stock 206 million comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued voting conversion preferred stock voting conversion rights underlying shares common stock approved issuance vote holders majority verint’s common stock special meeting verint systems’ stockholders scheduled held october 5 2010 obtain approval cti intends vote shares verint systems’ common stock favor approval assured see note 27 subsequent events following receipt stockholder approval issuance underlying common shares share preferred stock entitled number votes equal number shares common stock preferred stock would convertible conversion rate defined effect date preferred stock issued cti addition following receipt stockholder approval issuance underlying common shares share preferred stock convertible option cti number shares verint’s common stock equal liquidation preference effect divided conversion price effect initially set 3266 conversion price subject periodic adjustment upon occurrence certain dilutive events convertible january 31 2009 preferred stock could converted approximately 96 million shares verint’s common stock time may 25 2009 verint right provided stockholder approval issuance underlying shares common stock obtained cause preferred stock whole part automatically converted common stock conversion price effect however verint may exercise right closing sale price common stock immediately prior conversion equals exceeds conversion price effect 150 conversion may 25 2009 prior may 25 2010 b 140 conversion may 25 2010 prior may 25 2011 c 135 conversion may 25 2011 transfer registration rights cti right sell preferred stock since november 25 2007 either private public transactions pursuant registration rights agreement verint entered concurrently securities purchase agreement “new registration rights agreement” commencing 180 days verint regains compliance periodic reporting obligations federal securities laws provided underlying shares verint’s common stock approved issuance common stockholders cti entitled two demands require verint register shares common stock underlying preferred stock resale securities act 1933 amended “securities act” new registration rights agreement also provides cti unlimited piggyback registration rights certain securities act registrations filed verint behalf verint stockholders cti’s rights new registration rights agreement addition rights previous registration rights agreement cti entered verint shortly verint’s initial public offering 2002 registration rights agreement “original registration rights agreement” covers shares common stock held cti additional shares common stock acquired cti later date original registration rights agreement cti entitled unlimited demand registrations shares registration statement form s3 verint eligible use registration statement form s3 cti also entitled one demand registration statement form s1 like new registration rights agreement original registration rights agreement also provides cti unlimited piggyback registration rights comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued 25 commitments contingencies guarantees company provides certain customers financial performance guarantees certain cases backed standby letters credit surety bonds majority cash collateralized accounted restricted cash company liable amounts guarantees event nonperformance would permit customer exercise guarantee january 31 2009 2008 2007 2006 company believes compliance performance obligations contracts financial performance guarantee liabilities arising connection guarantees material adverse effect company’s consolidated results operations financial position cash flows company also obtained bank guarantees primarily provide customer assurance relating performance certain obligations required customer agreements guarantee certain payment obligations guarantees aggregated 464 million january 31 2009 generally scheduled released upon company’s performance specified contract milestones scheduled completed various dates primarily 2011 unconditional purchase obligations ordinary course business company enters certain unconditional purchase obligations agreements purchase goods services enforceable legally binding specify significant terms including fixed minimum quantities purchased fixed minimum variable price provisions approximate timing transaction purchase obligations exclude aggregate amounts cancelable without penalty company unconditional purchase obligations approximately 541 million january 31 2009 majority obligations due next twelve months except 82 million due one three years comverse ltd liens part operations comverse ltd agreed placement floating liens assets support potential future borrowings banking services provided two israeli banks january 31 2009 comverse ltd borrowings supported liens however liens remained full force effect liens included provisions prohibited comverse ltd selling transferring assets ordinary course business effect restricting comverse ltd’s ability pay dividends extend loans shareholders without obtaining banks’ prior written approval december 2009 liens assets comverse ltd released litigation overview time company subject claims legal proceedings arising normal course business except disclosed company believe currently party claims assessments pending legal action could reasonably expected material adverse effect business financial condition results operations comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued proceedings related cti’s special committee investigations overview march 14 2006 cti announced creation special committee board directors composed outside directors review cti’s historic stock option grant practices related accounting matters including limited accuracy stated dates option grants whether proper corporate procedures followed november 2006 special committee’s investigation expanded financial accounting matters including recognition revenue related certain contracts errors recording certain deferred tax accounts misclassification certain expenses misuse accounting reserves misstatement backlog special committee issued report january 28 2008 following commencement special committee’s investigation cti certain subsidiaries cti’s former directors officers current director named defendants several class derivative actions cti commenced direct actions certain former officers directors petition remission civil forfeiture july 2006 us attorney filed forfeiture action certain mr alexander’s accounts resulted united states district court eastern district entering order freezing approximately 500 million mr alexander’s assets order ensure cti receives assets mr alexander’s frozen accounts july 2007 cti filed us attorney petition remission civil forfeiture requesting remission funds forfeited mr alexander assets accounts ultimately transferred class action settlement fund conjunction settlements direct actions defined consolidated shareholder class action shareholder derivative actions agreement settle shareholder class action approved court action pending june 23 2010 agreement settle federal state derivative actions approved courts actions pending july 1 2010 september 23 2010 respectively see note 27 subsequent events direct actions based special committee’s findings cti commenced litigations three former executive officers result misconduct relating historical stock option grants january 16 2008 cti commenced action jacob “kobi” alexander former chairman chief executive officer william f sorin former senior general counsel director supreme court state new york captioned comverse technology inc v alexander et al 08600142 january 17 2008 cti commenced action david kreinberg former executive vice president chief financial officer superior court new jersey captioned comverse technology inc v kreinberg nj super ct action discontinued january 8 2009 separate action commenced mr kreinberg supreme court state new york captioned comverse technology inc v kreinberg 09600052 actions captioned comverse technology inc v alexander et al comverse technology inc v kreinberg referred collectively “direct actions” direct actions asserted claims fraud breach fiduciary duty unjust enrichment connection defendants’ conduct related historical stock option grants part agreement settle federal state derivative actions approved courts actions pending july 1 2010 september 23 2010 respectively cti agreed dismiss direct actions see note 27 subsequent events comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued shareholder derivative actions beginning april 11 2006 several purported shareholder derivative lawsuits filed new york supreme court new york county united states district court eastern district new york defendants actions included certain cti’s former directors officers current director state court action cti’s independent registered public accounting firm cti named nominal defendant consolidated complaints state federal actions alleged defendants breached certain duties cti certain former officers directors unjustly enriched federal action violated federal securities laws specifically sections 10b 14a exchange act rules 10b5 14a9 promulgated thereunder among things allowing participating alleged scheme backdate grant dates employee stock options provide improper benefits recipients ii allowing insiders including certain defendants profit trading cti’s stock allegedly possession material inside information iii failing oversee properly implement procedures detect prevent alleged improper practices iv causing cti issue allegedly materially false misleading proxy statements file allegedly false misleading documents sec v exposing cti civil liability complaints sought unspecified damages various forms equitable relief state court derivative actions consolidated one action captioned comverse technology inc derivative litigation 6012722006 august 7 2007 new york supreme court dismissed consolidated state court derivative action granting cti’s motion dismiss decision successfully appealed plaintiffs appellate division new york state supreme court decision issued october 7 2008 reinstated action federal court derivative actions consolidated one action captioned comverse technology inc derivative litigation 06cv1849 cti filed motion stay action deference state court proceeding motion denied court october 16 2007 cti filed motion dismiss federal court action based plaintiffs’ failure make demand board state court’s ruling demand required date various individual defendants also filed motions dismiss complaint april 22 2008 court ordered dismissal motions would held abeyance pending resolution appeal new york state supreme court’s decision state court derivative action december 17 2009 parties shareholder derivative actions entered agreement settle actions settlement approved courts federal state derivative actions pending july 1 2010 september 23 2010 respectively see note 27 subsequent events company recorded charge 94 million pay legal fees expenses plaintiffs part settlement fiscal year ended january 31 2007 see note 27 subsequent events shareholder class action beginning april 19 2006 class action lawsuits filed persons identifying cti shareholders purportedly behalf class cti’s shareholders purchased publicly traded securities two actions filed united states district court eastern district comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued new york three actions filed united states district court southern district new york august 28 2006 actions pending united states district court southern district new york transferred united states district eastern district new york consolidated amended complaint caption comverse technology inc sec litig 06cv 1825 filed courtappointed lead plaintiff menorah group march 23 2007 consolidated amended complaint brought behalf purported class cti shareholders purchased cti’s publicly traded securities april 30 2001 november 14 2006 complaint named cti certain former officers directors defendants alleged among things violations sections 10b 14a exchange act rule 10b5 promulgated thereunder section 20a exchange act connection prior statements made cti respect among things accounting treatment stock options action sought compensatory damages unspecified amount parties action entered settlement agreement december 16 2009 amended june 19 2010 approved court action pending june 23 2010 see note 27 subsequent events company recorded charge 1650 million associated settlement fiscal year ended january 31 2007 see note 27 subsequent events disgorgement derivative action june 1 2007 mark levy filed purported shareholder derivative action cti’s behalf entitled levy v koren john 120 07cv0896 former officer one cti’s subsidiaries based israel twenty unidentified “john doe” defendants action filed united states district court southern district new york alleged violations section 16b exchange act specifically complaint alleged defendant purchased sold cti equity securities within sixmonth period exercising stock options awarded cti selling stock 40 million profit complaint sought disgorgement gains realized purchases sales complaint set forth specific damage amount sought plaintiff cti named solely nominal defendant action discovery action completed defendants moved summary judgment january 15 2008 march 25 2010 parties entered stipulation settlement pursuant defendant paid 150000 cti ii defendant relinquished rights outstanding stock options purchase 92500 shares cti’s common stock iii cti paid plaintiff’s counsel’s attorneys’ fees costs 250000 settlement provides release claims section 16b exchange act might asserted action approved court action pending june 24 2010 israeli optionholder class actions cti certain subsidiaries named defendants four potential class action litigations state israel involving claims recover damages incurred result purported negligence breach contract allegedly prevented certain current former employees exercising certain stock options company intends vigorously defend actions see note 27 subsequent events comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued sec civil actions promptly following discovery errors improprieties related cti’s historic stock option grant practices creation special committee cti special committee representatives met informed staff sec underlying facts initiation special committee investigation march april 2008 cti verint systems ulticom inc received “wells notice” staff sec arising sec’s respective investigations respective historical stock option grant practices certain unrelated accounting matters wells notices provided notification staff sec intended recommend sec bring civil actions cti verint systems ulticom inc alleging violations certain provisions federal securities laws process established sec recipients “wells notice” opportunity make wells submission staff sec makes formal recommendation sec regarding action brought sec subsequent developments respect well notices see note 27 subsequent events description sec investigation stock option grant practices witness acquired verint systems may 2007 see “witness investigationrelated matters” investigation alleged unlawful payments march 16 2009 cti disclosed audit committee board directors conducting internal investigation alleged improper payments made 2001 2007 certain comverse employees external sales agents foreign jurisdictions connection sale certain products alleged payments would made contravention stated policies certain payments may violation foreign corrupt practices act “fcpa” laws united states countries audit committee found conduct issue involve cti’s current executive officers audit committee also reviewed comverse’s existing prior arrangements agents audit committee commenced investigation cti voluntarily disclosed sec doj facts advised audit committee initiated internal investigation audit committee would provide results investigation agencies april 27 2009 sec advised cti investigating matter issued subpoena cti connection investigation audit committee providing information cooperating fully sec doj respect findings internal investigation alleged improper payments existing prior arrangements agents company recorded charge 29 million associated investigation fiscal year ended january 31 2009 witness investigationrelated matters time verint’s may 25 2007 acquisition witness subject number proceedings relating stock options backdating internal investigation undertaken publiclydisclosed witness prior acquisition following summary proceedings developments since date acquisition august 29 2006 edward miller filed shareholder derivative lawsuit united states district court northern district georgia atlanta division naming witness nominal defendant naming witness’ directors number officers defendants miller v gould et al civil action 106cv2039 nd ga complaint alleged purported violations federal state law violations certain antifraud provisions federal securities laws including sections 10b 14a exchange act rules 10b5 14a9 thereunder connection certain stock option grants made witness complaint sought monetary damages unspecified amounts disgorgement profits accounting rescission stock option grants imposition constructive trust defendants’ stock options proceeds derived therefrom punitive damages reimbursement attorneys’ fees costs expenses order directing witness adopt put stockholder vote various proposals relating corporate governance relief determined court march 11 2009 court granted defendants’ motion dismiss complaint entirety prejudice plaintiff file appeal time federal rules elapsed comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued august 14 2006 class action securities lawsuit filed individual claiming witness stockholder naming witness certain directors officers defendants connection certain stock option grants made witness rosenberg v gould et al civil action 106cv1894 nd ga complaint filed united states district court northern district georgia alleged violations section 10b exchange act rule 10b5 thereunder complaint sought unspecified damages attorneys’ fees costs expenses unspecified extraordinary equitable injunctive relief determined court march 31 2008 court granted defendants’ motion dismiss complaint entirety prejudice april 29 2008 plaintiff filed notice appeal january 9 2009 11th circuit affirmed lower court’s dismissal complaint response plaintiff’s appeal plaintiff pursued appeal decision time federal rules elapsed october 27 2006 witness received notice sec informal nonpublic inquiry relating stock option grant practices witness february 1 2000 date notice july 12 2007 verint systems received copy formal order investigation sec relating substantially matter informal inquiry verint systems witness fully cooperated intend continue fully cooperate called upon sec regarding matter addition united states attorney’s office northern district georgia also given access documents information provided witness sec verint systems’ last communication sec respect matter june 2008 addition litigation discussed company future may involved various lawsuits claims proceedings incident ordinary course business results litigation inherently unpredictable claims company whether meritorious could time consuming result costly litigation require significant amounts management time result diversion significant resources results lawsuits claims proceedings cannot predicted certainty however company believes ultimate resolution current matters material adverse effect consolidated financial statements taken whole indemnifications normal course business company provides indemnifications varying scopes customers claims intellectual property infringement made third parties arising use company’s products company evaluates indemnifications potential losses evaluation considers factors degree probability unfavorable outcome ability make reasonable estimate amount loss date company encountered significant charges result indemnification provisions extent permitted state laws applicable laws company agreements indemnify directors officers certain events occurrences director officer serving company’s request capacity indemnification period covers pertinent events occurrences company’s director’s officer’s lifetime maximum potential amount future payments company could required make indemnification agreements unlimited however company certain director officer insurance coverage limits company’s exposure enables company recover portion future amounts paid company able estimate fair value indemnification agreements excess applicable insurance coverage comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued 26 quarterly information unaudited following table shows selected results operations quarters fiscal years ended january 31 2009 2008 27 subsequent events management’s plans improve working capital position reflected accompanying consolidated financial statements company incurred significant cumulative losses experienced declines cash flows cash equivalents working capital four fiscal years ended january 31 2009 accumulated deficit approximately 14 billion january 31 2009 subsequent january 31 2009 cti comverse continued incur operating net losses experienced declines cash flows cash equivalents working capital increase accumulated deficit negative trends due primarily results operations negative cash flows comverse segment ii repurchase cti new convertible debt obligations may 2009 required applicable indenture iii accounting tax legal fees related cti’s efforts become current periodic reporting obligations federal securities laws lesser extent remediate material weaknesses internal control financial reporting iv 2009 restructuring initiative v payments made part settlement shareholder class action derivative actions decline capital resources partially offset proceeds received cti sales redemptions ars subsequent january 31 2009 part settlement agreement consolidated shareholder class action cti granted security interest benefit plaintiff class account cti holds ars 516 million aggregate principal amount ars held account ubs proceeds sales thereof consequently cti’s ability use proceeds future sales ars restricted amounts payable settlement agreement comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued paid full addition terms settlement agreement consolidated shareholder class action cti receives net cash proceeds sale certain ars held aggregate amount excess 500 million cti required use 500 million proceeds prepay settlement amounts referred cti receives net cash proceeds sale ars aggregate amount excess 1000 million cti required use additional 500 million proceeds prepay settlement amounts referred july 31 2010 cti received cash proceeds 288 million sales redemptions ars provisions settlement agreement apply addition company significant future payment obligations settlement agreement shareholder class action amount payable settlement agreement fiscal year ending january 31 2012 aggregate 1125 million payable cash cti’s election shares cti’s common stock subject certain conditions including cti current periodic reporting obligations federal securities laws common stock listed national securities exchange fifteenth trading day preceding applicable payment dates may 15 2011 november 15 2011 addition part settlement consolidated shareholder derivative actions cti agreed pay legal fees expenses plaintiffs 94 million payment due october 23 2010 september 2010 cti received insurance proceeds 165 million directors’ officers’ insurance policies connection settlements shareholder derivative actions consolidated shareholder class action company anticipates experience reductions cash flows working capital results operations next twelve months similar reasons response events company commenced initiatives improve cash position part initiatives company commenced plan restructure operations comverse segment view toward aligning operating costs expenses anticipated revenue company intends commence first phase restructuring plan october 2010 implement second phase measures next 12 18 months comverse also evaluating initiatives improve focus core business maintain ability face intense competitive pressures markets including strategic options potential wind netcentrex business furthermore part initiatives september 16 2010 comverse ltd indirect whollyowned subsidiary cti entered agreement sale certain land ra’anana israel third party purchase price approximately 285 million approximately 271 million proceeds received balance held escrow cover extent necessary applicable taxes levies addition company evaluating secured financing alternatives including loans may secured portion assets cti comverse issuance securities pursuing sale certain assets including potential sale 28 million shares verint systems’ common stock effective july 15 2010 cti made demand pursuant original registration rights agreement 28 million shares verint systems’ common stock registered registration statement form s1 permit sale thereof public offering august 24 2010 verint systems filed registration statement sec cti engaged goldman sachs financial advisor goldman sachs assisting cti among things exploring strategic capital raising alternatives contrary expectations company’s initiatives increase liquidity capital resources fail satisfy working capital needs business operations could materially adversely affected event company may need seek new borrowings asset sales issuance equity securities disadvantageous terms 2009 restructuring initiative fiscal year ended january 31 2010 comverse’s management approved restructuring plan close certain facilities eliminate associated staff positions plan implemented around comverse’s core competencies innovations enhance quality product offerings better align customers’ needs improve delivery service capabilities aggregate cost plan 138 million severancerelated costs 133 million paid fiscal year ended january 31 2010 facilitiesrelated costs 05 million expected paid january 31 2012 comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued repurchase convertible debt obligations terms indenture governing new convertible debt obligations cti obligation offer purchase cash new convertible debt obligations may 15 2009 purchase price equal principal amount purchased meet obligations indenture cti commenced tender offer april 17 2009 upon completion tender offer may 15 2009 cti purchased 4173 million aggregate principal amount new convertible debt obligations leaving 22 million aggregate principal amount convertible debt obligations outstanding verint credit facility term loan interest rate swap agreement term loan excess cash flow payments may 2009 verint made 41 million mandatory “excess cash flow” payment applied three immediately following principal payments may 2010 verint made 221 million mandatory “excess cash flow” payment term loan based upon operating results fiscal year ended january 31 2010 124 million applied eight immediately following principal payments 97 million applied pro rata remaining principal payments amendments credit facility credit facility includes requirement verint submit audited consolidated financial statements lenders within 90 days end fiscal year beginning financial statements fiscal year ended january 31 2010 april 27 2010 verint entered amendment waiver consent lenders extended due date delivery audited consolidated financial statements related documentation fiscal year ended january 31 2010 may 1 2010 june 1 2010 consideration amendment verint paid approximately 09 million lenders verint filed annual report form 10k fiscal year ended january 31 2010 containing requisite financial statements may 19 2010 accordingly delivered audited consolidated financial statements lenders compliance terms amended credit facility verint fail future deliver audited consolidated financial statements required agreement provides thirty day period cure default event default occurs july 2010 verint entered amendment 3 “amendment” credit facility dated may 25 2007 amended among verint systems credit suisse ag cayman islands branch administrative agent lenders time party thereto see note 13 debt among things amendment changes method calculation applicable interest rate margin based verint’s consolidated leverage ratio consolidated total debt consolidated ebitda defined credit facility time ii adds 150 libor floor iii increases aggregate amount incremental revolving commitment term loan increases permitted credit facility 500 million 2000 million iv makes certain changes negative covenants including providing covenant relief respect permitted consolidated leverage ratio addition july 2010 verint entered incremental amendment joinder agreement credit facility increasing revolving credit facility credit facility 150 million 750 million see note 13 debt commitment fee unused capacity revolving credit facility increased 05 075 per annum consideration july 2010 amendments verint paid 26 million lenders applicable margins amended base rate loans highest prime rate ii federal funds rate plus 050 iii eurodollar rate one month interest period defined plus 1 rate shall less 15 eurodollar loans libor floor 150 higher follows july 31 2010 interest rates term loan revolving credit facility borrowings 525 600 respectively interest rate revolving credit facility borrowings reset 525 august 4 2010 comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued termination interest rate swap agreement july 2010 verint terminated interest rate swap agreement entered may 2007 connection entry credit facility effectively fixed verint’s interest rate exposure respect 4500 million term loans thereunder 518 interest rate see note 13 debt terminate interest rate swap agreement prior may 2011 maturity verint paid approximately 217 million august 2010 counterparty representing approximate present value expected remaining quarterly settlement payments otherwise due verint agreement see note 14 derivatives financial instruments settlement agreements december 16 2009 december 17 2009 cti entered agreements settle consolidated shareholder class action consolidated shareholder derivative actions discussed note 25 commitments contingencies agreement settle consolidated shareholder class action amended june 19 2010 pursuant amendment cti agreed waive certain rights terminate settlement exchange deferral timing scheduled payments settlement consideration right credit “optout credit” respect portion settlement funds would payable class member elected participate bound settlement connection settlements cti agreed dismiss direct actions three former executive officers cti turn agreed dismiss counterclaims filed cti part settlement consolidated shareholder class action amended cti agreed make payments class action settlement fund aggregate amount 1650 million paid remain payable follows • 10 million paid following signing settlement agreement december 2009 • 179 million paid july 2010 representing agreed 215 million payment less holdback 36 million respect anticipated optout credit holdback required paid cti optout credit less • 300 million payable may 15 2011 • 1125 million less amount optout credit exceeds holdback discussed payable november 15 2011 300 million due may 15 2011 825 million 1125 million due november 15 2011 payable cash cti’s election shares cti’s common stock valued using ten day average closing prices cti’s common stock prior election provided cti becomes current periodic reporting obligations federal securities laws common stock listed national securities exchange fifteenth trading day preceding applicable payment date shares delivered one time aggregate value least 275 million cti receives net cash proceeds sale certain ars held aggregate amount excess 500 million cti required use 500 million proceeds prepay settlement amounts referred cti receives net cash proceeds sale securities aggregate amount excess 1000 million cti required use additional 500 million proceeds prepay settlement amounts referred addition cti granted security interest benefit plaintiff class account cti holds ars comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued 516 million aggregate principal amount ars held account ubs proceeds sales thereof restricting cti’s ability use proceeds sales ars amounts payable settlement agreement paid full addition part settlement direct actions consolidated shareholder class action shareholder derivative actions jacob “kobi” alexander former chairman chief executive officer cti agreed pay 600 million cti deposited derivative settlement fund transferred class action settlement fund amounts payable mr alexander date paid balance paid upon transfer assets mr alexander’s frozen accounts value class action settlement fund pursuant amendment mr alexander agreed waive certain rights terminate settlement received right credit respect portion settlement funds would payable class member elected participate bound settlement cti’s settlement claims class action aggregate consideration 1650 million less optout credit contingent upon mr alexander satisfying payment obligations certain defendants direct actions shareholder derivative actions paid agreed pay cti aggregate 14 million certain former directors agreed relinquish certain outstanding unexercised stock options part settlement shareholder derivative actions cti agreed pay 94 million cover legal fees expenses plaintiffs payment due october 23 2010 september 2010 cti received insurance proceeds 165 million directors’ officers’ insurance policies connection settlements shareholder derivative actions consolidated shareholder class action terms settlements mr alexander wife agreed relinquish claims assets mr alexander’s frozen accounts subject forfeiture action anticipated united states district court application us attorney direct assets accounts liquidated remitted cti value assets december 31 2009 credited mr alexander’s payment obligation referred agreement settle consolidated shareholder class action amended approved court action pending june 23 2010 agreement settle federal state derivative actions approved courts actions pending july 1 2010 september 23 2010 respectively optout plaintiffs’ action september 28 2010 action filed united states district court eastern district new york caption maverick fund ldc et al v comverse technology inc et al 10cv4436 plaintiffs allege cti shareholders purchased cti’s publicly traded securities 2005 2006 2007 plaintiffs maverick fund ldc certain affiliated investment funds opted participate settlement consolidated shareholder class action described complaint names cti current chief executive officer certain former officers directors defendants alleges among things violations sections 10b 18 20a exchange act rule 10b5 promulgated thereunder negligent misrepresentation connection prior statements made cti respect among things accounting treatment stock options accounting practices cti timeline cti become current periodic reporting obligations action seeks compensatory damages unspecified amount company intends vigorously defend action disgorgement derivative action june 1 2007 mark levy filed purported shareholder derivative action cti’s behalf entitled levy v koren john 120 07cv0896 former officer one cti’s subsidiaries based israel twenty unidentified “john doe” defendants action filed united states district court southern district new york alleged violations section 16b exchange act see note 25 commitments contingencies march 25 2010 parties entered stipulation settlement pursuant defendant paid 150000 cti ii defendant relinquished rights outstanding stock options purchase 92500 shares cti’s common stock iii cti paid plaintiff’s counsel’s award attorneys’ fees costs 250000 settlement provides release claims section 16b exchange act might asserted action approved court action pending june 24 2010 israeli optionholder class actions cti certain subsidiaries named defendants four potential class action litigations state israel involving claims recover damages incurred result purported negligence breach contract allegedly prevented certain current former employees exercising certain stock options company intends vigorously defend actions comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued two cases filed tel aviv district court cti march 26 2009 plaintiffs katriel former comverse ltd employee deutsch former verint systems ltd employee katriel case number 133409 deutsch case number 133509 seek approve class actions recover damages claimed incurred result cti’s negligence reporting filing financial statements allegedly prevented exercise certain stock options certain employees former employees stipulation parties september 30 2009 court ordered cases including claims cti israel motion approve class action stayed resolution actions pending united states regarding stock option accounting without prejudice parties’ ability investigate assert unique facts claims defenses cases two cases also filed tel aviv labor court plaintiffs katriel deutsch seek approve class actions recover damages claimed incurred result breached employment contracts allegedly prevented exercise certain cti stock options certain employees former employees katriel litigation case number 344409 filed march 16 2009 comverse ltd deutsch litigation case number 418609 filed march 26 2009 verint systems ltd tel aviv labor court ruled lacks jurisdiction cases transferred tel aviv district court katriel case consolidated katriel case filed tel aviv district court case number 133409 subject stay discussed sec civil actions promptly following discovery errors improprieties related cti’s historic stock option grant practices creation special committee cti special committee representatives met informed staff sec underlying facts initiation special committee investigation march april 2008 cti verint systems ulticom inc received “wells notice” staff sec arising sec’s respective investigations respective historical stock option grant practices certain unrelated accounting matters wells notices provided notification staff sec intended recommend sec bring civil actions cti verint systems ulticom inc alleging violations certain provisions federal securities laws june 18 2009 settlement cti sec respect matters announced date sec filed civil action cti united states district court eastern district new york alleging violations certain provisions federal securities laws regarding cti’s improper backdating stock options accounting practices including improper establishment maintenance release reserves reclassification certain expenses improper calculation backlog sales orders simultaneous filing complaint without admitting denying allegations therein cti consented issuance final judgment final judgment approved united states district court eastern district new york june 25 2009 pursuant final judgment cti permanently restrained enjoined future violations federal securities laws addressed complaint ordered become current periodic reporting obligations section 13a exchange act later february 8 2010 monetary penalties assessed cti conjunction settlement matters result actions principally taken senior executives cti terminated 2006 comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued cti intended file annual report quarterly reports form 10q first three quarters fiscal year ended january 31 2010 february 8 2010 comply final judgment court order annual report filed required date cti intends file soon practicable annual report form 10k fiscal year ended january 31 2010 quarterly reports form 10q may required become current periodic reporting obligations federal securities laws result cti’s inability become current periodic reporting obligations federal securities laws accordance final judgment court order february 8 2010 cti received additional “wells notice” staff sec february 4 2010 wells notice provided notification staff sec intended recommend sec institute administrative proceeding determine whether pursuant section 12j exchange act sec suspend revoke registration class cti’s securities registered section 12 exchange act process established sec recipients “wells notice” opportunity make wells submission staff sec makes formal recommendation sec regarding action brought sec february 25 2010 cti submitted wells submission sec response wells notice march 23 2010 sec issued order instituting administrative proceedings “oip” pursuant section 12j exchange act suspend revoke registration cti’s common stock cti filed annual report form 10k since april 20 2005 quarterly report form 10q since december 12 2005 july 22 2010 administrative law judge issued initial decision revoke registration cti’s common stock initial decision become effective sec issues final order would indicate date sanctions would take effect august 17 2010 sec issued order granting petition cti review administrative law judge’s initial decision revoke registration cti’s common stock setting forth briefing schedule cti filed brief support petition review september 16 2010 brief opposition required filed sec october 18 2010 reply brief cti required filed november 1 2010 following adverse determination sec issued cti would ability file sec motion reconsideration final order motion stay final order pending judicial review appeal final order court appeals although sec granted review administrative law judge’s initial decision revoke registration cti’s common stock cti cannot time predict outcome review appeal therefrom registration cti’s common stock ultimately revoked cti intends complete necessary financial statements file appropriate registration statement sec seek declared effective order resume registration common stock exchange act soon practicable june 18 2009 settlement ulticom inc sec announced date sec filed civil action ulticom inc united states district court eastern district new york alleging violations certain provisions federal securities laws regarding ulticom inc’s historical option grant nonoption grant accounting practices simultaneous filing complaint without admitting denying allegations therein ulticom inc consented issuance final judgment “ulticom final judgment” approved united states district court eastern district new york july 22 2009 pursuant ulticom final judgment ulticom inc permanently restrained enjoined future violations federal securities laws addressed complaint ordered become current periodic reporting requirements exchange act later november 9 2009 monetary penalties assessed ulticom inc conjunction settlement october 30 2009 ulticom inc filed last periodic reports required filed within preceding 12 months comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued april 9 2008 verint systems received “wells notice” staff sec arising staff’s investigation verint systems’ past stock option grant practices certain unrelated accounting matters accounting matters also subject verint’s internal investigation march 3 2010 settlement verint systems sec respect matters announced date sec filed civil action verint systems united states district court eastern district new york alleging violations certain provisions federal securities laws relating certain verint’s accounting reserve practices simultaneous filing complaint without admitting denying allegations therein verint systems consented issuance final judgment approved united states district court eastern district new york march 9 2010 pursuant final judgment verint systems permanently restrained enjoined violating section 17a securities act sections 13a 13b2a 13b2b exchange act rules 13a1 13a13 thereunder monetary penalties assessed verint systems conjunction settlement result previous failure current periodic reporting obligations federal securities laws verint systems received additional “wells notice” staff sec december 23 2009 march 3 2010 sec issued oip pursuant section 12j exchange act suspend revoke registration verint systems’ common stock previous failure file certain annual quarterly reports may 28 2010 verint systems entered agreement principle sec’s division enforcement regarding terms settlement section 12j administrative proceeding agreement subject approval sec june 18 2010 verint systems satisfied requirements agreement subsequently submitted offer settlement sec july 28 2010 sec issued order accepting verint systems’ offer settlement dismissing section 12j administrative proceeding description investigation sec stock option grant practices witness acquired verint may 2007 see note 25 commitments contingencies investigation alleged unlawful payments march 16 2009 cti disclosed audit committee board directors conducting internal investigation alleged improper payments made 2001 2007 certain comverse employees external sales agents foreign jurisdictions connection sale certain products april 27 2009 sec advised cti investigating matter issued subpoena cti connection investigation see note 25 commitments contingencies stockbased compensation fiscal year ended january 31 2010 cti’s board directors granted dsu awards covering aggregate 1366200 shares cti’s common stock certain key employees directors awards included dsu awards 420000 shares cti’s common stock cti’s president chief executive officer dsu awards constituting aggregate 100000 shares cti’s common stock company’s directors additionally may 28 2009 cti awarded stock options purchase 891300 shares cti’s common stock certain employees exercise price 710 per share september 15 2009 cti granted options purchase 12000 shares cti’s common stock one cti employee exercise price 850 per share first quarter fiscal year ending january 31 2011 cti’s board directors granted dsu awards covering aggregate 1013000 shares cti’s common stock certain executive officers key employees including dsu award covering 300000 shares cti’s common stock cti’s president chief executive officer dsu award covering 150000 shares cti’s common stock cti’s executive vice president chief financial officer comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued second quarter fiscal year ending january 31 2011 cti’s compensation leadership committee pursuant authority delegated cti’s board directors granted dsu awards covering aggregate 366000 shares cti’s common stock certain executive officers key employees including dsu award covering 130000 shares cti’s common stock executive vice president global sales comverse inc third quarter fiscal year ending january 31 2011 upon recommendation compensation leadership committee cti’s board directors approved grant two dsu awards 30000 shares 10000 shares senior vice president business transformation comverse inc fiscal year ended january 31 2010 six months ended july 31 2010 verint granted restricted awards covering aggregate 1812000 shares 1000000 shares verint common stock respectively auction rate securities february 1 2009 july 31 2010 company recorded additional otherthantemporary pretax charges 73 million certain ars additionally february 1 2009 july 31 2010 1030 million aggregate principal amount ars recorded value 669 million sold redeemed proceeds 809 million amounts included 516 million aggregate principal amount ars subject ubs put 416 million aggregate principal amount ars purchased ubs cti pursuant purchase right prior june 30 2010 100 million aggregate principal amount ars purchased ubs upon exercise cti ubs put effective june 30 2010 part settlement agreement consolidated shareholder class action cti granted security interest benefit plaintiff class account cti holds ars 516 million aggregate principal amount ars held account ubs proceeds sales thereof restricting cti’s ability use proceeds sales ars amounts payable settlement agreement paid full addition terms settlement agreement consolidated shareholder class action cti receives net cash proceeds sale certain ars held aggregate amount excess 500 million cti required use 500 million proceeds prepay settlement amounts referred cti receives net cash proceeds sale ars aggregate amount excess 1000 million cti required use additional 500 million proceeds prepay settlement amounts referred july 31 2010 cti received cash proceeds 288 million sales redemptions ars provisions settlement agreement apply ulticom’s special cash dividend stock option modification april 2009 ulticom inc paid special cash dividend 1996 million shareholders including cti ulticom inc’s minority shareholders paid 643 million additional 02 million payable holders deferred stock units awarded ulticom inc’s equity incentive plan upon issuance common stock subject awards effective april 21 2009 exercise prices outstanding options purchase 2982104 shares ulticom inc’s common stock reduced connection payment special cash dividend 458 per share reductions option exercise prices result change ulticom’s sharebased payment expense future fiscal periods comverse technology inc subsidiaries notes consolidated financial statements fiscal years ended january 31 2009 2008 2007 2006 continued business acquisition february 4 2010 verint acquired outstanding shares iontas limited “iontas” privately held provider desktop analytics solutions total consideration 219 million including cash consideration 179 million additional milestonebased contingent payments 38 million tied certain performance targets achieved next two years comverse ltd lines credit december 2009 comverse ltd’s existing line credit renewed increased 250 million corresponding increase cash balances comverse ltd required maintain bank 250 million june 2010 line credit decreased 150 million corresponding decrease cash balances comverse ltd required maintain bank 150 million december 2009 comverse ltd entered additional line credit bank 200 million used borrowings various performance guarantees customers vendors letters credit execute foreign currency transactions ordinary course business line credit bears interest subject renewal annual basis comverse ltd required maintain cash balances least 200 million bank times regardless amounts borrowed utilized line credit june 2010 line credit decreased 150 million corresponding decrease cash balances comverse ltd required maintain bank 150 million sale land september 16 2010 comverse ltd entered agreement sale certain land ra’anana israel third party purchase price approximately 285 million approximately 271 million proceeds received balance held escrow cover extent necessary applicable taxes levies sale consummated following bid process company considered multiple offers land sale pursued part initiatives undertaken management improve company’s cash position voting conversion rights verint systems’ preferred stock special meeting verint systems’ stockholders scheduled held october 5 2010 purpose approving issuance shares verint systems’ common stock upon conversion preferred stock cti intends vote shares verint systems’ common stock favor approval assured following approval issuance verint systems’ stockholders meeting verint systems’ preferred stock held cti voting rights become convertible shares verint systems’ common stock schedule condensed financial information registrant comverse technology inc parent company condensed balance sheets thousands except share data see notes condensed financial statements s1 comverse technology inc parent company condensed statements operations thousands except share per share data see notes condensed financial statements s2 comverse technology inc parent company condensed statements cash flows thousands see notes condensed financial statements s3 notes condensed financial information registrant 1 basis presentation comverse technology inc “parent company” holding company conducts substantially business operations subsidiaries parentonly presentation parent company’s investments consolidated subsidiaries presented equity method accounting parentonly condensed financial statements read conjunction comverse technology inc’s audited consolidated financial statements item 15 annual report restrictions access subsidiary cash parent company’s verint subsidiary longterm debt outstanding january 31 2009 2008 places restrictions declaration payment dividends whether cash property parent company january 31 2009 2008 2007 2006 parent company’s comverse ltd subsidiary floating liens assets support potential future borrowings banking services two israeli banks liens included provisions prohibited comverse ltd selling transferring assets ordinary course business effect restricting comverse ltd’s ability pay dividends extend loans shareholders without obtaining banks’ prior written approval december 2009 liens assets comverse ltd released addition pursuant investment agreements parent company’s starhome subsidiary precluded paying cash dividends shareholders without approval certain minority shareholders restricted net assets represent significant portion company’s consolidated net assets condensed financial statements presented “parentonly” basis 2 debt january 31 2009 2008 2007 2006 parent company convertible debt obligations “convertible debt obligations” 4195 million 4195 million 4196 million 4198 million subsequent january 31 2009 parent company commenced tender offer pursuant parent company purchased 4173 million aggregate principal amount convertible debt obligations refer notes 13 debt 27 subsequent events consolidated financial statements description significant provisions convertible debt obligations purchase convertible debt obligations subsequent january 31 2009 3 commitments contingencies parent company party various lawsuits discussed note 25 commitments contingencies consolidated financial statements subsequent january 31 2009 parent company entered agreements settle shareholder class action consolidated shareholder derivative actions aggregate amount 1744 million including legal fees expenses plaintiffs 94 million accrued fiscal year ended january 31 2007 see note 27 subsequent events consolidated financial statements provisions settlement 4 perpetual preferred stock subsidiary may 25 2007 parent company entered agreement subsidiary verint systems purchase aggregate 293000 shares verint systems’ series convertible perpetual preferred stock “preferred stock” aggregate purchase price 2930 million see note 24 related party transactions consolidated financial statements details provisions preferred stock s4 schedule ii valuation qualifying accounts reserves 1 primarily consists translation adjustments 2 included ‘accounts payable accrued expenses’ consolidated balance sheets s5item 15 exhibits financial statement schedules documents filed part annual report 1 financial statements consolidated financial statements filed part annual report listed index consolidated financial statements page incorporated herein reference 2 financial statement schedules following financial statement schedules comverse technology inc subsidiaries included annual report read conjunction consolidated financial statements notes thereto schedule condensed financial information registrant s1 schedule ii valuation qualifying accounts reserves s7 financial statement schedules required regulation sx omitted applicable required information included applicable consolidated financial statements notes thereto 3 exhibits see b exhibits incorporated reference filed herewith exhibit “furnished” pursuant item 601b32 sec regulation sk deemed “filed” securities exchange commission incorporated reference filing registrant securities act 1933 securities exchange act 1934  constitutes management contract compensatory plan arrangement c financial statement schedules none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated comverse technology inc subsidiaries index consolidated financial statements report independent registered public accounting firm consolidated balance sheets consolidated statements operations consolidated statements equity consolidated statements cash flows notes consolidated financial statements schedule condensed financial information registrant s1 schedule ii valuation qualifying accounts reserves s7 report independent registered public accounting firm board directors shareholders comverse technology inc new york new york audited accompanying consolidated balance sheets comverse technology inc subsidiaries “company” january 31 2010 2009 related consolidated statements operations equity cash flows three years period ended january 31 2010 audits also included financial statement schedules listed index page item 15 financial statements financial statement schedules responsibility company’s management responsibility express opinion financial statements financial statement schedules based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position comverse technology inc subsidiaries january 31 2010 2009 results operations cash flows three year period ended january 31 2010 conformity accounting principles generally accepted united states america also opinion financial statement schedules considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein discussed note 2 consolidated financial statements effective february 1 2009 company retrospectively adopted new accounting guidance 1 reporting disclosure noncontrolling interests 2 debt conversion options may settled cash upon conversion discussed note 26 consolidated financial statements substantial number subsequent events since january 31 2010 also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting january 31 2010 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated january 25 2011 expressed adverse opinion company’s internal control financial reporting material weaknesses deloitte touche llp new york new york january 25 2011 comverse technology inc subsidiaries consolidated balance sheets thousands except share per share data 1 adjusted retrospective application financial accounting standards board’s “fasb” guidance relating convertible debt conversion options fasb’s guidance relating noncontrolling interests see note 2 recent accounting pronouncements standards implemented disclosure relating guidance accompanying notes integral part consolidated financial statements comverse technology inc subsidiaries consolidated statements operations thousands except share per share data 1 adjusted retrospective application fasb’s guidance relating convertible debt conversion options fasb’s guidance relating noncontrolling interests see note 2 recent accounting pronouncements standards implemented disclosure relating guidance accompanying notes integral part consolidated financial statements comverse technology inc subsidiaries consolidated statements equity thousands except share data 1 adjusted retrospective application fasb’s guidance relating convertible debt conversion options fasb’s guidance relating noncontrolling interests see note 2 recent accounting pronouncements standards implemented disclosure relating guidance accompanying notes integral part consolidated financial statements comverse technology inc subsidiaries consolidated statements cash flows thousands 1 adjusted retrospective application fasb’s guidance relating convertible debt conversion options fasb’s guidance relating noncontrolling interests see note 2 recent accounting pronouncements standards implemented disclosure relating guidance accompanying notes integral part consolidated financial statements comverse technology inc subsidiaries notes consolidated financial statements 1 organization business summary significant accounting policies basis presentation comverse technology inc “cti” together subsidiaries “company” holding company organized new york corporation october 1984 conducts business whollyowned subsidiary comverse inc together subsidiaries “comverse” majorityowned subsidiaries verint systems inc “verint systems” together subsidiaries “verint” starhome bv together subsidiaries “starhome” prior sale third party december 3 2010 ulticom inc together subsidiaries “ulticom” prior year’s presentation disclosures consolidated financial statements revised adjusted necessary reflect retrospective application adoption fasb’s guidance relating convertible debt conversion options fasb’s guidance relating noncontrolling interests see note 2 recent accounting pronouncements standards implemented disclosures relating aforementioned fasb’s guidance comverse leading provider softwarebased products systems related services provide prepaid postpaid converged billing active customer management wireless wireline cable network operators “business support systems” “bss” delivering value proposition designed ensure timely efficient service monetization enable realtime offers made end users based relevant customer profile information ii enable wireless wireline including cable networkbased valueadded services “vas” comprised three categories voice messaging mobile internet include voicemail call completion visual voicemail short messaging service “sms” text messaging “texting” multimedia picture video messaging mobile internet access internet protocol “ip” communications comverse’s products services designed generate carrier voice data network traffic revenue customer loyalty monetize network operators’ services improve operational efficiency 450 wireless wireline network communication service provider customers 125 countries including majority world’s 100 largest wireless network operators comverse comprises company’s comverse segment verint global leader actionable intelligence solutions valueadded services verint’s solutions enable organizations sizes make timely effective decisions improve enterprise performance enhance safety verint’s customers use verint’s actionable intelligence solutions capture distill analyze complex underused information sources voice video unstructured text enterprise market verint’s workforce optimization solutions help organizations enhance customer service operations contact centers branches backoffice environments increase customer satisfaction reduce operating costs identify revenue opportunities improve profitability security intelligence market verint’s video intelligence public safety communications intelligence solutions used government commercial organizations efforts protect people property neutralize terrorism crime verint comprises company’s verint segment january 14 2011 cti completed sale 23 million shares verint systems’ common stock secondary public offering cti continues retain majority interest verint systems following offering see note 26 subsequent events ulticom provider network signaling information delivery solutions ulticom’s products used equipment manufacturers application developers communication service providers access signaling related information necessary deploy revenue generating infrastructure enhanced services within wireline wireless networks ii interoperate converge voice data networks iii bridge disparate signaling networks transfer route signaling information network elements ulticom comprises company’s ulticom segment ulticom inc majorityowned publiclytraded subsidiary cti sold affiliate platinum equity advisors llc “platinum equity” december 3 2010 “ulticom sale” see note 26 subsequent events comverse technology inc subsidiaries notes consolidated financial statements continued starhome provider wireless service mobility solutions enhance international roaming wireless operators use starhome’s softwarebased solutions generate additional revenue improve profitability directing international roaming traffic preferred networks providing wide range services subscribers traveling outside home network starhome part company’s segment principles consolidation consolidated financial statements accompanying notes prepared accordance accounting principles generally accepted united states america “us gaap” accompanying consolidated financial statements include cti wholly owned subsidiaries controlled majority owned subsidiaries include verint systems 571 owned january 31 2010 ulticom inc 669 owned january 31 2010 starhome bv 641 owned january 31 2010 controlled subsidiaries wholly owned noncontrolling interest included separate component “net loss” “total equity” verint systems holds 50 equity interest variable interest entity primary beneficiary variable interest entity material consolidated financial statements investments businesses company control ability exercise significant influence operating financial policies accounted using equity method “equity losses earnings unconsolidated affiliates net tax” included consolidated statements operations represents portion net income equity earnings unconsolidated affiliates company control equity investments included “other assets” consolidated balance sheets company monitors equity method investments factors indicating otherthantemporary impairment loss recognized loss value affiliate considered otherthantemporary intercompany balances transactions eliminated company includes results operations acquired business date acquisition use estimates preparation consolidated financial statements accompanying notes conformity us gaap requires company make estimates judgments affect reported amounts assets liabilities revenue expenses significant estimates include • determination vendor specific objective evidence “vsoe” fair value arrangement elements • inventory reserves • allowance doubtful accounts • fair value stockbased compensation • valuation assets acquired liabilities assumed business combinations • fair value reporting units purpose goodwill impairment test • valuation intangible assets • valuation investments financial instruments • realization deferred tax assets • identification measurement uncertain tax positions company’s actual results may differ estimates company accounted certain items obtained additional information subsequent balance sheet date relates conditions existed date balance sheet affect estimates inherent process preparing consolidated financial statements subsequent information became available prior issuance consolidated financial statements assessed management evaluation conditions estimates based therefore consolidated financial statements adjusted significant changes estimates resulting use subsequent additional information applicable comverse technology inc subsidiaries notes consolidated financial statements continued functional currency foreign currency translation transactions determination functional currency company’s foreign subsidiaries made based appropriate economic factors including currency subsidiary sells products sales market subsidiary operates currency subsidiary’s financing denominated foreign subsidiaries whose functional currency us dollar assets liabilities translated using current exchange rates balance sheet date income expense accounts using average exchange rates period except revenue previously deferred translated using historical rates resulting foreign currency translation adjustments reported separate component “total comprehensive loss” consolidated statements equity foreign subsidiaries whose functional currency local currency remeasurement gains losses recorded period “other expense net” consolidated statements operations unrealized realized foreign currency transaction gains losses transactions denominated currencies functional currency entity included consolidated statements operations “other expense net” period exchange rates changed business combinations prior adoption fasb’s revised guidance business combinations february 1 2009 company allocated purchase price acquired business tangible intangible assets acquired liabilities assumed based estimated fair values acquisition date residual purchase price recorded goodwill company’s determination fair values assets acquired liabilities assumed requires company make significant estimates primarily intangible assets estimates primarily derived historical experience information related acquired business estimates include limited cash flow projections acquired business appropriate weighted average cost capital results operations acquired business included company’s consolidated results operations date acquisition upon adoption fasb’s revised guidance business combinations company recognizes assets acquired liabilities assumed noncontrolling interest measured fair values acquisition dates limited exceptions acquisition costs expensed incurred business combinations consummated february 1 2009 see note 2 recent accounting pronouncements standards implemented revised guidance relating business combinations noncontrolling interest noncontrolling interest represents minority shareholders’ interest verint systems ulticom inc starhome bv company’s majorityowned subsidiaries february 1 2009 company adopted fasb’s new guidance noncontrolling interest requires classification noncontrolling interest separate component total equity requires income attributable noncontrolling interest clearly identified presented separate component consolidated net loss consolidated statements operations see note 2 recent accounting pronouncements standards implemented new requirements relating noncontrolling interest company’s majorityowned subsidiaries verint systems ulticom inc starhome bv sharebased payment award plans provide issuance company’s subsidiary common shares based service performance market conditions company accounts dilution may occur exercise awards granted sharebased payment award plans otherwise capital transactions segment reporting company determines reportable segments accordance fasb’s guidance relating disclosures segments enterprise related information cti’s chief executive officer company’s chief operating decision maker “codm” company uses segment performance primary basis assessing financial results segments allocation resources see note 22 business segment information additional discussion including definition segment performance company four reportable segments comprised following comverse consisting comverse netcentrex reporting units ii verint consisting workforce optimization solutions video intelligence solutions communications intelligence solutions reporting units iii ulticom iv consisting starhome reporting unit miscellaneous operations cti’s holding company operations cash equivalents cash primarily consists cash hand bank deposits cash equivalents primarily consist interestbearing money market accounts commercial paper agency notes highly liquid investments original maturity three months less purchased company maintains cash equivalents us dollars foreign currencies subject risks related foreign currency exchange rate fluctuations comverse technology inc subsidiaries notes consolidated financial statements continued restricted cash bank time deposits restricted cash bank time deposits include compensating cash balances related existing lines credit deposits pledged collateral restricted use settle specified creditrelated bank instruments vendor payables general liability insurance workers’ compensation insurance warranty programs addition restricted cash includes proceeds sale auction rate securities “ars” restricted pursuant consolidated shareholder class action settlement agreement see note 3 investments note 24 commitments contingencies cash restricted one year classified within “other assets” longterm restricted cash restricted bank time deposits generally consist certificates deposit original maturities twelve months less accounts receivable net application company’s revenue recognition policy often results circumstances company unable recognize revenue relating sales transactions billed circumstances company recognize deferred revenue related account receivable amounts recognized consolidated balance sheets transactions exception certain arrangements recognized accordance fasb’s guidance relating accounting performance constructiontype certain productiontype contracts extent company recognized revenue received cash transactions amounts included “accounts receivable net” also extent company received cash transactions amount included “deferred revenue” consolidated balance sheets allowance doubtful accounts company estimates collectability accounts receivable balances accounting period adjusts allowance doubtful accounts accordingly company exercises judgment assessing collectability accounts receivable including consideration current economic conditions creditworthiness customers collection history related aging past due receivables balances company evaluates specific accounts becomes aware customer may experiencing deterioration financial condition due lower credit ratings bankruptcy factors may affect customer’s ability meet payment obligations investments otherthantemporary impairments company accounts investments accordance fasb’s guidance relating accounting certain investments debt equity securities company’s investments reported fair value designates marketable securities availableforsale purchased purchases recorded settlement date interest shortterm investments recognized consolidated statements operations earned realized gains losses availableforsale securities recognized securities sold calculated using specific identification method recorded “other expense net” consolidated statements operations unrealized gains losses net taxes recorded component “total comprehensive loss” consolidated statements equity generally investments original maturities greater three months remaining maturities less one year classified shortterm investments company reviews investments indications impairment value quarterly basis company considers investment impaired fair value less carrying value amortized cost company evaluated impaired investment individually determine whether investment otherthantemporarily impaired equity securities company considers among factors severity decline value financial condition issuer company’s ability hold security length time necessary allow recovery market value debt securities company considers whether company intent sell security ii likely company required sell security recovery decline fair value amortized cost iii credit loss exists measured difference amortized cost basis security present value projected future cash flows expected collected debt securities company intend sell security likely company required sell security recovery amortized cost basis portion otherthantemporary impairment attributable credit loss recognized current earnings remaining portion recognized component comprehensive income comverse technology inc subsidiaries notes consolidated financial statements continued inventories net inventories stated lower cost market cost determined firstin firstout weightedaverage methods company reduces carrying value inventory holds excess obsolete inventories determined evaluation historical usage expected future demand charges included component “product costs” consolidated statements operations identification excess obsolete inventories performed evaluation expected future demand property equipment property equipment carried cost less accumulated depreciation amortization company depreciates property equipment straightline basis leasehold improvements capitalized amortized shorter estimated useful lives related lease term cost maintenance repairs expensed incurred estimated useful lives property equipment follows goodwill prior company’s adoption fasb’s revised guidance relating business combinations february 1 2009 business combinations occurring prior date goodwill represents excess purchase price business combination fair value tangible intangible assets acquired net liabilities assumed business combination company consummates february 1 2009 goodwill represent purchase price business combination fair value tangible intangible assets acquired net fair value liabilities assumed fair value noncontrolling interest acquiree see note 2 recent accounting pronouncements standards implemented disclosure relating fasb’s revised guidance relating business combinations company indefinitelived intangible assets goodwill carrying amount goodwill reviewed annually impairment november 1 whenever events changes circumstances indicate carrying value may recoverable goodwill impairment analysis comprised two steps first step company compares fair value reporting unit carrying value company considers incomebased approach using projected discounted cash flows marketbased approach using multiples comparable companies determine fair value company’s estimate fair value reporting unit based number subjective factors including appropriate weighting valuation approaches incomebased approach marketbased approach ii estimates future revenue cash flows iii discount rate estimated cash flows iv selection peer group companies marketbased approach v required levels working capital vi assumed terminal value vii time horizon cash flow forecasts viii control premium fair value reporting unit exceeds carrying value net assets assigned unit goodwill considered impaired analysis required performed carrying value net assets assigned reporting unit exceeds fair value second step performed determine implied fair value reporting unit’s goodwill carrying value reporting unit’s goodwill exceeds implied fair value impairment charge equal difference recorded company’s forecasts estimates based assumptions consistent plans estimates used manage business changes estimates may change conclusion regarding impairment goodwill comverse technology inc subsidiaries notes consolidated financial statements continued impairment longlived assets company reviews recoverability longlived assets property equipment intangible assets finite lives whenever events changes circumstances occur indicate carrying value asset may recoverable assessment impairment based company’s ability recover carrying value asset analyzing expected future undiscounted pretax cash flows specific asset group circumstances could trigger review include limited significant decrease market price asset significant adverse changes business climate legal factors accumulation costs significantly excess amount expected acquisition longlived asset current period cash flow operating losses combined history losses forecast continuing losses associated use asset company assesses recoverability carrying value longlived assets lowest level identifiable cash flows largely independent cash flows assets liabilities undiscounted cash flows less carrying value asset group impairment loss measured based difference estimated fair value carrying value assets disposed writtendown greater fair value salvage value estimated fair values based assumptions regarding amount timing estimated future cash flows appropriate discount rates reflect varying degrees perceived risk fair value measurements fasb’s guidance fair value defined price would received sale asset paid transfer liability orderly transaction market participants measurement date ie “the exit price” determining fair value company uses various valuation approaches including quoted market prices discounted cash flows fasb’s guidance also establishes hierarchy inputs used measuring fair value maximizes use observable inputs minimizes use unobservable inputs requiring observable inputs used available observable inputs market participants would use pricing asset liability developed based market data obtained independent sources unobservable inputs reflect company’s judgment concerning assumptions market participants would use pricing asset liability developed based best information available circumstances fair value hierarchy broken three levels based reliability inputs follows • level 1 valuations based quoted prices active markets identical instruments company able access since valuations based quoted prices readily regularly available active market valuation instruments entail significant degree judgment • level 2 valuations based quoted prices active markets instruments similar quoted prices markets active identical similar instruments modelderived valuations significant inputs significant value drivers observable active markets • level 3 valuations based inputs unobservable significant overall fair value measurement extent valuation based models inputs less observable unobservable market determination fair value requires judgment accordingly company’s degree judgment exercised determining fair value greatest instruments categorized level 3 certain cases inputs used measure fair value may fall different levels fair value hierarchy cases asset liability classified entirety based lowest level input significant measurement fair value fair value marketbased measure considered perspective market participant holds asset owes liability rather entityspecific measure therefore even market assumptions readily available company’s assumptions set reflect market participants would use pricing asset liability measurement date company uses prices inputs current measurement date including periods market dislocation recent illiquidity ars market periods market dislocation observability prices inputs may reduced many instruments condition caused future may cause financial instruments company reclassified level 1 level 2 level 2 level 3 fasb’s guidance requires valuation techniques used consistent least one three possible approaches market approach income approach andor cost approach level 1 valuations based market approach consist primarily quoted prices identical items active securities exchanges company’s level 2 valuations also use comverse technology inc subsidiaries notes consolidated financial statements continued market approach based significant observable inputs quoted prices financial instruments traded daily basis company’s level 3 valuations based income approach specifically discounted cash flow analyses utilize significant inputs observable active markets fasb’s guidance relating fair value option financial assets financial liabilities permits instrumentbyinstrument irrevocable election account selected financial instruments fair value company elected apply fair value option eligible financial assets financial liabilities derivative instruments hedge accounting part company’s risk management strategy uses derivative financial instruments including forward contracts interest rate swap agreements hedge certain foreign currency interest rate exposures respectively company recognizes derivatives either assets liabilities consolidated balance sheets fair value trade date basis derivatives gain position reported “prepaid expenses current assets” consolidated balance sheets derivatives loss position recorded “other current liabilities” “other longterm liabilities” applicable consolidated balance sheets hedge accounting purposes company formally documents inception hedging relationship hedging instrument hedged item risk management objective strategy undertaking hedging relationship method used assess hedge effectiveness includes company’s assessment creditworthiness party ability comply contractual terms hedging derivative financial instruments qualify cash flow hedge accounting company records effective portion changes fair value part “total comprehensive loss” consolidated statements equity hedged item recognized consolidated statements operations related derivative gain loss reclassified “accumulated comprehensive income loss” consolidated statements equity consolidated statements operations within line item hedged item recorded derivative financial instrument qualify hedge accounting company records changes fair value derivative instruments “other expense net” consolidated statements operations treasury stock repurchased shares common stock recorded treasury stock cost time company repurchases shares common stock upon vesting deferred stock unit restricted stock awards employees directors order provide funds payment associated minimum statutory withholding taxes fiscal years ended january 31 2010 2009 2008 company repurchased 47901 57659 49424 shares common stock respectively recorded treasury stock concentration credit risk financial instruments potentially expose company credit risk consist primarily investments derivatives accounts receivable time company invests excess cash high creditquality financial institutions invests primarily money market funds placed major banks financial institutions ii corporate commercial paper iii corporate municipal short medium term notes iv mortgage asset backed securities v us government agency securities vi repurchase agreements vii mutual funds company believes significant concentration credit risk exists respect investments beginning third quarter fiscal year ended january 31 2008 auctions supporting liquidity company’s investment ars failed curtailing liquidity investments company consequently limited ability manage exposure ars counterparty risk result change liquidity decline credit quality fair value ars declined company recorded otherthantemporary impairment charges investments see note 3 investments significant portion company’s accounts receivable primarily related comverse ulticom communication service providers however concentration credit risk diversified due large number commercial government entities comprising company’s customer base dispersion across many geographical regions company manages concentration credit risk trade accounts receivable performing ongoing credit evaluations customers’ financial condition limiting extension credit deemed necessary comverse technology inc subsidiaries notes consolidated financial statements continued customer accounted 10 total revenue fiscal years ended january 31 2010 2009 2008 one customer accounted 127 company’s consolidated accounts receivable january 31 2009 customer accounted 10 consolidated accounts receivable january 31 2010 company believes significant credit risk exists revenue recognition company derives reports revenue two categories product revenue including hardware software products ii service revenue including revenue professional services training services postcontract customer support “pcs” professional services primarily include installation customization consulting services vast majority company’s revenue accounted accordance fasb’s guidance relating revenue recognition software arrangements software component company’s multiple element arrangements incidental products sold applying fasb’s guidance company exercises judgment uses estimates determining revenue recognized accounting period arrangements require significant modification customization underlying software company recognizes revenue persuasive evidence arrangement product shipped services provided customer sales price fixed determinable collectability probable pertinent criteria met required fasb’s guidance certain instances payment terms extend beyond company’s customary practices situations customer adequate history abiding contractual payment terms without concessions sales price considered fixed determinable revenue recognition commences upon collection provided revenue recognition criteria met certain contractual arrangements company required pay penalty liquidated damages delivery company’s products installation services completed certain date arrangements company guaranteed product performance warranty service response rates met result penalties company accounts penalties liquidated damages accordance fasb’s guidance relating contingencies shipping handling amounts billed company’s customers included product revenue related shipping handling costs included product costs company reports revenue net revenuebased taxes assessed governmental authorities imposed concurrent specific revenue producing transactions following specific revenue recognition policies major category revenue multiple element arrangements majority company’s software license arrangements contain multiple elements including perpetual software licenses hardware pcs training professional services company allocates revenue delivered elements arrangement using residual method whereby revenue allocated undelivered elements based vendor specific objective evidence “vsoe” fair value undelivered elements remaining arrangement fee allocated delivered elements recognized revenue assuming revenue recognition criteria met company unable establish vsoe fair value undelivered elements arrangement revenue recognition deferred entire arrangement elements arrangement delivered however undelivered element pcs company recognizes arrangement fee ratably pcs period pcs revenue derived primarily providing technical software support services unspecified software updates upgrades customers available basis pcs revenue recognized ratably term pcs period pcs included within multiple element arrangement company primarily utilizes substantive renewal rate establish vsoe fair value pcs much lesser extent bellshaped curve approach used certain company’s verint segment arrangements depending upon geographical region product line company’s policy establishing vsoe fair value professional services training based upon analysis separate sales services compared fees charged elements included multiple element arrangement company’s comverse segment yet established vsoe fair value element pcs comverse technology inc subsidiaries notes consolidated financial statements continued using substantive renewal rate method company may unable establish vsoe fair value pcs renewal rate deemed nonsubstantive contractuallystated renewal rates stated renewal rate nonsubstantive entire arrangement fee recognized ratably estimated economic life product five eight years beginning upon delivery elements pcs company believes estimated economic life product best estimate long customer renew pcs contractually stated renewal rate entire arrangement fee recognized ratably relevant contractual pcs term beginning upon delivery elements pcs bellshaped curve approach establishing vsoe fair value company’s verint segment performs vsoe fair value compliance test ensure substantial majority actual pcs renewals within narrow range pricing certain company’s verint segment arrangements explicit obligation provide pcs matter business practice provided implied pcs implied pcs accounted separate element vsoe fair value exist arrangements contain implied pcs recognized period implied pcs provided exceed estimated economic life product certain multipleelement arrangements company obligated provide training services customers related operation company’s software products comverse segment training services either provided customer “defined” basis limited specified number days training classes “asrequested” basis unlimited training contractual period comverse established vsoe fair value either type training multipleelement arrangements containing asrequested training obligations company recognizes total arrangement consideration ratably contractual period training company required “stand ready” perform training provided criteria revenue recognition met multipleelement arrangements containing defined training obligations training services typically provided customer prior completion installation services situations revenue recognition commence completion installation defined training obligations impact timing recognition revenue certain circumstances training provided end installation period company commences revenue recognition upon completion training provided criteria revenue recognition met multiple element arrangements company may offer discount future purchases products services discount considered additional element arrangement discount considered insignificant morethaninsignificant discount respect future purchases discount incremental range discounts reflected pricing elements arrangement ii incremental range discounts typically given comparable transactions iii significant insignificant discounts incremental affect revenue recognition discount considered insignificant portion fee received deferred recognized revenue future purchases made customer upon expiration period discount available company’s arrangements require significant customization product meet particular requirements customer arrangements revenue typically recognized accordance fasb’s guidance longterm construction type contracts using percentageofcompletion “poc” method determination whether services entail significant customization requires judgment primarily based alterations features functionality standard release complex unusual interfaces well amount hours necessary complete customization solution relative size contract revenue arrangements recognized poc method based ratio total hours incurred date compared estimated total hours complete contract management required make judgments estimate total estimated costs progress completion changes estimates impact timing revenue recognition period company uses historical experience project plans assessment risks uncertainties inherent arrangement establish estimates uncertainties arrangements include implementation delays performance issues may within company’s control event profitability contract cannot assured completedcontract method revenue recognition applied level profitability assured related revenue costs cannot reasonably estimated revenue recognized extent costs incurred time project’s profitability estimated services completed vsoe fair value pcs exist revenues recognized extent costs incurred services completed provided company able make reliable cost estimates level profitability assured services completed remaining unrecognized portion arrangement fee recognized ratably remaining pcs period situations company able make reliable estimates level profitability assured revenue deferred completion professional services recognized ratably respective pcs period company determines based estimates costs exceed sales price entire amount estimated loss accrued period losses become evident comverse technology inc subsidiaries notes consolidated financial statements continued revenue comverse segment derives sales distributors resellers valueadded resellers recognized resellers turn sell software product customers installation software product occurred provided revenue recognition criteria met commonly referred sellthrough method contractual arrangements reseller end user reseller comverse generally obligate comverse provide services end user subject end user acceptance payment terms generally subject reseller’s receiving payment end user end user’s acceptance product therefore comverse defers recognition “sellthrough” reseller actual enduser customer acceptance enduser product revenue verint segment derives shipments resellers original equipment manufacturers “oems” purchase products resale generally recognized products shipped “sellin” basis verint historically experienced insignificant product returns resellers oems payment terms customers similar granted endusers reseller oem develops pattern payment delinquency seeks payment terms longer generally accepted verint defers recognition revenue receipt cash verint’s arrangements resellers oems periodically reviewed business products change verint segment’s shipment products include embedded firmware deemed incidental company recognizes revenue provided persuasive evidence arrangement exists delivery occurred services rendered fee fixed determinable collectability fee reasonably assured shipments hardware products delivery considered occurred upon shipment provided risks loss title certain jurisdictions transferred customer consolidated statements operations company classifies revenue product revenue service revenue prescribed sec rules regulations multiple element arrangements include product service elements company unable determine vsoe fair value elements arrangement management evaluates various available indicators fair value applies judgment reasonably classify arrangement fee product revenue service revenue amount multiple element arrangement fees classified product service revenue based management estimates fair value vsoe fair value elements arrangement exist could differ amounts classified product service revenue vsoe fair value elements existed allocation multiple element arrangement fees product revenue service revenue vsoe fair value elements exist consolidated financial statement presentation purposes affect timing amount revenue recognized determining amount multiple element arrangement fee classified product revenue service revenue comverse segment first allocates arrangement fee product revenue pcs classified service revenue based management’s estimate fair value elements remainder arrangement fee comprised service elements allocated service revenue estimate fair value product element based primarily management’s evaluation direct costs reasonable profit margins products determined appropriate methodology comverse segment historically productoriented respect pricing policies facilitates evaluation product costs related margins arriving reasonable estimate product element fair value management’s estimate reasonable profit margins requires significant judgment consideration various factors impact economic environment margins complexity projects stability product profit margins nature products estimate fair value pcs based management’s evaluation weighted average pcs rates arrangements vsoe fair value pcs exists determining classification revenue products services company’s verint segment reviews vsoe fair value training installation pcs services similar transactions stand alone services arrangements compares peers order determine reasonable consistent approximations fair values service revenue remaining amount allocated product revenue postcontract customer support renewals company’s multiple element arrangements typically provide renewal pcs terms upon expiration original term amounts pcs renewals recognized revenue ratably specified pcs renewal period comverse technology inc subsidiaries notes consolidated financial statements continued professional services arrangements based type nature professionalservicesonly arrangements company recognizes revenue using either proportional performance method completed performance method time materials basis fixedfee arrangements recognized based proportional performance method company typically measures progress completion based ratio hours incurred total estimated project hours input method fixedfee arrangements recognized based completed performance method company recognizes revenue services completed obligations company recognizes revenue time materials arrangements services performed based contractually stipulated billing rates product service costs company’s product service costs include costs materials compensation benefit costs operations service personnel subcontractor costs royalties license fees depreciation equipment used operations service amortization capitalized software costs certain purchased intangible assets related overhead costs revenue recognized multiple periods accordance company’s revenue recognition policies material cost including hardware thirdparty software license fees deferred amortized period product revenue recognized costs recognized “deferred cost revenue” consolidated balance sheets however company made accounting policy election whereby cost installation service costs expensed incurred except arrangements recognized accordance fasb’s guidance longterm construction type contracts certain contracts revenue recognized accordance fasb’s guidance longterm construction type contracts revisions estimates costs reflected accounting period facts require revision become known costs include direct material labor costs overhead related contract performance research development net research development expense primarily consists personnel costs involved product development research development expense also includes thirdparty development programming costs amortization purchased software code services content research development costs expensed incurred company receives nonrefundable grants fund portion research development expenditures grants recorded reduction “research development net” consolidated statements operations software costs software developed internal use capitalized accordance fasb’s guidance application development stage amortized estimated useful life software date four years less software ready internal use costs included “property equipment net” consolidated balance sheets costs software developed sale customers capitalized accordance fasb’s guidance relating costs computer software sold leased otherwise marketed software costs incurred capitalized subsequent establishing technological feasibility continue general release software products capitalized costs included “other assets” consolidated balance sheets amortization capitalized costs begins period related product available general release customers recorded straightline basis estimated economic life related software products approximates pattern economic benefits expected realized economic life related software products generally seven years less sales marketing sales marketing expenses include payroll employee benefits stockbased compensation headcountrelated expenses associated sales marketing personnel costs advertising promotions programs addition company expenses customer acquisition origination costs including sales commissions incurred exception certain sales referral fees capitalized amortized ratably revenue recognition period advertising costs expensed incurred comverse technology inc subsidiaries notes consolidated financial statements continued stockbased compensation company estimates fair value sharebased payment awards date grant using optionpricing model fasb’s guidance stockbased compensation expense measured grant date based fair value award cost recognized expense ratably award’s vesting period company uses blackscholes optionpricing model measure fair value stock option awards blackscholes model requires company make judgments regarding assumptions used within model significant stock price volatility assumption term awards expected life option award based actual projected employee stock option behaviors assumptions include riskfree rate return dividends expected term company required estimate expected forfeitures stockbased awards grant date recognize compensation cost awards expected vest forfeiture assumption adjusted actual forfeitures occur therefore changes forfeiture assumptions may impact amount timing total amount expense recognized vesting period estimated forfeitures reassessed subsequent periods may change based new facts circumstances fair value equity instruments issued nonemployee measured using stock price measurement assumptions date earlier either commitment performance nonemployee reached ii counterparty’s performance complete expenses related nonemployee awards generally recognized period manner company incurs related liability goods services received apic pool upon adoption fasb’s guidance relating sharebased payments fiscal year ended january 31 2007 company elected apply long form method determine hypothetical apic pool determined hypothetical pool excess tax benefits existed apic february 1 2006 related historical stock option expenses excess tax benefits resulting stock option exercises recognized additions apic period benefit realized event shortfall tax benefit realized less amount previously recognized periodic stockbased compensation expense recognition related deferred tax accounting shortfall charged apic extent previous excess benefits including hypothetical apic pool tax expense income taxes company accounts income taxes accordance fasb’s guidance relating income taxes company adopted fasb’s guidance relating accounting uncertainty income taxes effective february 1 2007 income taxes provided using asset liability method income taxes ie deferred tax assets deferred tax liabilities taxes currently payablerefunds receivable tax expensebenefit recorded based amounts refundable payable current year include results difference us gaap tax reporting deferred income taxes reflect tax effect net operating losses capital losses general business credit carryforwards net tax effects temporary differences carrying amount assets liabilities financial statement income tax purposes determined enacted tax laws rates valuation allowances established management determines morelikelythannot portion deferred tax asset realized financial effect changes tax laws rates accounted period enactment subsequent realization net operating loss general business credit carryforwards acquired acquisitions accounted using purchase method accounting recognized consolidated statement operations research development credits recorded based amount benefit company believes morelikelythannot earned additionally company required recognize consolidated financial statements tax positions determined morelikelythannot sustained upon examination based technical merits positions time company engages transactions tax consequences may subject uncertainty examples transactions include business acquisitions dispositions certain financing transactions significant judgment required assessing estimating tax consequences transactions company prepares files tax returns based interpretation tax laws regulations normal course business company’s tax returns subject examination various taxing authorities examinations may result future tax interest assessments taxing authorities determining company’s tax provision financial reporting purposes company establishes reserve uncertain tax positions unless positions determined morelikelythannot sustained upon examination based technical merits financial reporting purposes company recognizes tax benefits taken tax return believes morelikelythannot sustained considerable judgment involved determining whether positions taken tax return morelikelythannot sustained comverse technology inc subsidiaries notes consolidated financial statements continued company adjusts tax reserve estimates periodically ongoing examinations settlements various taxing authorities well changes tax laws regulations interpretations consolidated tax provision given year includes adjustments prior year income tax accruals considered appropriate related estimated interest company’s policy recognize applicable interest penalties uncertain tax positions part income tax expense see note 21 income taxes part accounting business combinations purchase price allocated goodwill intangible assets impairment charges associated goodwill generally tax deductible result increased effective income tax rate quarter impairment recorded amortization expenses associated acquired intangible assets generally tax deductible pursuant company’s existing tax structure however deferred taxes recorded nondeductible amortization expenses part purchase price allocation process company taken account allocation identified intangibles among different taxing jurisdictions including nominal zero percent tax rates establishing related deferred tax liabilities income tax contingencies existing acquisition dates acquired companies evaluated quarterly adjustments recorded adjustments goodwill upon adoption fasb’s revised guidance relating business combinations fiscal year ended january 31 2010 tax benefit future release acquisition date valuation allowances reflected tax provision rather reduction goodwill loss per share attributable comverse technology inc’s shareholders basic loss per share attributable comverse technology inc’s shareholders computed dividing net loss attributable comverse technology inc weightedaverage number cti’s shares common stock outstanding period diluted loss per share attributable comverse technology inc’s shareholders computed using weightedaverage number cti’s shares common stock dilutive common equivalent shares outstanding period common equivalent shares consist shares common stock issuable respect stock options restricted stock deferred stock units “dsus” convertible debt obligations “convertible debt obligations” see note 12 debt treasury stock method used compute dilutive effect options dsus similar instruments asifconverted method used compute dilutive effect company’s convertible debt obligations additionally purposes calculating diluted loss per share attributable comverse technology inc’s shareholders net loss attributable comverse technology inc adjusted difference verint’s ulticom’s starhome’s reported diluted basic earnings per share multiplied number shares common stock common share equivalents cti holds verint ulticom starhome contingencies nature relate uncertainties require management exercise judgment assessing likelihood liability incurred well estimating amount potential loss company accrues costs relating litigation claims contingent matters liabilities become probable reasonably estimable comverse technology inc subsidiaries notes consolidated financial statements continued additional cash flow information following represents noncash activities supplemental information consolidated statements cash flows 2 recent accounting pronouncements standards implemented december 2007 fasb revised guidance business combinations new guidance requires acquiring entity recognize assets acquired liabilities assumed noncontrolling interest acquiree measured fair values acquisition date limited exceptions addition guidance requires acquisition costs recognized separately business combination expensed incurred guidance also includes substantial number new disclosure requirements guidance effective company february 1 2009 exception accounting changes valuation allowances acquired deferred taxes acquired tax contingencies applied retrospectively effects guidance company’s consolidated financial statements depends nature size acquisitions completed effective date company believes impact applying guidance acquisition iontas february 2010 see note 26 subsequent events material impact consolidated financial statements april 2009 fasb issued amendment revised business combination guidance regarding accounting assets acquired liabilities assumed business combination arise contingencies requirements amended guidance carry forward without significant revision guidance existed prior january 1 2009 contingencies assets acquired comverse technology inc subsidiaries notes consolidated financial statements continued liabilities assumed business combination arise contingencies recognized fair value fair value reasonably estimated fair value cannot reasonably estimated asset liability would generally recognized accordance fasb’s guidance contingencies impact consolidated financial statements upon adoption december 2007 fasb issued guidance defining collaborative arrangements establishing presentation disclosure requirements transactions within collaborative arrangement third parties participants arrangement guidance effective company’s fiscal years interim periods commencing february 1 2009 guidance requires retrospective application collaborative arrangements existing effective date unless retrospective application impracticable impracticability evaluation exception performed arrangementbyarrangement basis application guidance material impact consolidated financial statements december 2007 fasb issued new guidance relating accounting reporting standards noncontrolling interest subsidiary deconsolidation subsidiary guidance also requires recognition noncontrolling interest equity consolidated financial statements separate parent’s equity amount net income attributable noncontrolling interest included consolidated net income loss face consolidated statements operations guidance adopted company february 1 2009 retrospective application presentation disclosure requirements upon adoption noncontrolling interest previously referred minority interest 1099 million january 31 2009 1386 million january 31 2008 1887 million january 31 2007 reclassified mezzanine section consolidated balance sheets liabilities equity addition guidance retrospectively applied include net loss attributable noncontrolling interest 335 million 828 million consolidated net loss face company’s consolidated statement operations fiscal years ended january 31 2009 2008 respectively net loss previously reported presented “net loss attributable comverse technology inc” march 2008 fasb issued new disclosure requirements regarding derivative instruments hedging activities guidance requires increased qualitative quantitative creditrisk disclosures entity’s derivative instruments hedging activities company adopted new requirements february 1 2009 adoption guidance material impact consolidated financial statements april 2008 fasb issued new requirements developing renewal extension assumptions used determine useful life recognized intangible asset intent guidance improve consistency useful life recognized intangible asset period expected cash flows used measure fair value intangible asset guidance effective company commencing february 1 2009 applies intangible assets acquired date guidance material impact consolidated financial statements may 2008 fasb issued new accounting guidance relating debt conversion options may settled cash upon conversion including partial cash payments guidance requires issuers instruments separately account liability equity components manner reflects entity’s nonconvertible debt borrowing rate interest cost recognized subsequent periods company adopted guidance effective february 1 2009 required applied provisions retrospectively company’s new convertible debt obligations due may 15 2023 see note 12 debt terms new convertible debt obligations may wholly partially settled cash company required separately account liability equity components manner reflects company’s nonconvertible debt borrowing rate interest costs recognized subsequent periods accordingly aggregate principal amount new convertible debt obligations allocated estimated fair value liability component exchange date january 26 2005 determined utilizing 60 annual interest rate comparable rate interest company would pay nonconvertible borrowings difference fair value liability component 3446 million aggregate principal amount new convertible debt obligations 4177 million exchange date 731 million retrospectively recorded exchange date debt discount corresponding increase additional paidin capital effect taxation debt issuance costs 277 million net increase additional paidin capital exchange date 454 million addition company recognized 48 million decrease accumulated deficit debt discount amortized interest expense utilizing effective interest method 33 year period expected life liability may 15 2008 first designated date holders right require cti repurchase new convertible debt obligations effective interest rate 583 effect change accounting guidance periods prior presented consolidated financial statements pretax tax amortization expense debt discount debt issuance costs 454 million 295 million respectively comverse technology inc subsidiaries notes consolidated financial statements continued following tables set forth effect retrospective application guidance certain previously reported items presented company’s consolidated financial statements condensed consolidated balance sheet condensed consolidated statements operations comverse technology inc subsidiaries notes consolidated financial statements continued 1 “as previously reported” column reflects revised presentation noncontrolling interest pursuant fasb’s guidance april 2009 fasb issued guidance intended provide additional application guidance enhance disclosures fair value measurements impairments securities • clarified objective method fair value measurement even significant decrease market activity asset measured • established new model measuring otherthantemporary impairments debt securities including establishing criteria recognize writedown earnings versus comprehensive income • expands fair value disclosures required financial instruments interim periods guidance adopted company interim annual periods ending june 15 2009 adoption guidance significant impact consolidated financial statements may 2009 fasb issued guidance intended establish general standards accounting disclosure events occur balance sheet date consolidated financial statements issued specifically guidance sets forth period balance sheet date management reporting entity evaluate events transactions may occur potential recognition disclosure consolidated financial statements circumstances entity recognize events transactions occurring balance sheet date consolidated financial statements disclosures entity make events transactions occurred balance sheet date company adopted guidance commencing interim period ended july 31 2009 annual filing period ended january 31 2010 impact consolidated financial statements june 2009 fasb issued fasb accounting standards codification hierarchy generally accepted accounting principles “codification” codification source authoritative accounting principles recognized fasb supersedes existing nonsec accounting reporting standards upon effective date subsequently fasb comverse technology inc subsidiaries notes consolidated financial statements continued issue new standards form statements fasb staff positions eitf abstracts upon adoption guidance references previous literature removed consolidated financial statements accompanying footnotes guidance effective company commencing interim period ended october 31 2009 annual filing period ended january 31 2010 impact consolidated financial statements standards implemented june 2009 fasb issued guidance modifies approach determining primary beneficiary variable interest entity “vie” modified approach enterprise required make qualitative assessment whether power direct activities vie significantly impact entity’s economic performance ii obligation absorb losses vie right receive benefits vie could potentially significant vie enterprise characteristics enterprise considered primary beneficiary must consolidate vie modified approach determining primary beneficiary vie effective company commencing february 1 2010 expected material impact consolidated financial statements september 2009 fasb issued revenue recognition guidance applicable multipledeliverable arrangements • applies multipledeliverable revenue arrangements contain software hardware elements focusing determining revenue arrangements within scope software revenue guidance • addresses separate consideration multipledeliverable arrangements excluding software arrangements establishes hierarchy determining selling price deliverable also eliminates residual method allocation requiring arrangement consideration allocated inception arrangement deliverables using relative selling price method also significantly expands disclosure requirements company elected early adopt guidance result effective prospective basis revenue arrangements entered materially modified february 1 2011 company preliminarily determined new guidance adopted portion multipledeliverable arrangements longer included within scope software revenue guidance generally result accelerated revenue recognition comparison historical treatment primarily relates arrangements multiple product deliverables well arrangements recognized ratably pcs period due absence vsoe fair value company process developing methodology determining estimated selling price products services company’s assessment quantification ongoing company believes adoption guidance material impact consolidated financial statements beginning fiscal year ending january 31 2012 january 2010 fasb issued guidance amend disclosure requirements related recurring nonrecurring fair value measurements guidance requires new disclosures transfers assets liabilities level 1 quoted prices active market identical assets liabilities level 2 significant observable inputs fair value measurement hierarchy including reasons timing transfers additionally guidance requires gross presentation activity within level 3 significant unobservable inputs roll forward presenting information purchases sales issuance settlements separately guidance effective company interim annual periods commenced february 1 2010 except gross presentation level 3 rollforward become effective company interim annual periods commencing february 1 2011 adoption guidance anticipated result additional disclosures december 2010 fasb issued guidance perform step two goodwill impairment test reporting units zero negative carrying amounts upon adoption carrying value reporting unit zero negative reporting entity must perform step two goodwill impairment test likely goodwill impaired date adoption company consider whether adverse qualitative factors indicating whether likely goodwill impairment exists goodwill impairment recognized upon adoption guidance presented cumulativeeffect adjustment opening retained earnings adoption date reflecting change accounting principle guidance effective company interim annual periods commencing february 1 2011 company assessing impact adoption guidance consolidated financial statements effective fiscal year ending january 31 2012 including assessment requirement perform step two goodwill impairment test could lead goodwill impairment company’s reporting units zero negative carrying amounts comverse technology inc subsidiaries notes consolidated financial statements continued 3 investments company accounts investments accordance fasb’s guidance relating accounting certain investments debt equity securities related pronouncements classifies debt equity securities availableforsale january 31 2010 investments ars disclosed held cti date restricted pursuant settlement agreement consolidated shareholder class action cti entered december 16 2009 settlement agreement amended june 19 2010 addition cash proceeds sales ars received original date settlement agreement prior amendment also restricted see note 24 commitments contingencies settlement agreements description restrictions relating ars held cti additional cash received sales ars subject ubs put prior settlement agreement also restricted auction rate securities company invested ars supported corporate issuers student loans portion ars portfolio supported corporate issuers consists collateralized debt obligations preferred stock collateralized mortgage obligations company’s ars supported corporate issuers rated aaa aa standard poor’s “sp” aaa a3 moody’s investor service “moody’s” purchased certain holdings downgraded fiscal quarter ended july 31 2008 resulting ratings spread encompassing aaa bbb sp aaa baa1 moody’s one corporate issue ars downgraded aaa b2 moody’s ars portfolio supported student loans substantially guaranteed federal government federal family education loan program company’s ars supported student loans rated aaa sp aaa moody’s purchased none ars holdings collateralized student loans experienced ratings downgrade classification ars longterm stated maturities prior january 31 2008 company classified ars shortterm investments due liquid nature evidenced successful auctions occurring every seven ninety days beginning third quarter fiscal year ended january 31 2008 auctions ars began fail although auctions began fail ars except ars fair value 96 million january 31 2010 continued pay interest stated terms january 31 2010 principal associated failed auctions accessible company one following successful auction occurs ii active secondary market develops iii security called iv security matures therefore company believes may able access underlying principal amounts par within twelvemonth period accordingly company reclassified ars experienced failed auctions shortterm investments longterm assets beginning period failure january 31 2010 continued classify ars longterm investments except ars subject ubs put required exercised settlement agreement consolidated shareholder class action june 30 2010 exercised cti date company sold 299 million 233 million aggregate principal amount ars fiscal year ended january 31 2010 2009 resulting gain 108 million 51 million recognized “other expense net” respectively january 31 2010 90 million sales ars subject ubs put classified “restricted cash bank time deposits” sales proceeds 171 million ars sold including interest received subsequent date settlement agreement classified within “other assets” longterm restricted cash otherthantemporary impairment result auction failures declines credit quality fair value ars declined fair value ars determined quarterly basis company utilizing discounted cash flow model considers among factors assumptions underlying collateral ii credit risk associated issuer iii contractual maturity discounted cash flow model considers contractual future cash flows representing interest principal payments future interest payments projected using us treasury swap curves remaining term ars accordance terms specific security principal payments assumed made estimated contractual maturity date taking account applicable prepayments yields used discount payments determined based specific characteristics security key considerations determination appropriate discount rate include securities’ remaining term maturity capital structure subordination quality level collateralization complexity payout structure credit rating issuer presence absence additional insurance enhancement monoline insurers ars company determined could assert intended hold ars fair value ars recovered amortized cost accordingly company recorded otherthantemporary impairment charges 69 million comverse technology inc subsidiaries notes consolidated financial statements continued 865 million 479 million pretax basis fiscal years ended january 31 2010 2009 2008 respectively component “other expense net” consolidated statements operations see note 20 expense net company recorded otherthantemporary impairment charges related ars subsequent january 31 2010 see note 26 subsequent events carrying amount company’s ars january 31 2010 1147 million 358 million classified availableforsale “shortterm investments” 788 million classified longterm availableforsale investments “auction rate securities” corresponding aggregate principal amounts 426 million 1640 million respectively carrying amount company’s ars january 31 2009 1203 million corresponding principal amount 2365 million classified longterm availableforsale investments ubs put november 2008 company accepted offer ubs ag “ubs” providing rights related 516 million aggregate principal amount ars held account ubs “ubs put” terms ubs put company right obligation sell eligible ars par value ubs time period june 30 2010 july 2 2012 additionally ubs right discretion time july 2 2012 purchase ars company par value defined price equal principal amount ars plus accrued unpaid dividends interest ubs purchased cti pursuant purchase right approximately 326 million 90 million aggregate principal amount ars february 1 2010 june 30 2010 fiscal year ended january 31 2010 respectively terms settlement agreement consolidated shareholder class action cti required exercise ubs put june 30 2010 apply proceeds exercise toward amounts payable settlement effective june 30 2010 cti exercised ubs put balance ars subject ubs put see note 24 commitments contingencies settlement agreements fourth quarter ended january 31 2009 company recorded ubs put fair value 136 million “other assets” corresponding gain recorded “other expense net” company elected fair value option fasb’s guidance consequently ubs put carried historical cost assessed impairment company evaluated ubs put impairment based redemptions changes fair value related ars subject ubs put fiscal year ended january 31 2010 recorded 69 million pretax impairment charges classified “other expense net” january 31 2010 ubs put’s carrying value 67 million recorded “prepaid expenses current assets” fair value related ars 358 million consideration ubs put corresponding principal amount 426 million investmentstemporary declines fair value company reviews investments identify evaluate investments indications possible impairments regard availableforsale securities company evaluated investments unrealized losses determine losses otherthantemporary gross unrealized losses securities january 31 2010 2009 related primarily debt securities resulted changes interest rates company determined based facts circumstances unrealized losses temporary nature making determination company considered intent ability hold investments period time sufficient allow anticipated recovery decline fair value amortized cost comverse technology inc subsidiaries notes consolidated financial statements continued following summary availableforsale securities january 31 2010 2009 investments original maturities three months less purchased included cash equivalents “restricted cash bank time deposits” longterm restricted cash longterm restricted cash classified within “other assets” consolidated balance sheets investments reflected tables january 31 2010 2009 include commercial paper money market funds totaling 2506 million january 31 2010 commercial paper us government agency securities market money funds totaling 7320 million january 31 2009 unrealized gains losses january 31 2010 01 million unrealized gains january 31 2009 comverse technology inc subsidiaries notes consolidated financial statements continued following table presents fair value company’s investments unrealized loss positions aggregated length time period company sold investments proceeds 3076 million 4635 million 22625 million fiscal years ended january 31 2010 2009 2008 respectively gross realized gains losses company’s investments follows fiscal years ended components comprehensive income loss related availableforsale securities follows comverse technology inc subsidiaries notes consolidated financial statements continued cost estimated fair value debt securities january 31 2010 contractual maturities follows 4 inventories net inventories net reserves 272 million 269 million january 31 2010 2009 respectively consist comverse technology inc subsidiaries notes consolidated financial statements continued 5 property equipment net property equipment net january 31 2010 2009 consist depreciation amortization property equipment 438 million 508 million 553 million fiscal years ended january 31 2010 2009 2008 respectively company also wrote property equipment net 64 million 46 million 21 million fiscal years ended january 31 2010 2009 2008 respectively september 16 2010 comverse ltd indirect whollyowned subsidiary cti sold land ra’anana israel third party see note 26 subsequent events 6 business combinations company accounts acquisitions using purchase method accounting results operations acquired entities included respective dates acquisition excess purchase prices sum fair value amounts assigned identifiable tangible intangible assets liabilities recorded goodwill accordance fasb’s guidance effect prior february 1 2009 february 1 2009 company adopted fasb’s revised guidance business combinations see note 2 recent accounting pronouncements standards implemented provisions fasb’s new guidance apply witness systems inc “witness” viewlinks euclipse ltd “viewlinks” acquisitions consummated prior adoption date february 1 2009 verint segment may 25 2007 verint acquired witness formerly publicly held company based roswell georgia verint acquired witness among objectives expand business enterprise workforceoptimization market verint paid 10851 million consisting 9665 million acquire 100 352 million outstanding shares witness common stock 2750 per share ii additional 979 million settle outstanding witness options iii 148 million acquisition costs iv 58 million additional contingency payments earned january 31 2009 cti acquired 2930 million verint’s series convertible perpetual preferred stock par value 0001 per share finance part verint’s acquisition witness addition verint used available cash verint witness 6500 million financed proceeds term loan credit agreement entered verint group lenders connection transaction contingent consideration earned paid recorded additional goodwill value assigned inprocess research development 64 million determined considering importance project company’s overall future development plans identifiable intangible assets primarily consist customer relationships technology trade names intangible assets amortized estimated useful lives one year ten years weighted average life nine years verint also assumed several contingent consideration arrangements related businesses previously acquired witness one arrangement provided potential additional consideration 185 million earned quarterly july 31 2009 comverse technology inc subsidiaries notes consolidated financial statements continued based upon previously acquired business achieving certain performance metrics fiscal years ended january 31 2009 2008 11 million 27 million contingent consideration earned respectively recorded additional goodwill verint also paid 20 million additional consideration fiscal year ended january 31 2008 related separate business previously acquired witness contingent consideration earned completion contingent consideration periods arrangements verint also acquired viewlinks 76 million february 2007 contingent consideration 18 million related viewlinks acquisition earned substantially paid fiscal year ended january 31 2009 relation viewlinks contingent consideration earned completion contingent consideration period summary assets liabilities presented viewlinks acquisition considered significant company allocation purchase price following summary final allocation purchase price thousands witness acquisition described inprocess research development purchased inprocess research development represents value assigned research development projects acquired business commenced completed date acquisition technological feasibility established alternative future use amounts assigned purchased inprocess research development meeting criteria charged expense acquisition date fiscal year ended january 31 2008 company wrote 67 million inprocess research development costs primarily associated verint’s purchase witness business comverse technology inc subsidiaries notes consolidated financial statements continued unaudited pro forma financial information unaudited pro forma financial information presented summarizes combined results company’s operations witness pro forma basis though companies combined beginning relevant period presented pro forma impact viewlinks acquisition material overall consolidated operating results therefore presented pro forma financial information subject various assumptions estimates presented informational purposes pro forma information purport represent indicative consolidated operating results would reported transactions completed described herein data taken indicative future consolidated operating results comverse technology inc subsidiaries notes consolidated financial statements continued 7 goodwill changes carrying amount goodwill comverse verint segments fiscal years ended january 31 2010 2009 2008 follows 1 amount goodwill “all other” segment related starhome consolidated fiscal year ended january 31 2003 2 fiscal years ended january 31 2010 2009 2008 goodwill related certain acquisitions adjusted due earnout payments recoveries tax adjustments lease abandonment settlement comverse technology inc subsidiaries notes consolidated financial statements continued company tests goodwill impairment annually november 1 frequently events circumstances indicate potential impairment exists company performed goodwill impairment tests reporting units november 1 2009 2008 2007 annual goodwill impairment tests resulted charges 1351 million fiscal year ended january 31 2008 interim goodwill impairment tests performed january 31 2010 july 31 2008 resulted impairment charge fiscal year ended january 31 2010 additional impairment charges 214 million recorded fiscal year ended january 31 2009 impairment charges fiscal years ended january 31 2009 2008 resulted writedowns goodwill netcentrex reporting unit comverse segment fiscal year ended january 31 2010 company identify circumstances required goodwill tested impairment prior november 1 2009 annual impairment testing date however subsequent november 1 2009 impairment testing date comverse reporting unit experienced continued operating losses cash outflows result company performed interim impairment test goodwill january 31 2010 comverse reporting unit determined fair value comverse reporting unit exceeded carrying value goodwill impaired date company continues monitor goodwill impairment subsequent fiscal periods fiscal year ended january 31 2008 netcentrex reporting unit experienced decrease results operations compared prior performance addition netcentrex reporting unit experienced significant reduction orders key customer necessitating interim impairment test july 31 2008 factors adversely affected projected future cash flows estimated fair value netcentrex reporting unit verint recorded noncash goodwill impairment charges 260 million 206 million consolidated statements operations fiscal years ended january 31 2009 2008 respectively company’s reporting units combined higher level verint standalone consolidated financial statements fair value company’s verint reporting units exceeded carrying value accordingly impairment charge recorded company’s consolidated financial statements comverse technology inc subsidiaries notes consolidated financial statements continued 8 intangible assets net acquired intangible assets january 31 2010 2009 follows acquired intangible assets operating segment january 31 2010 2009 follows amortization intangible assets 523 million 603 million 568 million fiscal years ended january 31 2010 2009 2008 respectively connection testing goodwill company also tested longlived assets including finitelived intangible assets result company recorded noncash pretax impairment charges finitelived intangible assets 34 million 270 million 127 million fiscal years ended january 31 2010 2009 2008 respectively impairments 34 million 270 million 100 million fiscal years ended january 31 2010 2009 2008 respectively related finitelived intangible assets company’s netcentrex reporting unit representing netcentrex reporting unit’s intangible assets verint recorded 27 million impairment charge finitelived assets fiscal year ended january 31 2008 principally related customerrelated intangible assets comverse technology inc subsidiaries notes consolidated financial statements continued estimated amortization expense five succeeding fiscal years thereafter follows 9 assets january 31 2010 2009 consist 1 represents deposits insurance policies fund severance liability see note 16 longterm liabilities 2 see note 3 investments additional disclosure relating ubs put comverse technology inc subsidiaries notes consolidated financial statements continued capitalized software costs included assets capitalized software costs represent costs incurred primarily develop verint’s commercial software products rollforward net capitalized software costs follows 10 accounts payable accrued expenses accounts payable accrued expenses january 31 2010 2009 consist 1 includes liabilities related company’s 401k plans cti comverse verint ulticom maintains 401k plan fulltime employees plans allow eligible employees elect contribute 60 percent annual compensation subject prescribed maximum amount respective company matches employee contributions rate 50 percent limited maximum annual matched contribution ranging 2000 3500 per employee contributions always fully vested respective company’s matching contributions year vest last day calendar year providing employee remains employed respective company day fiscal years ended january 31 2010 2009 2008 company’s matching contributions 401k plan amounted 68 million 66 million 60 million respectively comverse technology inc subsidiaries notes consolidated financial statements continued 11 restructuring company reviews business manages costs aligns resources market demand conjunction various acquisitions result company taken several actions reduce fixed costs eliminate redundancies strengthen operational focus better position respond market pressures unfavorable economic conditions following restructuring initiatives taken place company’s comverse verint segments comverse initiatives 2001 initiative fiscal year ended january 31 2002 comverse committed began implementing restructuring program including changes organizational structure product offerings better align cost structure business environment improve efficiency operations reductions workforce restructuring operations abandoning facilities writeoff impaired assets balance facilitiesrelated costs expected paid various dates january 2011 2007 initiative fiscal year ended january 31 2008 comverse’s management approved restructuring plan close certain facilities wakefield massachusetts eliminate associated staff positions plan implemented realign operational activities reduce facilities total plan expected approximately 176 million comprised 140 million severance related costs 36 million facilities related costs severance payments primarily completed fiscal year ended january 31 2009 facilities related payments expected completed fiscal year ending january 31 2011 2008 initiative fiscal year ended january 31 2009 comverse’s management approved restructuring plan consolidate certain facilities eliminate number staff positions plan implemented realign sales force product development staff response shifts customer expectations regarding service delivery relationship management total plan expected 96 million 72 million severancerelated costs 13 million facilitiesrelated costs recorded fiscal year ended january 31 2009 remaining severance facilitiesrelated payments primarily completed fiscal year ended january 31 2010 last facility lease expire fiscal year ending january 31 2017 2009 initiative fiscal year ended january 31 2010 comverse’s management approved restructuring plan close certain facilities eliminate associated staff positions plan implemented around comverse’s core competencies innovations enhance quality product offerings better align customers’ needs improve delivery service capabilities aggregate cost plan 144 million severancerelated facilitiesrelated costs 126 million 10 million respectively paid fiscal year ended january 31 2010 remaining costs 08 million expected substantially paid january 31 2012 verint initiatives fiscal year ended january 31 2008 verint implemented certain restructuring initiatives intended reduce overall cost structure predominantly north america hong kong verint recorded restructuring charges 03 million 18 million fiscal years ended january 31 2009 2008 respectively charges 12 million 09 million paid fiscal years ended january 31 2009 2008 respectively conjunction witness acquisition fiscal year ended january 31 2008 verint took several actions extended fiscal year ended january 31 2010 reduce fixed costs eliminate redundancies strengthen operational focus better position respond market pressures unfavorable economic conditions result verint incurred restructuring charges 09 million 15 million fiscal year ended january 31 2009 2008 respectively charges 13 million 11 million paid fiscal years ended january 31 2009 2008 respectively fiscal year ended january 31 2009 result reduced demand consulting services europe verint implemented substantially completed cost reduction plan resulted elimination approximately 30 positions verint recorded paid charges 14 million fiscal year ended january 31 2009 addition fiscal year ended january 31 2009 verint implemented global cost reduction plan order reduce operating costs response uncertainty global economic environment cost reduction initiatives included restructuring plan included elimination approximately 90 positions throughout functional areas global workforce reducing comverse technology inc subsidiaries notes consolidated financial statements continued utilization outside contractors consultants closing one leased facility verint recorded majority restructuring expenses charges 32 million including 28 million severance related benefits 04 million exit leased facility costs amount accrued 27 million paid fiscal year ended january 31 2009 remaining 06 million paid fiscal year ended january 31 2010 initiatives fiscal years ended january 31 2010 2009 2008 various smaller initiatives occurred comverse ulticom starhome following table represents rollforward workforce reduction restructuring activities noted 12 debt january 31 2010 2009 debt comprised following convertible debt obligations may 2003 cti issued 4200 million aggregate principal amount convertible debt obligations “existing convertible debt obligations” january 26 2005 cti completed offer holders outstanding existing convertible debt obligations exchange existing convertible debt obligations new convertible debt obligations “new convertible debt obligations” 4200 million aggregate principal amount existing convertible debt obligations outstanding prior comverse technology inc subsidiaries notes consolidated financial statements continued exchange offer approximately 4177 million aggregate principal amount representing approximately 995 original issue existing convertible debt obligations validly tendered exchange equal principal amount new convertible debt obligations may 15 2009 cti completed tender offer pursuant purchased 4173 million aggregate principal amount new convertible debt obligations accordance terms indenture convertible debt obligations mature may 15 2023 bear interest provisions fasb’s guidance effective february 1 2009 relating debt conversion options may settled cash upon conversion including partial cash payments company retrospectively recorded debt discount 731 million exchange date january 26 2005 new convertible debt obligations amortized amount “interest expense” utilizing effective interest method 33 year period expected life liability may 15 2008 first designated date holders right require cti repurchase new convertible debt obligations debt discount fully amortized interest expense may 15 2008 effective rate 583 see note 2 recent accounting pronouncements standards implemented discussion fasb’s guidance effect retrospective application guidance company’s previously issued consolidated financial statements convertible debt obligations secured assets company guaranteed cti’s subsidiaries 1000 principal amount existing convertible debt obligations convertible option holder upon circumstances described shares cti’s common stock conversion price 179744 per share equal conversion rate 556347 shares per 1000 principal amount existing convertible debt obligations subject adjustment certain events 1000 principal amount new convertible debt obligations convertible option holder upon circumstances described based net share settlement feature cash shares cti’s common stock conversion price 179744 per share equal conversion rate 556347 shares per 1000 principal amount new convertible debt obligations subject adjustment certain events net share settlement feature new convertible debt obligations provides upon conversion cti would pay holder cash equal lesser conversion value principal amount new convertible debt obligations converted would issue holder remainder conversion value excess principal amount shares cti’s common stock convertible debt obligations convertible quarter closing price per share period least twenty days thirty consecutive tradingday period ending last trading day preceding fiscal quarter 120 conversion price per share effect thirtieth day ii may 15 2018 five businessday period following ten consecutive tradingday period daily average trading price convertible debt obligations ten tradingday period less 105 average conversion value convertible debt obligations period iii period following date credit rating assigned convertible debt obligations sp lower “b” upon withdrawal suspension convertible debt obligations rating cti’s request iv cti calls convertible debt obligations redemption v upon specified corporate transactions august 2010 sp discontinued rating convertible debt obligations time became convertible addition cti right redeem new convertible debt obligations existing convertible debt obligations cash time may 15 2009 may 15 2008 respectively principal amount indentures governing convertible debt obligations provide may 15 2008 may 15 2013 may 15 2018 indenture governing new convertible debt obligations may 15 2009 holder convertible debt obligations right principal amount convertible debt obligations portion principal amount thereof repurchased cti cash purchase price 100 principal amount holder’s convertible debt obligations addition indentures governing convertible debt obligations provide following termination trading cti’s common stock national securities exchange established automated overthecounter trading market united states certain instances upon change control holder convertible debt obligations right principal amount convertible debt obligations portion principal amount thereof repurchased cti cash purchase price 100 principal amount holder’s convertible debt obligations addition noted terms indentures cti obligation offer purchase cash convertible debt obligations may 15 2008 meet obligations indentures cti commenced tender offer april 16 2008 tender offer expired may 15 2008 de minimis principal amount convertible debt obligations tendered comverse technology inc subsidiaries notes consolidated financial statements continued addition noted terms indenture governing new convertible debt obligations cti obligation offer purchase cash new convertible debt obligations may 15 2009 result company continued classify convertible debt obligations shortterm debt obligations january 31 2009 meet obligations indenture cti commenced tender offer april 17 2009 upon completion tender offer may 15 2009 cti purchased cash 4173 million aggregate principal amount new convertible debt obligations following repurchase new convertible debt obligations january 31 2010 cti 22 million aggregate principal amount convertible debt obligations outstanding verint revolving credit facility term loan may 25 2007 verint entered 6750 million secured credit facility “credit facility” partially finance acquisition witness credit facility originally comprised 6500 million sevenyear term loan maturing may 25 2014 “term loan” 250 million sixyear revolving credit facility maturing may 25 2013 “revolving credit facility” july 2010 certain terms credit facility amended see note 26 subsequent events disclosure amended terms borrowings credit facility bear interest one following rates verint’s election higher prime rate ii federal funds rate plus 050 plus either case margin 175 b applicable london interbank offered rate “libor” plus margin 275 margins subject increase 025 verint failed receive corporate credit ratings moody’s sp failed deliver certain financial statements credit facility administrative agent february 25 2008 additional 025 verint failed august 25 2008 verint timely comply conditions abovereferenced applicable margins increased 025 february 25 2008 another 025 august 25 2008 225 325 respectively may 2010 verint delivered audited financial statements fiscal year ended january 31 2010 lenders verint obtained referenced corporate credit ratings applicable margins would subsequently range 100 175 200 275 respectively depending verint’s corporate credit ratings moody’s sp accordingly applicable margin reduced 050 june 2010 verint obtained corporate credit ratings optional prepayments loans permitted without premium penalty customary breakage costs associated prepayment loans bearing interest based libor loans also subject mandatory payment requirements based upon certain asset sales excess cash flow certain events term loan originally amortized 27 consecutive quarterly installments 16 million beginning august 1 2007 followed final amortization payment remaining outstanding principal amount term loan matures may 25 2014 july 2007 verint made optional prepayment 400 million 130 million applied toward eight immediately following principal payments 270 million applied pro rata remaining principal payments may 2009 verint made 41 million mandatory “excess cash flow” payment applied three immediate following principal payments january 31 2010 221 million term loan classified current liability reflecting 221 million “excess cash flow payment” made may 2010 see note 26 subsequent events january 31 2010 2009 interest rate term loan 349 359 respectively verint’s 250 million revolving credit facility reduced 150 million fiscal quarter ended october 31 2008 result bankruptcy lehman brothers one lenders related subsequent termination commitment credit facility june 2009 quarter ended january 31 2009 verint borrowed full 150 million available revolving credit facility repayment borrowings required upon expiration facility may 2013 january 31 2010 interest rate borrowings revolving credit facility 349 december 2010 verint repaid 150 million previously borrowed revolving credit facility verint’s obligations credit facility guaranteed certain domestic subsidiaries including witness secured substantially assets verint credit facility secured assets cti guaranteed cti verint paid debt issuance costs 136 million associated credit facility deferred classified within assets deferred debt issuance costs amortized life credit facility amortization deferred costs associated term loan recorded using effective interest rate method amortization deferred costs associated revolving credit facility recorded straightline basis comverse technology inc subsidiaries notes consolidated financial statements continued may 25 2007 concurrently entry credit facility verint entered fouryear receivevariablepayfixed interest rate swap agreement multinational financial institution notional amount 4500 million mitigate portion risk associated variable interest rates term loan part verint required lenders interest rate swap agreement scheduled terminate may 2011 see note 13 derivative financial instruments additional information interest rate swap agreement interest rate swap agreement terminated july 2010 see note 26 subsequent events disclosures relating termination interest rate swap agreement fiscal years ended january 31 2010 2009 2008 verint incurred 226 million 352 million 344 million interest expense respectively borrowings credit facility verint also recorded 19 million 17 million 19 million fiscal years ended january 31 2010 2009 2008 respectively amortization deferred debt issuance costs reported within interest expense included deferred debt issuance cost amortization fiscal years ended january 31 2010 january 31 2008 01 million 08 million respectively additional amortization associated prepayments principal fiscal years credit facility contains customary affirmative negative covenants credit facilities type including limitations verint subsidiaries respect indebtedness liens dividends distributions acquisitions dispositions assets investments loans transactions affiliates nature business accordingly verint precluded paying cash dividends cti including cash dividends payable terms preferred stock held cti see note 23 related party transactions credit facility also prohibits verint exceeding specified consolidated leverage ratio tested rolling fourquarter periods credit facility also includes requirement verint submit audited consolidated financial statements lenders within 90 days end fiscal year beginning financial statements fiscal year ended january 31 2010 april 27 2010 verint entered amendment waiver consent lenders extended due date delivery audited consolidated financial statements related documentation fiscal year ended january 31 2010 may 1 2010 june 1 2010 consideration amendment verint paid lenders approximately 09 million payment amortized additional interest expense remaining term credit agreement using effective interest method legal fees outofpocket costs directly relating amendment expensed incurred significant verint filed annual report form 10k fiscal year ended january 31 2010 containing requisite financial statements may 19 2010 accordingly delivered audited consolidated financial statements lenders compliance terms amended credit facility verint fail future deliver audited consolidated financial statements required agreement provides thirty day period cure default event default occurs credit facility contains customary events default corresponding grace periods event default occurs continuing lenders may terminate andor suspend obligations make loans issue letters credit facility andor accelerate amounts due andor exercise rights remedies case certain events default related insolvency receivership commitments lenders automatically terminated outstanding loans become immediately due payable comverse ltd lines credit january 31 2010 comverse ltd whollyowned israeli subsidiary comverse inc 250 million line credit increased 200 million december 2009 bank used borrowings various performance guarantees customers vendors letters credit execute foreign currency transactions ordinary course business line credit bears interest subject renewal annual basis comverse ltd required maintain cash balances least 250 million bank times regardless amounts borrowed utilized line credit january 31 2010 comverse ltd borrowings line credit utilized 77 million capacity line credit guarantees execution foreign currency transactions june 2010 line credit decreased 150 million corresponding decrease cash balances comverse ltd required maintain bank 150 million december 2009 comverse ltd entered additional line credit bank 200 million used borrowings various performance guarantees customers vendors letters credit execute foreign currency transactions ordinary course business line credit bears interest subject renewal annual basis comverse ltd required maintain cash balances least 200 million bank times regardless amounts borrowed utilized line credit january 31 2010 comverse ltd borrowings line credit utilized 98 million capacity line credit guarantees execution foreign currency transactions june 2010 line credit decreased 150 million corresponding decrease cash balances comverse ltd required maintain bank 150 million comverse technology inc subsidiaries notes consolidated financial statements continued comverse ltd’s requirement maintain cash balances banks disclosed lines credit financial covenant provisions debt maturities company’s debt maturities follows 13 derivatives financial instruments company entered derivative arrangements manage variety risk exposures fiscal years ended january 31 2010 2009 2008 including interest rate risk associated verint’s term loan foreign currency risk related forecasted foreign currency denominated payroll costs company’s comverse verint subsidiaries company assessed counterparty credit risk party related derivative financial instruments periods presented interest rate swap agreement may 2007 verint entered fouryear receivevariablepayfixed 4500 million notional amount interest rate swap agreement partially mitigate risks associated term loan part verint required lenders interest rate swap economic effect modifying variable interest obligation threemonth libor associated portion term loan interest payable portion fixed rate 518 period four years instrument settled counterparty quarterly basis scheduled maturity date may 1 2011 verint’s interest rate swap meet requirements hedge accounting therefore derivative markedtomarket end accounting period gains losses whether realized unrealized recognized component “other expense net” consolidated statements operations net losses recorded interest rate swap fiscal years ended january 31 2010 2009 2008 136 million inclusive 202 million realized losses offset 66 million unrealized gains 115 million inclusive 99 million realized losses 16 million unrealized losses 292 million inclusive 293 million unrealized losses offset 01 million realized gain respectively see note 20 expense net losses reflect decline market interest rates occurred second half fiscal year ended january 31 2008 persisted january 31 2010 verint terminated interest rate swap agreement july 2010 see note 26 subsequent events disclosures relating termination interest rate swap agreement forward contracts fiscal years ended january 31 2010 2009 2008 comverse entered series shortterm foreign currency forward contracts shortterm participating foreign currency forward contracts limit variability exchange rates usd nis new israeli shekels hedge probable cash flow exposure expected future payroll expense transactions qualified cash flow hedge accounting fasb’s guidance hedge ineffectiveness accordingly company recorded changes fair value forward contracts part “total comprehensive loss” consolidated statements equity comverse technology inc subsidiaries notes consolidated financial statements continued fiscal years ended january 31 2010 2009 2008 verint entered shortterm foreign currency forward contracts mitigate risk fluctuations foreign currency exchange rates mainly relating payroll costs denominated currencies usd primarily nis canadian dollar verint’s joint venture singapore dollar functional currency also utilizes foreign exchange forward contracts manage exposure exchange rate fluctuations related settlement liabilities denominated usd certain foreign currency forward contracts designated hedging instruments derivative accounting guidance therefore gains losses changes fair values reported “other income expense net” consolidated statements operations verint realized net losses 26 million net losses 21 million net gains 18 million fiscal years ended january 31 2010 2009 2008 respectively settlements foreign currency forward contracts designated hedges verint 05 million net unrealized losses outstanding foreign currency forward contracts january 31 2010 notional amounts totaling 504 million verint 19 million net unrealized losses outstanding foreign currency forward contracts january 31 2009 notional amounts totaling 359 million verint 03 million unrealized losses outstanding foreign currency forward contracts january 31 2008 notional amounts totaling 117 million exception verint’s interest rate swap derivatives outstanding january 31 2010 shortterm nature due contractually settle within next twelve months fiscal year ended january 31 2010 starhome entered shortterm foreign currency forward contracts mitigate risk fluctuations foreign currency exchange rates mainly relating payroll costs denominated nis foreign currency forward contracts designated hedging instruments therefore gains losses changes fair values reported “other expense net” consolidated statements operations starhome realized net gains 03 million fiscal year ended january 31 2010 settlements foreign currency forward contracts designated hedges starhome 08 million net unrealized gains outstanding foreign currency forward contracts january 31 2010 notional amounts totaling 111 million starhome enter foreign currency forward contracts fiscal years ended january 31 2009 2008 following tables fiscal years ended january 31 2010 2009 summarize company’s derivative positions respective fair value comverse technology inc subsidiaries notes consolidated financial statements continued 1 total notional amount interest rate swap 4500 million following tables fiscal years ended january 31 2010 2009 2008 summarize company’s classification gains losses derivative instruments comverse technology inc subsidiaries notes consolidated financial statements continued 1 amounts reclassified accumulated comprehensive income loss statement operations classified operating expenses comverse technology inc subsidiaries notes consolidated financial statements continued components comprehensive income loss related cash flow hedges follows 14 fair value measurements assets liabilities measured fair value recurring basis fair value financial instruments estimated company using available market information appropriate valuation methodologies however considerable judgment required interpreting market data develop estimates fair value accordingly estimates presented herein necessarily indicative amounts company could realize market exchange use different market assumptions andor estimation methodologies may material effect estimated fair value amounts following tables present financial instruments according fair value hierarchy defined fasb’s guidance january 31 2010 2009 comverse technology inc subsidiaries notes consolidated financial statements continued 1 january 31 2010 2192 million commercial paper money market funds classified “cash equivalents” 143 million commercial paper money market funds classified “restricted cash bank time deposits” 171 million classified “other assets” longterm restricted cash january 31 2009 7243 million commercial paper us government agency securities money market funds classified “cash equivalents” 77 million commercial paper classified “restricted cash bank time deposits” following table summary changes fair value level 3 financial assets consisting ars fiscal years ended january 31 2010 2009 assets liabilities measured fair value recurring basis addition assets liabilities measured fair value recurring basis company also measures certain assets liabilities fair value nonrecurring basis nonfinancial assets including goodwill intangible assets property plant equipment measured fair value indication impairment assets recorded fair value impairment charge recognized details regarding regular impairment reviews appear note 1 “organization business summary significant accounting policies” comverse technology inc subsidiaries notes consolidated financial statements continued following table presents fair value financial instruments january 31 2010 2009 carried cost consolidated balance sheets carrying amounts cash equivalents restricted cash bank time deposits accounts receivable accounts payable reasonable estimates fair value ubs put recorded inception fair value 136 million subsequently assessed impairment company determined fair value ubs put 67 million recognition pretax impairment charge 69 million 171 million january 31 2010 2009 respectively using discounted cash flow technique incorporates market interest yield curve adjustments duration optionality risk profile considered significant unobservable inputs determining market interest yield curve company considered credit rating ubs see note 3 investments fair value outstanding term loan january 31 2010 2009 estimated 5726 million 3599 million respectively estimates based upon pricing used trades portions loan secondary market near january 31 2010 2009 respectively january 31 2010 2009 carrying amount revolving credit facility 150 million reasonable estimate fair value carrying amount reported consolidated balance sheet january 31 2010 2009 convertible debt obligations 22 million 4195 million respectively due lack liquidity market company’s convertible debt obligations principally result nominal aggregate principal amount outstanding available trading purposes company determined fair value january 31 2010 12 million fair value convertible debt obligations 4112 million january 31 2009 based publicly available quoted market prices convertible debt obligations 15 leases company leases office warehouse space well certain equipment vehicles noncancelable operating leases gross rent expense 511 million 463 million 479 million fiscal years ended january 31 2010 2009 2008 respectively sublease income 44 million 43 million 50 million fiscal years ended january 31 2010 2009 2008 respectively majority company’s leases include options allow renew extend lease term beyond initial lease period subject terms conditions agreed upon inception lease terms conditions include rental rates agreed upon inception lease could represent belowor abovemarket rental rates later life lease depending upon market conditions time renewal extension comverse technology inc subsidiaries notes consolidated financial statements continued company entered various sublease agreements lease excess space january 31 2010 minimum annual rent obligations excluding taxes maintenance passthroughs sublease income received noncancelable subleases minimum net rentals company follows fiscal years ending january 31 16 longterm liabilities longterm liabilities january 31 2010 2009 consist following severance israeli law company obligated make severance payments employees israeli subsidiaries basis individual’s current salary length employment company’s liability severance pay calculated pursuant israel’s severance pay law recent salary employee multiplied number years employment balance sheet date employees entitled one month’s salary year employment portion thereof gross severance liability january 31 2010 2009 686 million 596 million respectively portion liability funded monthly deposits insurance policies restricted used satisfy severance payments amount deposits classified “other assets” severance pay fund amounts 478 million 369 million january 31 2010 2009 respectively see note 9 assets 17 research development arrangements portion company’s research development operations located israel certain company’s subsidiaries derive benefits participation programs sponsored government israel support research development activities israel certain company’s research development activities include projects partially funded office chief scientist ministry industry trade state israel “ocs” funding organization reimburses portion company’s research development expenditures approved project budgets although government israel proprietary rights ocsfunded products specific restriction ocs regard export ocsfunded products certain circumstances may limitations ability transfer technology knowhow manufacture ocsfunded products outside israel limitations could result requirement pay significantly increased royalties redemption fee calculated according applicable regulations comverse technology inc subsidiaries notes consolidated financial statements continued company’s gross research development expenses fiscal years ended january 31 2010 2009 2008 2863 million 3520 million 3844 million respectively amounts reimbursed ocs others fiscal years ended january 31 2010 2009 2008 62 million 66 million 75 million respectively recorded reduction gross research development expenses within “research development net” 18 stockbased compensation stockbased compensation expense associated awards made cti subsidiaries included company’s consolidated statements operations follows comverse technology inc subsidiaries notes consolidated financial statements continued consolidated stockbased compensation expense consists expense recognized awards related separate cti verint ulticom starhome stock incentive plans following table presents company’s stockbased compensation expense included consolidated statements operations based underlying subsidiary plans fiscal years ended january 31 2010 2009 2008 1 stock options purchase cti’s common stock awarded employees cti’s subsidiaries including employees verint ulticom starhome accordingly related stockbased compensation expense recognized respective subsidiary statements operations 2 verint’s stockbased compensation expense consists stock options purchase verint common stock verint phantom stock units verint restricted stock awards restricted stock units company recognized excess tax benefits 02 million fiscal year ended january 31 2010 recognize excess tax benefits fiscal years ended january 31 2009 2008 following discussion material stockbased compensation plans company cti plans overview cti’s stock incentive plans cti granted stock options restricted stock deferred stock units “dsus” awards various stock incentive plans fiscal years ended january 31 2010 2009 2008 plans generally permit issuance incentive nonqualified stock options dsu awards restricted stock appreciation rights “sars” employees officers directors cti subsidiaries expire ten years plans generally dictate unexercised options expire within 90 days termination service company stock options designated “incentive stock options” plans may granted exercise price less fair market value underlying shares date grant subject certain limitations specified section 422 internal revenue code stock options intended qualify incentive stock options may granted price fair market value stock options underlying shares subject adjustment accordance terms plans event stock dividends recapitalizations similar transactions stock options generally vest three fouryear period date grant right exercise maximum term ten years stock options granted stockbased compensation expense recognized straightline basis life vesting period reduced estimated forfeitures upon exercise stock options issuance restricted stock dsu awards issuance shares stock incentive plans cti issues authorized unissued common stock unless treasury stock available comverse technology inc subsidiaries notes consolidated financial statements continued 1996 stock option plan cti’s 1996 stock option plan provided stock options qualify incentive stock options section 422a internal revenue code may granted key employees nonqualifying options may granted employees independent contractors directors company plan authorized 3 million shares cti’s common stock granted plan provided qualified awards exercise price based fair value cti’s common stock date grant except individuals hold 10 percent interest cti exercise price less 110 percent share price plan also provided nonqualified awards exercise price lower 010 per share plan terminated october 2006 1997 1999 stock incentive compensation plans cti’s 1997 1999 stock incentive compensation plans authorized granting awards form stock options qualified nonqualified well cti’s common stock form dsu restricted stock awards additionally plan provided sars may issued officer key employee company plans authorized 75 70 million shares options respectively purchase shares cti’s common stock granted plans provided qualified awards exercise price based fair value cti’s common stock date grant except individuals hold 10 percent interest cti exercise price less 110 percent share price plans also provided exercise price nonqualified awards form stock options may less fair market value cti’s common stock date grant determined compensation committee plans terminated november 2007 may 2009 respectively 2000 2001 2004 2005 stock incentive compensation plans cti’s 2000 2001 2004 2005 stock incentive compensation plans currently place plans authorize granting awards form stock options qualified nonqualified well cti’s common stock form dsu restricted stock awards additionally plans provide sars may issued officer key employee company plans authorize 90 97 25 60 million shares options respectively purchase shares cti’s common stock granted plans maximum term 10 years scheduled expire 2010 2011 2014 2015 respectively plans provide qualified awards exercise price based fair value cti’s common stock date grant except individuals hold 10 percent interest cti exercise price less 110 percent share price plans also provided exercise price nonqualified awards form stock options may less fair market value cti’s common stock date grant determined compensation committee cti’s board directors provided discount expressly granted lieu reasonable amount salary bonus discount shall exceed 15 percent fair market value cti’s common stock date grant restricted period result cti’s inability current periodic reporting obligations federal securities laws since april 2006 cti ineligible use registration statements form s8 offer sale equity securities including stock options employees consequently ensure violate applicable securities laws cti prohibited exercise vested stock options april 2006 time determined current periodic reporting obligations effective registration statement form s8 file sec period referred “restricted period” april 2006 modification restricted period certain employees left company whose vested stock options lapsed result prohibition exercise stock options planmandated postemployment exercise period order accommodate former employees company extended exercise rights respect vested stock options later occur 90 days date termination employment ii 30 days restricted period expired however accommodation extend stock option’s term beyond contractual termination date typically ten years date grant company accounted additional time exercise afforded employees modifications original awards date restricted period commenced certain individuals received additional time exercise terminated employees time modification modifications accounted using liability method accounting resulting modification expense fiscal year ended january 31 2007 696 million including 12 million related modifications accounted using liability method referred “april 2006 modification” comverse technology inc subsidiaries notes consolidated financial statements continued july 2006 modification consistent commitment employees upon approval board directors cti voluntarily compensated cash current employees holding inthemoney options whose original 10year terms expired restricted period resulting modification charge fiscal year ended january 31 2007 additional compensation expense 104 million recognized modification subsequent changes fair value awards fiscal year ended january 31 2010 2009 2008 increased decreased company’s liability compensation expense 02 million 39 million 36 million respectively cti made cash payments expired stock options 10 thousand 19 million 10 million fiscal years ended january 31 2010 2009 2008 respectively referred “july 2006 modification” liability awards primarily result aforementioned decision made restricted period settle cash expired cti options held current employees modification certain cti awards held employees terminated april 2006 modification could still exercise awards april 2006 modification awards accounted liability method accounting liability method cti measures award balance sheet date based estimated fair value compensation expense period thereafter based change fair value award january 31 2010 2009 2008 company liability related awards 14 million 07 million 69 million respectively related stockbased compensation expense fiscal years ended january 31 2010 2009 2008 includes expense credits 02 million 37 million 36 million respectively related cti’s liability awards restricted awards cti grants restricted stock dsu awards subject vesting provisions collectively “restricted awards” certain key employees fiscal years ended january 31 2010 2009 2008 cti granted restricted awards valued 78 million 168 million 143 million respectively based fair market value cti’s common stock date grant cti’s stockbased compensation associated restricted awards net credits forfeitures fiscal years ended january 31 2010 2009 2008 93 million 103 million 131 million respectively primarily included “selling general administrative” consolidated statements operations addition restricted awards cti granted dsu awards covering aggregate 246200 shares common stock vesting delivery conditioned upon achievement certain performance criteria “performance awards” fiscal year ended january 31 2010 performance awards valued 17 million based fair market value cti’s common stock date grant however cti later determined performance criteria unlikely achieved stockbased compensation expense recorded awards performance awards cancelled subsequently performance criteria achieved january 31 2010 12852093 stock options purchase cti’s common stock 1834457 restricted awards outstanding 6250365 shares available future grant cti’s stock incentive compensation plans following table summarizes exercisable options vested restricted awards january 31 2010 cti committed issue 660012 shares restricted award holders elected deferred delivery vested awards comverse technology inc subsidiaries notes consolidated financial statements continued following table presents combined activity cti stock incentive plans fiscal years ended january 31 2010 2009 2008 1 total fair value restricted awards vested fiscal years ended january 31 2010 2009 2008 88 million 82 million 126 million respectively 2 outstanding stock options january 31 2010 include 847500 nonvested stock options weightedaverage grant date fair value 234 expected term 399 years total fair value 20 million unrecognized compensation cost related remaining nonvested stock options 16 million expected recognized weighted average period 23 years 3 january 31 2010 unrecognized compensation expense related nonvested restricted awards 108 million expected recognized weightedaverage period 16 years 4 january 31 2010 options purchase aggregate 12004593 shares cti’s common stock vested exercisable plans 5 fair value options vested 23 million 93 million 208 million fiscal years ended january 31 2010 2009 2008 respectively 6 fiscal year ended january 31 2009 cti canceled 920146 stock options granted previous years replaced fiscal year address internal revenue code section 409a noncompliance associated previously backdated stock options vested remained unexercised december 31 2004 comverse technology inc subsidiaries notes consolidated financial statements continued following table summarizes information cti’s stock options january 31 2010 january 31 2010 aggregate intrinsic value 55 million 35 million outstanding exercisable stock options respectively fair value assumptions cti estimated fair value stock options date grant modification utilizing blackscholes option valuation model assumptions grants significant modifications detailed fair value assumptions july 2006 modification period july 2006 january 31 2010 follows fair value assumptions stock options granted fiscal year ended january 31 2010 weighted average grant date fair value 234 follows net grants fiscal years ended january 31 2009 2008 cti based riskfree interest rate implied yields us treasury zerocoupon issues equivalent remaining term time grant cti used implied volatility approach believes implied volatility better indicator expected volatility generally reflective historical volatility expectation future volatility differ historical volatility cti used options traded exchange estimate implied volatility stock subsequent february 1 2007 cti could determine implied volatility trading options ceased due delisting common stock nasdaq historical price stock volatility used proxy expected volatility sufficient volume trading traded options cti revert back using implied volatility expected term years represents period time awards granted expected outstanding based historical exercise patterns assumption dividend yield zero cti historically paid dividends expect foreseeable future comverse technology inc subsidiaries notes consolidated financial statements continued verint plans overview verint’s stock incentive plans verint consolidated subsidiary cti whose common stock publicly traded granted stock options restricted stock various stock incentive plans generally permit issuance awards deferred stock restricted stock awards “rsas” restricted stock units “rsus” incentive nonqualified stock options sars verint’s employees directors consultants awards granted plans generally subject multiyear vesting periods generally expire 10 years less date grant verint recognizes compensation expense awards straightline basis life vesting period reduced estimated forfeitures upon exercise stock options issuance restricted stock issuance shares plans verint issue authorized unissued common stock unless treasury shares available verint granted restricted stock units employees outside shareholder approved equity plans include certain performance conditions require verint sufficient available capacity one shareholder approved equity plans either currently existing adopted future vest january 31 2010 4731119 stock options purchase shares verint systems’ common stock outstanding 249304 shares available future grants verint’s stock incentive plans restricted period result verint’s inability current periodic reporting obligations federal securities laws verint ineligible use registration statements form s8 offer sale equity securities including stock options employees consequently verint prohibited exercise vested stock options since april 2006 verint modified grants held terminated employees extending time terminated employee would normally exercise vested stock option awards modification communicated employees time termination verint accounted additional time exercise afforded employees modifications original awards date employee termination resulting modification expense fiscal years ended january 31 2010 2009 2008 02 million 07 million 17 million respectively excess tax benefits recorded fiscal years ended january 31 2010 2009 2008 excess tax benefits represents reduction income taxes otherwise payable period attributable actual gross tax benefits excess expected tax benefits restricted awards verint grants restricted stock plans includes grants rsas rsus principal difference instruments rsus shares verint systems’ common stock rights privileges thereof including voting dividend rights applicable vesting date holder rsu becomes entitled share verint systems’ common stock rsas rsus subject certain restrictions forfeiture provisions prior vesting unrecognized compensation expense related unvested rsas rsus expected vest january 31 2010 approximately 103 million remaining weighted average vesting periods approximately 03 years 07 years respectively expense expected recognized total fair value restricted stock awards units vested fiscal years ended january 31 2010 2009 2008 35 million 29 million 67 million respectively comverse technology inc subsidiaries notes consolidated financial statements continued following table summarizes verint’s exercisable options vested restricted awards following table presents combined activity certain verint stock incentive plans fiscal years ended january 31 2010 2009 2008 1 total fair value restricted shares vested fiscal years ended january 31 2010 2009 2008 35 million 29 million 67 million respectively 2 others includes addition 8485 shares deduction 2542 shares verint systems’ common stock cancelled one verint’s stock incentive plans available grant comverse technology inc subsidiaries notes consolidated financial statements continued 3 outstanding stock options purchase verint systems’ common stock january 31 2010 include 232219 nonvested stock options weightedaverage grant date fair value 2175 expected term 262 years total fair value 51 million total unrecognized compensation cost related remaining nonvested options 31 million expected recognized weighted average period 084 years 4 january 31 2010 unrecognized compensation expense related nonvested rsas rsus 103 million expected recognized weightedaverage period 03 07 years respectively 5 january 31 2010 stock options purchase aggregate 4498900 shares verint systems’ common stock vested currently exercisable plans 6 total fair value vested stock options purchase verint systems’ common stock 696 million 683 million 527 million fiscal years ended january 31 2010 2009 2008 respectively 7 fiscal year ended january 31 2010 verint granted restricted stock units 1319600 shares weighted average grant date fair value 729 verint employees outside verint shareholder approved equity plans due capacity restraints existing approved plans awards included table approved equity plans following table summarizes information verint’s stock options january 31 2010 january 31 2010 aggregate intrinsic value 47 million outstanding exercisable stock options fair value assumptions connection verint’s acquisition witness may 25 2007 stock options purchase witness common stock converted stock options purchase approximately 31 million shares verint systems’ common stock verint estimated weighted average fair value stock options 1502 date acquisition utilizing blackscholes option valuation model following assumptions expected volatility 4050 riskfree interest rate 488 expected life 262 years expected dividend yield 0 verint bases riskfree interest rate implied yields us treasury zerocoupon issues equivalent remaining term time grant expected life years represents period time awards granted expected outstanding based historical exercise patterns assumption dividend yield zero verint historically paid dividends expect foreseeable future verint phantom stock units fiscal year ended january 31 2007 verint began issuing phantom stock units nonofficer employees settle expected settle cash payments upon vesting pursuant terms form phantom stock award agreement approved verint board directors phantom stock units provide payment cash bonus equivalent value verint common stock vesting date award phantom stock units generally multiyear vesting generally subject performance vesting conditions verint equity awards granted verint recognizes compensation expense phantom stock units straightline basis reduced estimated forfeitures phantom stock units accounted liabilities value tracks verint’s stock price subject market volatility total accrued liability verint phantom stock units 145 million 40 million january 31 2010 2009 respectively total cash payments made upon vesting verint phantom stock units 25 million 03 million 02 million fiscal years ended january 31 2010 2009 2008 respectively following table summarizes verint phantom stock unit activity fiscal years ended january 31 2010 2009 2008 phantom stock units granted fiscal years ended january 31 2010 2009 2008 primarily vest threeyear periods subject applicable performance conditions unrecognized compensation expense related 11 million unvested phantom stock units expected vest january 31 2010 approximately 50 million based verint’s stock price 1830 january 31 2010 remaining weightedaverage vesting period approximately 073 years expense expected recognized comverse technology inc subsidiaries notes consolidated financial statements continued 19 loss per share attributable comverse technology inc’s shareholders purposes computing basic loss per share attributable comverse technology inc’s shareholders nonvested shares restricted stock issued company vest solely basis service condition excluded weighted average number shares common shares outstanding restricted stock allow holders receive dividends participate undistributed earnings incremental potential common shares stock options nonvested restricted stock dsus included computation diluted loss per share attributable comverse technology inc’s shareholders except effect would antidilutive calculation loss per share attributable comverse technology inc’s shareholders fiscal years ended january 31 2010 2009 2008 follows result company’s net loss attributable comverse technology inc fiscal years ended january 31 2010 2009 2008 diluted loss per share attributable comverse technology inc’s shareholders computation excludes 07 million 11 million 53 million contingently issuable shares respectively effect would antidilutive fasb’s guidance requires contingently convertible instruments included diluted earnings per share attributable comverse technology inc’s shareholders dilutive regardless whether market price trigger met convertible debt obligations meet definition contingently convertible instrument convertible debt obligations antidilutive fiscal years ended january 31 2010 2009 2008 comverse technology inc subsidiaries notes consolidated financial statements continued 20 expense net expense net fiscal years ended january 31 2010 2009 2008 comprised following 21 income taxes components united states foreign loss continuing operations income taxes follows provision benefit income taxes consists following comverse technology inc subsidiaries notes consolidated financial statements continued reconciliation us federal statutory income tax rate effective tax rate loss income tax provision equity losses earnings consolidated affiliate follows significant differences impact effective tax rate relate changes valuation allowance tax contingencies dividend received deduction difference us federal statutory rate rates foreign jurisdictions us tax effect foreign earnings remeasurement certain foreign assets addition significant changes include investments affiliates certain nondeductible executive compensation expenses comverse technology inc subsidiaries notes consolidated financial statements continued deferred income taxes provided effects temporary differences amounts assets liabilities recognized financial reporting purposes amounts recognized income tax purposes significant components company’s deferred tax assets deferred tax liabilities follows company’s operations israel granted “approved enterprise” status investment center israeli ministry industry trade labor makes company eligible tax benefits israeli law encouragement capital investments 1959 terms program income attributable approved enterprise exempt income tax period two years subject reduced income tax rate subsequent five fifteen years generally 1015 depending percentage foreign investment company us income foreign withholding taxes recorded permanently reinvested earnings certain subsidiaries aggregating 2015 million 2706 million 3161 million january 31 2010 2009 2008 respectively time determination amounts deferred us federal state income taxes foreign withholding taxes related foreign subsidiaries practicable january 31 2010 1836 million earnings certain subsidiaries considered permanently reinvested therefore related deferred us income taxes foreign withholding taxes provided portion earnings subsidiaries following countries considered permanently reinvested israel brazil hong kong new zealand mexico portugal netherlands united kingdom company net operating loss carryforwards tax purposes “nols” deferred tax benefits available offset future taxable income comverse technology inc subsidiaries notes consolidated financial statements continued company’s gross nols tax return purposes follows us federal net operating loss carry forwards expire various years ending january 31 2016 january 31 2030 us state net operating loss carry forwards expire various years ending january 31 2011 january 31 2030 january 31 2010 512 million foreign nols indefinite carryforward periods certain federal state foreign loss carryforwards credits subject internal revenue code section 382 similar provisions impose limitations utilization following certain changes ownership entity generating loss carryforward table reflects gross nols tax return purposes different nols financial statement purposes primarily due reduction nols financial statement purposes fasb’s guidance accounting uncertainty income taxes company us federal state foreign tax credit carryforwards approximately 378 million 161 million 147 million january 31 2010 2009 2008 respectively utilization carryforwards subject limitations federal amt credit expiration date foreign tax credit carryforwards expire various years ending january 31 2011 2030 february 1 2007 company adopted fasb’s guidance relating accounting uncertainty income taxes company recognized 744 million net 14 million effect noncontrolling interest increase noncurrent tax liabilities decrease deferred tax assets unrecognized tax benefits recorded corresponding charge retained earnings addition company recognized 1190 million net 07 million effect noncontrolling interest increase noncurrent tax liabilities reductions deferred tax assets unrecognized tax benefits recorded corresponding charge additional paidin capital following table reconciles amounts recorded unrecognized tax benefits fiscal years ended january 31 2010 2009 balances unrecognized tax benefits january 31 2010 2009 3715 million 3683 million 326 million 317 million represent amounts recognized may impact effective income tax rate future periods company recognized interest penalties related unrecognized tax benefits income tax provision company accrued 464 million 407 million interest penalties january 31 2010 2009 respectively company estimates reasonably possible balance unrecognized tax benefits january 31 2010 may decrease approximately 45 million next twelve months result lapse statutes limitation settlements tax authorities unrecognized tax benefits relate transfer pricing events related majorityowned subsidiaries tax positions amounts 09 million 24 million 12 million respectively comverse technology inc subsidiaries notes consolidated financial statements continued significant tax jurisdictions company currently examination tax authorities include israel india france brazil united kingdom united states new york state new york city california texas company currently discussions israeli tax authorities regarding tax adjustments fiscal years ended january 31 2004 january 31 2010 company anticipates reasonably possible new tax matters could raised tax authorities may require increases decreases balance unrecognized tax benefits however estimate increases decreases cannot made company files income tax returns us federal various state local foreign tax jurisdictions january 31 2010 company subject income tax examination major jurisdictions company regularly assesses adequacy provisions income tax contingencies accordance fasb’s guidance result company may adjust reserves unrecognized tax benefits impact new facts developments changes interpretations relevant tax law assessments taxing authorities settlements taxing authorities lapses statutes limitations company maintains valuation allowances morelikelythannot portion deferred tax asset may realized changes valuation allowances included company’s tax provision period change unless valuation allowances established purchase accounting business combination items related additional paidin capital determining whether valuation allowance warranted company evaluates factors prior earnings history expected future earnings reversal existing taxable temporary differences carryback carryforward periods tax strategies could potentially enhance likelihood realization deferred tax asset company’s activity valuation allowance follows 22 business segment information cti four reportable segments comverse verint ulticom segment comprised starhome bv subsidiaries provider wireless service mobility solutions enhance international roaming miscellaneous operations cti’s holding company operations december 3 2010 ulticom sold third party see note 26 subsequent events company evaluates business assessing performance segments cti’s chief executive officer chief operating decision maker chief operating decision maker uses segment performance defined primary basis comverse technology inc subsidiaries notes consolidated financial statements continued assessing financial results segments allocation resources segment performance company defines accordance fasb’s guidance relating segment reporting necessarily comparable similarly titled captions companies segment performance defined management represents operating results segment without impact significant expenditures incurred segment connection efforts become current periodic reporting obligations federal securities laws certain noncash charges certain insignificant charges segment performance segment performance computed management loss income operations adjusted following stockbased compensation expense ii amortization acquisitionrelated intangibles iii compliancerelated professional fees iv compliancerelated compensation expenses v impairment charges vi litigation settlements related costs vii acquisitionrelated charges viii restructuring integration charges ix certain insignificant charges compliancerelated professional fees compliancerelated compensation expenses relate fees expenses incurred connection company’s efforts complete current previously issued financial statements audits financial statements b company’s efforts become current periodic reporting obligations federal securities laws evaluating segment’s performance management uses segment revenue consists revenue generated segment including intercompany revenue certain segment performance adjustments relate expenses included calculation loss income operations time certain segment performance adjustments may presented adjustments revenue calculating comverse’s segment performance fiscal years ended january 31 2010 2009 2008 presentation segment revenue gives effect segment revenue adjustment reflecting elimination negative impact revenue attributable patent litigation settlement addition calculating verint’s segment performance fiscal years ended january 31 2009 2008 presentation segment revenue gives effect segment revenue adjustments related acquisitions represent 1 impact fair value adjustments required us gaap relating acquired customer support contracts would otherwise recognized revenue standalone basis 2 certain sales concession adjustments relating accounts receivable balances existed prior acquisition date case respect acquisition witness may 2007 verint segment revenue adjustment fiscal year ended january 31 2010 comverse technology inc subsidiaries notes consolidated financial statements continued tables present information total revenue total costs expenses loss income operations interest expense depreciation amortization significant noncash items total assets segment performance fiscal years ended january 31 2010 2009 2008 comverse technology inc subsidiaries notes consolidated financial statements continued comverse technology inc subsidiaries notes consolidated financial statements continued 1 significant noncash items consist primarily writeoffs impairments goodwill intangible assets property equipment 2 fiscal years ended january 31 2010 2009 2008 total assets “all other” includes 2930 million series convertible perpetual preferred stock issued verint systems held cti see note 23 related party transactions comverse technology inc subsidiaries notes consolidated financial statements continued revenue major geographical region based upon geographic location customers purchase company’s products services geographical locations distributors resellers systems integrators purchase products utilize company’s services may different geographical locations end customers revenue geographic region revenue geographic region percentage total revenue fiscal years ended january 31 2010 2009 2008 follows 1 foreign consists numerous countries none represents 5 total revenue fiscal year revenue similar type product line solution fiscal years ended january 31 2010 2009 2008 follows 1 consists product lines solutions individually less 5 total revenue fiscal year presented longlived assets primarily consist property equipment net capitalized software development costs net deferred costs revenue company believes property equipment net exposed geographic area risks uncertainties longlived assets tangible assets difficult move relatively illiquid comverse technology inc subsidiaries notes consolidated financial statements continued property equipment net country domicile consists following january 31 2010 2009 23 related party transactions ulticom’s special cash dividend stock option modification april 2009 ulticom inc paid special cash dividend 1996 million shareholders including cti ulticom inc’s minority shareholders paid 643 million additional 02 million payable holders deferred stock units awarded ulticom inc’s equity incentive plan upon issuance common stock subject awards january 31 2010 01 million remained payable holders deferred stock units effective april 21 2009 exercise prices outstanding options purchase 2982104 shares ulticom inc’s common stock reduced connection payment special cash dividend 458 per share reductions option exercise prices result change ulticom’s sharebased payment expense future fiscal periods verint’s joint venture cash dividend fiscal year ended january 31 2010 41 million dividends paid noncontrolling shareholders verint’s joint venture 21 million accrued january 31 2009 dividends accrued january 31 2010 sonus networks inc dr nottenburg member cti’s board directors compensation leadership committee served president chief executive officer sonus networks inc telecommunications company june 13 2008 october 12 2010 sonus networks inc customer comverse verint ulticom company wellestablished ongoing business relationship sonus networks inc prior appointment dr nottenburg cti’s board directors fiscal year ended january 31 2010 revenue derived comverse ulticom sonus networks inc 03 million 78 million respectively january 31 2010 comverse ulticom accounts receivable sonus networks inc 03 million 04 million respectively fiscal year ended january 31 2009 revenue derived comverse verint ulticom sonus networks inc 05 million 04 million 68 million respectively january 31 2009 comverse ulticom accounts receivable sonus networks inc 04 million verint derived revenue sonus networks inc fiscal year ended january 31 2010 accounts receivable therefrom january 31 2010 2009 verint’s series convertible perpetual preferred stock may 25 2007 connection verint’s acquisition witness cti entered securities purchase agreement verint “securities purchase agreement” whereby cti purchased cash aggregate 293000 shares verint’s series convertible perpetual preferred stock “preferred stock” aggregate purchase price 2930 million represents verint’s outstanding preferred stock proceeds issuance preferred stock used partially finance acquisition preferred stock eliminated consolidation comverse technology inc subsidiaries notes consolidated financial statements continued preferred stock issued purchase price 1000 per share ranks senior verint’s common stock preferred stock initial liquidation preference equal 1000 per share purchase price event voluntary involuntary liquidation dissolution windingup verint cti entitled receive assets available distribution verint’s stockholders distribution assets holders verint’s common stock amount equal thencurrent liquidation preference includes accrued unpaid dividends january 31 2010 liquidation preference preferred stock 3259 million terms preferred stock provide upon fundamental change defined cti would right require verint repurchase preferred stock 100 liquidation preference effect fundamental change events include sale substantially verint’s assets certain changes beneficial ownership board directors’ representation business reorganizations event fundamental change conversion rate described section entitled voting conversion increased provide additional shares common stock issuable cti based sliding scale depending acquisition price defined ranging none 37 additional shares common stock every share preferred stock converted shares common stock cti holder preferred stock various rights preferences follows dividends cash dividends preferred stock cumulative calculated quarterly specified dividend rate liquidation preference effect time dividends paid declared verint’s board directors initially specified annual dividend rate 425 per share quarter ended january 31 2008 variable interest rate verint’s term loan decreased 50 basis points initial interest rate accordingly dividend rate preferred stock reset 3875 effective february 1 2008 rate subject future change event verint unable obtain approval issuance common shares underlying preferred stock’s conversion feature october 5 2010 verint systems’ stockholders approved issuance verint systems’ common stock underlying preferred stock accordingly dividend rate longer subject change see note 26 subsequent events verint prohibited paying cash dividends preferred stock terms credit facility verint may elect make dividend payments shares common stock common stock used dividends declared would valued 95 volume weightedaverage price verint’s common stock five consecutive trading days ending second trading day immediately prior record date dividend january 31 2010 dividends declared paid preferred stock date cumulative undeclared dividends preferred stock 329 million voting conversion preferred stock voting conversion rights underlying shares common stock approved issuance vote holders majority verint’s common stock october 5 2010 verint systems stockholders approved issuance verint systems’ common stock underlying preferred stock see note 26 subsequent events following receipt stockholder approval share preferred stock became entitled number votes equal number shares common stock preferred stock would convertible conversion rate defined effect date preferred stock issued cti addition following receipt stockholder approval issuance underlying common shares share preferred stock became convertible option cti number shares verint’s common stock equal liquidation preference effect divided conversion price effect initially set 3266 conversion price subject periodic adjustment upon occurrence certain dilutive events convertible january 31 2010 preferred stock could converted approximately 100 million shares verint’s common stock time may 25 2009 following receipt stockholder approval issuance underlying shares common stock verint right cause preferred stock whole part automatically converted common stock conversion price effect however verint may exercise right closing sale price common stock immediately prior conversion equals exceeds conversion price effect 150 conversion may 25 2009 prior may 25 2010 b 140 conversion may 25 2010 prior may 25 2011 c 135 conversion may 25 2011 comverse technology inc subsidiaries notes consolidated financial statements continued transfer registration rights cti right sell preferred stock since november 25 2007 either private public transactions pursuant registration rights agreement verint entered concurrently securities purchase agreement “new registration rights agreement” commencing 180 days verint regains compliance periodic reporting obligations federal securities laws provided underlying shares verint’s common stock approved issuance common stockholders cti entitled two demands require verint register shares common stock underlying preferred stock resale securities act 1933 amended “securities act” new registration rights agreement also provides cti unlimited piggyback registration rights certain securities act registrations filed verint behalf verint stockholders cti’s rights new registration rights agreement addition rights previous registration rights agreement cti entered verint shortly verint’s initial public offering 2002 registration rights agreement “original registration rights agreement” covers shares common stock held cti additional shares common stock acquired cti later date original registration rights agreement cti entitled unlimited demand registrations shares registration statement form s3 long verint eligible use registration statement form s3 cti also entitled one demand registration statement form s1 effective july 15 2010 cti made demand pursuant original registration rights agreement 28 million shares verint systems’ common stock registered registration statement form s1 january 14 2011 completed sale 23 million shares verint systems’ common stock secondary public offering see note 26 subsequent events addition similar new registration rights agreement original registration rights agreement also provides cti unlimited piggyback registration rights 24 commitments contingencies guarantees company provides certain customers ordinary course business financial performance guarantees certain cases backed standby letters credit surety bonds majority cash collateralized accounted restricted cash bank time deposits company liable amounts guarantees event nonperformance would permit customer exercise guarantee january 31 2010 2009 company believes compliance performance obligations contracts financial performance guarantee liabilities arising connection guarantees material adverse effect company’s consolidated results operations financial position cash flows company also obtained bank guarantees primarily provide customer assurance relating performance certain obligations required customer agreements guarantee certain payment obligations guarantees aggregated 350 million january 31 2010 generally scheduled released upon company’s performance specified contract milestones majority scheduled completed various dates january 31 2012 unconditional purchase obligations ordinary course business company enters certain unconditional purchase obligations agreements purchase goods services enforceable legally binding specify significant terms including fixed minimum quantities purchased fixed minimum variable price provisions approximate timing transaction purchase obligations exclude aggregate amounts cancelable without penalty company unconditional purchase obligations approximately 500 million january 31 2010 obligations 474 million due next twelve months 27 million due one three years comverse ltd liens december 2009 part operations comverse ltd agreed placement floating liens assets support potential future borrowings banking services provided two israeli banks january 31 2009 comverse ltd borrowings supported liens however liens remained full force effect liens included provisions prohibited comverse ltd selling transferring assets ordinary course business effect restricting comverse ltd’s ability pay dividends extend loans shareholders without obtaining banks’ prior written approval december 2009 liens assets comverse ltd released litigation overview except disclosed company believe currently party claims assessments pending legal action could reasonably expected material adverse effect business financial condition results operations comverse technology inc subsidiaries notes consolidated financial statements continued proceedings related cti’s special committee investigations overview march 14 2006 cti announced creation special committee board directors composed outside directors review cti’s historic stock option grant practices related accounting matters including limited accuracy stated dates option grants whether proper corporate procedures followed november 2006 special committee’s investigation expanded financial accounting matters including recognition revenue related certain contracts errors recording certain deferred tax accounts misclassification certain expenses misuse accounting reserves misstatement backlog special committee issued report january 28 2008 following commencement special committee’s investigation cti certain subsidiaries cti’s former directors officers current director named defendants several class derivative actions cti commenced direct actions certain former officers directors petition remission civil forfeiture july 2006 us attorney filed forfeiture action certain accounts jacob “kobi” alexander cti’s former chairman chief executive officer resulted united states district court eastern district entering order freezing approximately 500 million mr alexander’s assets order ensure cti receives assets mr alexander’s frozen accounts july 2007 cti filed us attorney petition remission civil forfeiture requesting remission funds forfeited mr alexander united states district court entered order november 30 2010 directing assets accounts liquidated remitted cti process liquidating assets currently ongoing proceeds assets accounts ultimately transferred class action settlement fund conjunction settlements direct actions defined consolidated shareholder class action shareholder derivative actions agreement settle shareholder class action approved court action pending june 23 2010 agreement settle federal state derivative actions approved courts actions pending july 1 2010 september 23 2010 respectively see note 26 subsequent events direct actions based special committee’s findings cti commenced litigations three former executive officers result misconduct relating historical stock option grants january 16 2008 cti commenced action mr alexander former chairman chief executive officer william f sorin former senior general counsel director supreme court state new york captioned comverse technology inc v alexander et al 08600142 january 17 2008 cti commenced action david kreinberg former executive vice president chief financial officer superior court new jersey captioned comverse technology inc v kreinberg nj super ct action discontinued january 8 2009 separate action commenced mr kreinberg supreme court state new york captioned comverse technology inc v kreinberg 09600052 actions captioned comverse technology inc v alexander et al comverse technology inc v kreinberg referred collectively “direct actions” direct actions asserted claims fraud breach fiduciary duty unjust enrichment connection defendants’ conduct related historical stock option grants part agreement settle federal state derivative actions approved courts actions pending july 1 2010 september 23 2010 respectively cti agreed dismiss direct actions see note 26 subsequent events shareholder derivative actions beginning april 11 2006 several purported shareholder derivative lawsuits filed new york supreme court new york county united states district court eastern district new york defendants actions included certain cti’s former directors officers current director state court action cti’s independent registered public accounting firm cti named nominal defendant consolidated complaints state federal actions alleged defendants breached certain duties cti certain former officers directors unjustly enriched federal action violated federal securities laws specifically sections 10b 14a exchange act rules 10b5 14a9 promulgated thereunder among things allowing participating alleged scheme backdate grant dates employee stock options provide improper benefits recipients ii allowing insiders including certain defendants profit trading cti’s stock allegedly possession material inside information iii failing oversee properly implement procedures detect prevent alleged improper practices iv causing cti issue allegedly materially false misleading proxy statements file allegedly false misleading documents sec v exposing cti civil liability complaints sought unspecified damages various forms equitable relief comverse technology inc subsidiaries notes consolidated financial statements continued state court derivative actions consolidated one action captioned comverse technology inc derivative litigation 6012722006 august 7 2007 new york supreme court dismissed consolidated state court derivative action granting cti’s motion dismiss decision successfully appealed plaintiffs appellate division new york state supreme court decision issued october 7 2008 reinstated action federal court derivative actions consolidated one action captioned comverse technology inc derivative litigation 06cv1849 cti filed motion stay action deference state court proceeding motion denied court october 16 2007 cti filed motion dismiss federal court action based plaintiffs’ failure make demand board state court’s ruling demand required date various individual defendants also filed motions dismiss complaint april 22 2008 court ordered dismissal motions would held abeyance pending resolution appeal new york state supreme court’s decision state court derivative action december 17 2009 parties shareholder derivative actions entered agreement settle actions settlement approved courts federal state derivative actions pending july 1 2010 september 23 2010 respectively see note 26 subsequent events company recorded charge 94 million pay legal fees expenses plaintiffs part settlement fiscal year ended january 31 2007 see settlement agreements note 26 subsequent events shareholder class action beginning april 19 2006 class action lawsuits filed persons identifying cti shareholders purportedly behalf class cti’s shareholders purchased publicly traded securities two actions filed united states district court eastern district new york three actions filed united states district court southern district new york august 28 2006 actions pending united states district court southern district new york transferred united states district eastern district new york consolidated amended complaint caption comverse technology inc sec litig 06cv 1825 filed courtappointed lead plaintiff menorah group march 23 2007 consolidated amended complaint brought behalf purported class cti shareholders purchased cti’s publicly traded securities april 30 2001 november 14 2006 complaint named cti certain former officers directors defendants alleged among things violations sections 10b 14a exchange act rule 10b5 promulgated thereunder section 20a exchange act connection prior statements made cti respect among things accounting treatment stock options action sought compensatory damages unspecified amount parties action entered settlement agreement december 16 2009 amended june 19 2010 approved court action pending june 23 2010 see note 26 subsequent events company recorded charge 1650 million associated settlement fiscal year ended january 31 2007 see settlement agreements note 26 subsequent events settlement agreements december 16 2009 december 17 2009 cti entered agreements settle consolidated shareholder class action consolidated shareholder derivative actions described respectively agreement settle consolidated shareholder class action amended june 19 2010 pursuant amendment cti agreed waive certain rights terminate settlement exchange deferral timing scheduled payments settlement consideration right credit “optout credit” respect portion settlement funds would payable class member elected participate bound settlement connection settlements cti agreed dismiss direct actions messrs alexander kreinberg sorin turn agreed dismiss counterclaims filed cti part settlement consolidated shareholder class action amended cti agreed make payments class action settlement fund aggregate amount 1650 million paid remain payable follows • 10 million paid following signing settlement agreement december 2009 • 179 million paid july 2010 representing agreed 215 million payment less holdback 36 million respect anticipated optout credit holdback required paid cti optout credit less • 300 million payable may 15 2011 comverse technology inc subsidiaries notes consolidated financial statements continued • 1125 million less amount optout credit exceeds holdback described payable november 15 2011 300 million due may 15 2011 825 million 1125 million due november 15 2011 payable cash cti’s election shares cti’s common stock valued using ten day average closing prices cti’s common stock prior election provided cti becomes current periodic reporting obligations federal securities laws common stock listed national securities exchange fifteenth trading day preceding applicable payment date shares delivered one time aggregate value least 275 million cti expects pay 300 million payment due may 15 2011 cash cti receives net cash proceeds sale certain ars held aggregate amount excess 500 million cti required use 500 million proceeds prepay settlement amounts referred cti receives net cash proceeds sale securities aggregate amount excess 1000 million cti required use additional 500 million proceeds prepay settlement amounts referred october 31 2010 january 31 2010 cti 313 million 171 million restricted cash received sales redemptions ars provisions settlement agreement apply respectively amendment consolidated shareholder class action settlement agreement primarily impacted payment schedule agreement part settlement consolidated shareholder class action prior amendment cti agreed make payments class action settlement fund aggregate amount 1650 million follows • 10 million paid following signing settlement agreement december 2009 • 515 million payable august 15 2010 • 300 million payable february 15 2011 • 825 million payable august 15 2011 terms settlement agreement prior amendment scheduled payments 300 million due february 15 2011 825 million due august 15 2011 payable cash cti’s election shares cti’s common stock valued using ten day average closing prices cti’s common stock prior election provided cti becomes current periodic reporting obligations federal securities laws common stock listed national securities exchange fifteenth trading day preceding applicable payment date shares delivered one time aggregate value least 275 million noted prior amendment terms settlement agreement consolidated shareholder class action scheduled payment 515 million due august 15 2010 accordingly january 31 2010 recorded within “other current liabilities” consolidated balance sheet addition terms settlement agreement prior amendment cti agreed exercise ubs put june 30 2010 ii within 48 hours receipt payment pay plaintiff class proceeds received sales ars held account ubs including result exercise ubs put payment would reduce amount 515 million payable august 15 2010 provisions restricted cti’s ability use proceeds sales ars purpose payment amount due settlement agreement addition cti agreed grant security interest benefit plaintiff class account cti holds ars held account ubs proceeds sales thereof restricting cti’s ability use proceeds sales ars amounts payable settlement agreement paid full january 31 2010 company 261 million cash proceeds received sales redemptions ars including 90 million received sales ars held ubs restricted terms consolidated shareholder class action settlement agreement 90 million classified “restricted cash bank time deposits” 171 million including interest classified within “other assets” longterm restricted cash addition part settlement shareholder derivative actions cti agreed pay 94 million cover legal fees expenses plaintiffs upon settlements becoming final without appeal company expected conditions satisfied fiscal year ending january 31 2011 accordingly january 31 2010 payment recorded within “other current liabilities” consolidated balance sheets addition part settlements direct actions consolidated shareholder class action shareholder derivative actions mr alexander agreed pay 600 million cti deposited derivative settlement fund transferred class action settlement fund amounts payable mr alexander date paid balance paid upon transfer assets mr alexander’s frozen accounts value class action settlement fund also part settlement shareholder derivative actions mr alexander transferred cti shares starhome bv representing 25 outstanding share capital comverse technology inc subsidiaries notes consolidated financial statements continued pursuant amendment mr alexander agreed waive certain rights terminate settlement received right credit respect portion settlement funds would payable class member elected participate bound settlement cti’s settlement claims class action aggregate consideration 1650 million less optout credit contingent upon mr alexander satisfying payment obligations certain defendants direct actions shareholder derivative actions paid agreed pay cti aggregate 14 million certain former directors agreed relinquish certain outstanding unexercised stock options part settlement shareholder derivative actions cti paid october 21 2010 94 million cover legal fees expenses plaintiffs september 2010 cti received insurance proceeds 165 million directors’ officers’ insurance policies connection settlements shareholder derivative actions consolidated shareholder class action terms settlements mr alexander wife relinquished claims assets mr alexander’s frozen accounts subject forfeiture action united states district court entered order november 30 2010 directing assets accounts liquidated remitted cti process liquidating assets currently ongoing value assets december 31 2009 credited mr alexander’s payment obligation referred agreement settle consolidated shareholder class action amended approved court action pending june 23 2010 agreement settle federal state derivative actions approved courts actions pending july 1 2010 september 23 2010 respectively september 2010 class member elected participate bound settlement shareholder class action filed action cti current chief executive officer certain former officers defendants cti intends vigorously defend action see note 26 subsequent events information regarding action disgorgement derivative action june 1 2007 mark levy filed purported shareholder derivative action cti’s behalf entitled levy v koren john 120 07cv0896 former officer one cti’s subsidiaries based israel twenty unidentified “john doe” defendants action filed united states district court southern district new york alleged violations section 16b exchange act specifically complaint alleged defendant purchased sold cti equity securities within sixmonth period exercising stock options awarded cti selling stock 40 million profit complaint sought disgorgement gains realized purchases sales complaint set forth specific damage amount sought plaintiff cti named solely nominal defendant action discovery action completed defendants moved summary judgment january 15 2008 march 25 2010 parties entered stipulation settlement pursuant defendant paid 150000 cti ii defendant relinquished rights outstanding stock options purchase 92500 shares cti’s common stock iii cti paid plaintiff’s counsel’s attorneys’ fees costs 250000 settlement provides release claims section 16b exchange act might asserted action approved court action pending june 24 2010 israeli optionholder class actions cti certain subsidiaries named defendants four potential class action litigations state israel involving claims recover damages incurred result purported negligence breach contract allegedly prevented certain current former employees exercising certain stock options company intends vigorously defend actions two cases filed tel aviv district court cti march 26 2009 plaintiffs katriel former comverse ltd employee deutsch former verint systems ltd employee katriel case number 133409 deutsch case number 133509 seek approve class actions recover damages claimed incurred result cti’s negligence reporting filing financial statements allegedly prevented exercise certain stock options certain employees former employees stipulation parties september 30 2009 court ordered cases including claims cti israel motion approve class action stayed resolution actions pending united states regarding stock option accounting without prejudice parties’ ability investigate assert unique facts claims defenses cases date stay yet lifted comverse technology inc subsidiaries notes consolidated financial statements continued two cases also filed tel aviv labor court plaintiffs katriel deutsch seek approve class actions recover damages claimed incurred result breached employment contracts allegedly prevented exercise certain cti stock options certain employees former employees katriel litigation case number 344409 filed march 16 2009 comverse ltd deutsch litigation case number 418609 filed march 26 2009 verint systems ltd tel aviv labor court ruled lacks jurisdiction cases transferred tel aviv district court katriel case consolidated katriel case filed tel aviv district court case number 133409 subject stay discussed deutsch case scheduled preliminary hearing tel aviv district court october 2011 sec civil actions promptly following discovery errors improprieties related cti’s historic stock option grant practices creation special committee cti special committee representatives met informed staff sec underlying facts initiation special committee investigation march april 2008 cti verint systems ulticom inc received “wells notice” staff sec arising sec’s respective investigations respective historical stock option grant practices certain unrelated accounting matters wells notices provided notification staff sec intended recommend sec bring civil actions cti verint systems ulticom inc alleging violations certain provisions federal securities laws june 18 2009 settlement cti sec respect matters announced date sec filed civil action cti united states district court eastern district new york alleging violations certain provisions federal securities laws regarding cti’s improper backdating stock options accounting practices including improper establishment maintenance release reserves reclassification certain expenses improper calculation backlog sales orders simultaneous filing complaint without admitting denying allegations therein cti consented issuance final judgment “final judgment” approved united states district court eastern district new york june 25 2009 pursuant final judgment cti permanently restrained enjoined future violations federal securities laws addressed complaint ordered become current periodic reporting obligations section 13a exchange act later february 8 2010 monetary penalties assessed cti conjunction settlement matters result actions principally taken senior executives cti terminated 2006 cti however unable file requisite periodic reports february 8 2010 result cti’s inability become current periodic reporting obligations federal securities laws accordance final judgment court order february 8 2010 cti received additional “wells notice” staff sec february 4 2010 wells notice provided notification staff sec intended recommend sec institute administrative proceeding determine whether pursuant section 12j exchange act sec suspend revoke registration class cti’s securities registered section 12 exchange act process established sec recipients “wells notice” opportunity make wells submission staff sec makes formal recommendation sec regarding action brought sec february 25 2010 cti submitted wells submission sec response wells notice march 23 2010 sec issued order instituting administrative proceedings “oip” pursuant section 12j exchange act suspend revoke registration cti’s common stock prior filing annual report form 10k fiscal years ended january 31 2009 2008 2007 2006 october 4 2010 cti filed annual report form 10k since april 20 2005 quarterly report form 10q since december 12 2005 july 22 2010 administrative law judge issued initial decision revoke registration cti’s common stock initial decision become effective sec issues final order would indicate date sanctions would take effect august 17 2010 sec issued order granting petition cti review administrative law judge’s initial decision revoke registration cti’s common stock setting forth briefing schedule final brief filed november 1 2010 matter including motion cti oral arguments pending sec issues final order either party may appeal order federal court appeals although sec granted review administrative law judge’s initial decision revoke registration cti’s common stock cti cannot time predict outcome review appeal therefrom registration cti’s common stock ultimately revoked cti intends complete necessary financial statements file appropriate registration statement sec seek declared effective order resume registration common stock exchange act soon practicable june 18 2009 settlement ulticom inc sec announced date sec filed civil action ulticom inc united states district court eastern district new york alleging violations certain provisions federal securities laws regarding ulticom inc’s historical option grant nonoption grant accounting practices simultaneous filing complaint without admitting denying allegations therein ulticom inc consented issuance final comverse technology inc subsidiaries notes consolidated financial statements continued judgment “ulticom final judgment” approved united states district court eastern district new york july 22 2009 pursuant ulticom final judgment ulticom inc permanently restrained enjoined future violations federal securities laws addressed complaint ordered become current periodic reporting requirements exchange act later november 9 2009 monetary penalties assessed ulticom inc conjunction settlement october 30 2009 ulticom inc filed last periodic reports required filed within preceding 12 months april 9 2008 verint systems received “wells notice” staff sec arising staff’s investigation verint systems’ past stock option grant practices certain unrelated accounting matters accounting matters also subject verint’s internal investigation march 3 2010 settlement verint systems sec respect matters announced date sec filed civil action verint systems united states district court eastern district new york alleging violations certain provisions federal securities laws relating certain verint’s accounting reserve practices simultaneous filing complaint without admitting denying allegations therein verint systems consented issuance final judgment approved united states district court eastern district new york march 9 2010 pursuant final judgment verint systems permanently restrained enjoined violating section 17a securities act sections 13a 13b2a 13b2b exchange act rules 13a1 13a13 thereunder monetary penalties assessed verint systems conjunction settlement result previous failure current periodic reporting obligations federal securities laws verint systems received additional “wells notice” staff sec december 23 2009 march 3 2010 sec issued oip pursuant section 12j exchange act suspend revoke registration verint systems’ common stock previous failure file certain annual quarterly reports may 28 2010 verint systems entered agreement principle sec’s division enforcement regarding terms settlement section 12j administrative proceeding agreement subject approval sec june 18 2010 verint systems satisfied requirements agreement subsequently submitted offer settlement sec july 28 2010 sec issued order accepting verint systems’ offer settlement dismissing section 12j administrative proceeding description investigation sec stock option grant practices witness acquired verint may 2007 see “witness investigationrelated matters” investigation alleged unlawful payments march 16 2009 cti disclosed audit committee board directors conducting internal investigation alleged improper payments made 2001 2007 certain comverse employees external sales agents foreign jurisdictions connection sale certain products alleged payments would made contravention stated policies certain payments may violation foreign corrupt practices act “fcpa” laws united states countries audit committee found conduct issue involve cti’s current executive officers audit committee also reviewed comverse’s existing prior arrangements agents audit committee commenced investigation cti voluntarily disclosed sec doj facts advised audit committee initiated internal investigation audit committee would provide results investigation agencies april 27 2009 sec advised cti investigating matter issued subpoena cti connection investigation audit committee provided information cooperating fully sec doj respect findings internal investigation alleged improper payments existing prior arrangements agents company recorded charges 29 million associated matter fiscal year ended january 31 2009 witness investigationrelated matters time verint’s may 25 2007 acquisition witness subject number proceedings relating stock options backdating internal investigation undertaken publiclydisclosed witness prior acquisition following summary proceedings developments since date acquisition august 29 2006 edward miller filed shareholder derivative lawsuit united states district court northern district georgia atlanta division naming witness nominal defendant naming witness’ directors number officers defendants miller v gould et al civil action 106cv2039 nd ga complaint alleged purported violations federal state law violations certain antifraud provisions federal securities laws including sections 10b 14a exchange act rules 10b5 14a9 thereunder connection certain stock option grants made witness comverse technology inc subsidiaries notes consolidated financial statements continued complaint sought monetary damages unspecified amounts disgorgement profits accounting rescission stock option grants imposition constructive trust defendants’ stock options proceeds derived therefrom punitive damages reimbursement attorneys’ fees costs expenses order directing witness adopt put stockholder vote various proposals relating corporate governance relief determined court march 11 2009 court granted defendants’ motion dismiss complaint entirety prejudice plaintiff file appeal time federal rules elapsed august 14 2006 class action securities lawsuit filed individual claiming witness stockholder naming witness certain directors officers defendants connection certain stock option grants made witness rosenberg v gould et al civil action 106cv1894 nd ga complaint filed united states district court northern district georgia alleged violations section 10b exchange act rule 10b5 thereunder complaint sought unspecified damages attorneys’ fees costs expenses unspecified extraordinary equitable injunctive relief determined court march 31 2008 court granted defendants’ motion dismiss complaint entirety prejudice april 29 2008 plaintiff filed notice appeal january 9 2009 11th circuit affirmed lower court’s dismissal complaint response plaintiff’s appeal plaintiff pursued appeal decision time federal rules elapsed october 27 2006 witness received notice sec informal nonpublic inquiry relating stock option grant practices witness february 1 2000 date notice july 12 2007 verint systems received copy formal order investigation sec relating substantially matter informal inquiry verint systems witness fully cooperated intend continue fully cooperate called upon sec regarding matter addition united states attorney’s office northern district georgia also given access documents information provided witness sec verint systems’ last communication sec respect matter june 2008 addition litigation discussed company future may involved various lawsuits claims proceedings incident ordinary course business results litigation inherently unpredictable claims company whether meritorious could time consuming result costly litigation require significant amounts management time result diversion significant resources results lawsuits claims proceedings cannot predicted certainty however company believes ultimate resolution current matters material adverse effect consolidated financial statements taken whole indemnifications normal course business company provides indemnifications varying scopes customers claims intellectual property infringement made third parties arising use company’s products company evaluates indemnifications potential losses evaluation considers factors degree probability unfavorable outcome ability make reasonable estimate amount loss generally company encountered significant charges result indemnification provisions extent permitted state laws applicable laws company agreements indemnify directors officers certain events occurrences director officer serving company’s request capacity indemnification period covers pertinent events occurrences company’s director’s officer’s lifetime maximum potential amount future payments company could required make indemnification agreements unlimited however company certain director officer insurance coverage limits company’s exposure enables company recover portion future amounts paid company able estimate fair value indemnification agreements excess applicable insurance coverage comverse technology inc subsidiaries notes consolidated financial statements continued 25 quarterly information unaudited following table shows selected results operations quarters fiscal years ended january 31 2010 2009 26 subsequent events management’s plans improve working capital position reflected accompanying consolidated financial statements company incurred significant cumulative losses experienced declines cash flows cash equivalents working capital three fiscal years ended january 31 2010 accumulated deficit approximately 16 billion january 31 2010 subsequent january 31 2010 cti comverse continued incur operating net losses experienced declines cash flows cash equivalents working capital increase accumulated deficit negative trends due primarily results operations negative cash flows attributable comverse cti’s holding company operations ii accounting tax legal fees related cti’s efforts become current periodic reporting obligations federal securities laws lesser extent remediate material weaknesses internal control financial reporting iii payments made connection settlements consolidated shareholder class action consolidated shareholder derivative actions iv special retention bonuses v restructuring payments including workforce reduction comverse decline capital resources partially offset proceeds received cti sales redemptions ars subsequent january 31 2010 ii proceeds received comverse sale land ra’anana israel iii proceeds received cti result receipt dividend sale shares common stock ulticom inc iv proceeds sale shares verint systems’ common stock secondary public offering v insurance proceeds received cti directors’ officers’ insurance policies connection settlements consolidated shareholder class action consolidated shareholder derivative actions part settlement agreement consolidated shareholder class action cti granted security interest benefit plaintiff class account cti holds ars held account ubs proceeds sales thereof consequently cti’s ability use proceeds future sales ars restricted amounts payable settlement agreement paid full addition terms settlement agreement consolidated shareholder class action cti receives net cash proceeds sale certain ars held aggregate amount excess 500 million cti required use 500 million proceeds prepay settlement amounts referred cti receives net cash proceeds sale ars aggregate amount excess 1000 million cti required use additional 500 million proceeds prepay settlement amounts referred october 31 2010 cti 313 million restricted cash received sales redemptions ars 946 million aggregate principal amount ars recorded value 696 million provisions settlement agreement apply addition company significant future payment obligations settlement agreement shareholder class action amount payable settlement agreement fiscal year ending january 31 2012 aggregate comverse technology inc subsidiaries notes consolidated financial statements continued 1125 million payable cash cti’s election shares cti’s common stock subject certain conditions including cti current periodic reporting obligations federal securities laws common stock listed national securities exchange fifteenth trading day preceding applicable payment dates may 15 2011 november 15 2011 cti expects pay 300 million 1125 million payment due may 15 2011 cash company anticipates experience continued negative cash flows next twelve months similar reasons response events company commenced initiatives improve cash position including plan restructure operations comverse view towards aligning operating costs expenses anticipated revenue company implemented first phase plan reducing annualized operating costs second phase measures developed company focus process reengineering maximize business performance productivity operational efficiency company expects commence implementation second phase measures first half fiscal year ending january 31 2012 comverse also evaluating initiatives improve focus core business maintain ability face intense competitive pressures markets part initiatives comverse pursuing wind continues evaluate strategic options netcentrex business contrary expectations company’s initiatives increase liquidity capital resources fail satisfy working capital needs business operations could materially adversely affected event company may need seek new borrowings asset sales issuance equity securities disadvantageous terms sale land september 16 2010 comverse ltd entered agreement sale land ra’anana israel third party approximately 285 million approximately 271 million proceeds received balance held escrow cover extent necessary applicable taxes levies sale consummated following bid process company considered multiple offers land sale pursued part initiatives undertaken management improve company’s cash position sale ulticom december 3 2010 “effective date” ulticom inc completed merger “merger” affiliate platinum equity advisors llc “platinum equity” pursuant terms conditions merger agreement dated october 12 2010 “merger agreement” utah intermediate holding corporation “uihc” delaware corporation utah merger corporation “ merger sub” new jersey corporation whollyowned subsidiary uihc result merger ulticom inc became whollyowned subsidiary uihc prior merger ulticom inc majorityowned subsidiary company ulticom inc subsidiaries constituted one companys reporting segments immediately prior effective time merger ulticom inc paid special cash dividend aggregate amount 640 million “dividend” amounting 574 per share shareholders record november 24 2010 company received 424 million respect dividend pursuant terms merger ulticom inc’s shareholders company received 233 cash without interest per share common stock ulticom inc “ulticom common stock” payment dividend shares ulticom inc common stock held company purchased affiliate platinum equity pursuant terms conditions share purchase agreement dated october 12 2010 following payment dividend immediately prior consummation merger consideration thereof company received aggregate consideration 172 million amounting 233 per share consisting approximately 132 million cash ii issuance merger sub company two noninterest bearing promissory notes originally aggregate principal amount 40 million first promissory note originally amount 14 million subsequently reduced 08 million connection purchase certain products ulticom payable company 14 months effective date second promissory note amount 26 million payable company following determination ulticom’s revenue 24month period beginning january 1 2011 subject reduction 40 difference 75 million revenue generated ulticom period comverse technology inc subsidiaries notes consolidated financial statements continued results operations ulticom including gain loss sale ulticom reported discontinued operations less applicable income taxes separate component income loss company’s consolidated statements operations fiscal year ending january 31 2011 january 31 2010 major balance sheet classifications follows sale shares verint systems’ common stock effective july 15 2010 cti made demand pursuant original registration rights agreement 28 million shares verint systems’ common stock registered registration statement form s1 january 14 2011 cti completed sale 23 million shares verint systems’ common stock secondary public offering aggregate proceeds net underwriting discounts commissions 765 million offering completed part initiatives undertaken management improve company’s cash position verint credit facility term loan interest rate swap agreement term loan excess cash flow payments revolving credit facility payment february 2010 verint made amortization payment 06 million may 2010 verint made 221 million mandatory “excess cash flow” payment term loan based upon operating results fiscal year ended january 31 2010 124 million applied eight immediately following principal payments 97 million applied pro rata remaining principal payments december 2010 verint repaid 150 million previously borrowed revolving credit facility amendments credit facility credit facility includes requirement verint submit audited consolidated financial statements lenders within 90 days end fiscal year beginning financial statements fiscal year ended january 31 2010 april 27 2010 verint entered amendment waiver consent lenders extended due date delivery audited consolidated financial statements related documentation fiscal year ended january 31 2010 may 1 2010 june 1 2010 consideration amendment verint paid lenders approximately 09 million amortized additional interest expense remaining term credit agreement using effective interest method legal fees outofpocket costs directly relating amendment expensed incurred significant verint filed annual report form 10k fiscal year ended january 31 2010 containing requisite financial statements may 19 2010 accordingly delivered audited consolidated financial statements lenders compliance terms amended credit facility verint fail future deliver audited consolidated financial statements required agreement provides thirty day period cure default event default occurs july 2010 verint entered amendment 3 “amendment” credit facility dated may 25 2007 amended among verint systems credit suisse ag cayman islands branch administrative agent lenders time party thereto see note 12 debt among things amendment changes method calculation applicable interest rate margin based verint’s periodic consolidated leverage ratio consolidated total debt consolidated ebitda defined credit facility time ii designates 150 libor floor iii increases aggregate amount incremental revolving commitment term loan increases permitted credit facility 500 million 2000 million iv makes certain changes negative covenants including providing covenant relief respect permitted consolidated leverage ratio addition july 2010 verint entered incremental amendment joinder agreement credit facility increasing revolving credit facility credit facility 150 million 750 million see note 12 debt commitment fee unused capacity revolving credit facility increased 05 075 per annum credit facility contains one financial covenant requires verint meet certain consolidated leverage ratio defined verint’s consolidated net total debt divided consolidated earnings interest taxes depreciation amortization comverse technology inc subsidiaries notes consolidated financial statements continued “ebitda” defined credit facility trailing four quarters consolidated leverage ratio permitted exceed 3501 periods ended july 31 2010 october 31 2010 amended july 2010 consolidated leverage ratio permitted exceed 3501 periods october 31 2011 permitted exceed 3001 quarterly periods thereafter consideration july 2010 amendments verint paid 26 million lenders payments amortized additional interest expense remaining term credit agreement using effective interest method legal fees outofpocket costs directly relating amendments expensed incurred significant applicable margins amended base rate loans highest prime rate ii federal funds rate plus 050 iii eurodollar rate one month interest period defined plus 1 rate shall less 15 eurodollar loans libor floor 150 higher follows october 31 2010 interest rate borrowings term loan revolving credit facility 525 interest rate borrowings term loan revolving credit facility 349 january 31 2010 higher interest rates october 31 2010 reflect among things impact july 2010 amendments discussed termination interest rate swap agreement july 2010 verint terminated interest rate swap agreement entered may 2007 connection entry credit facility effect fixed verint’s interest rate exposure respect 4500 million term loans thereunder 518 interest rate see note 12 debt terminate interest rate swap agreement prior may 2011 maturity verint paid approximately 217 million august 2010 counterparty representing approximate present value expected remaining quarterly settlement payments verint would otherwise owed swap agreement see note 13 derivatives financial instruments settlement agreements december 16 2009 december 17 2009 cti entered agreements settle consolidated shareholder class action consolidated shareholder derivative actions discussed note 24 commitments contingencies agreement settle consolidated shareholder class action amended june 19 2010 see note 24 commitments contingencies information regarding settlement agreements agreement settle consolidated shareholder class action amended approved court action pending june 23 2010 agreement settle federal state derivative actions approved courts actions pending july 1 2010 september 23 2010 respectively optout plaintiffs’ action september 28 2010 action filed united states district court eastern district new york caption maverick fund ldc et al v comverse technology inc et al 10cv4436 plaintiffs allege cti shareholders purchased cti’s publicly traded securities 2005 2006 2007 plaintiffs maverick fund ldc certain affiliated investment funds opted participate settlement consolidated shareholder class action discussed note 24 commitments contingencies complaint names cti current chief executive officer certain former officers directors defendants alleges among things violations sections 10b 18 20a exchange act rule 10b5 promulgated thereunder negligent misrepresentation connection prior statements made cti respect among things accounting treatment stock options accounting practices cti timeline cti become current periodic reporting obligations action seeks compensatory damages unspecified amount company filed motion dismiss complaint december 2010 comverse technology inc subsidiaries notes consolidated financial statements continued disgorgement derivative action june 1 2007 mark levy filed purported shareholder derivative action cti’s behalf entitled levy v koren john 120 07cv0896 former officer one cti’s subsidiaries based israel twenty unidentified “john doe” defendants action filed united states district court southern district new york alleged violations section 16b exchange act see note 24 commitments contingencies march 25 2010 parties entered stipulation settlement pursuant defendant paid 150000 cti ii defendant relinquished rights outstanding stock options purchase 92500 shares cti’s common stock iii cti paid plaintiff’s counsel’s attorneys’ fees costs 250000 settlement provides release claims section 16b exchange act might asserted action approved court action pending june 24 2010 sec civil actions promptly following discovery errors improprieties related cti’s historic stock option grant practices creation special committee cti special committee representatives met informed staff sec underlying facts initiation special committee investigation march april 2008 cti verint systems ulticom inc received “wells notice” staff sec arising sec’s respective investigations respective historical stock option grant practices certain unrelated accounting matters wells notices provided notification staff sec intended recommend sec bring civil actions cti verint systems ulticom inc alleging violations certain provisions federal securities laws june 18 2009 settlement cti sec respect matters announced date sec filed civil action cti united states district court eastern district new york alleging violations certain provisions federal securities laws regarding cti’s improper backdating stock options accounting practices including improper establishment maintenance release reserves reclassification certain expenses improper calculation backlog sales orders simultaneous filing complaint without admitting denying allegations therein cti consented issuance final judgment “final judgment” approved united states district court eastern district new york june 25 2009 pursuant final judgment cti permanently restrained enjoined future violations federal securities laws addressed complaint ordered become current periodic reporting obligations section 13a exchange act later february 8 2010 monetary penalties assessed cti conjunction settlement matters result actions principally taken senior executives cti terminated 2006 cti however unable file requisite periodic reports february 8 2010 result cti’s inability become current periodic reporting obligations federal securities laws accordance final judgment court order february 8 2010 cti received additional “wells notice” staff sec february 4 2010 wells notice provided notification staff sec intended recommend sec institute administrative proceeding determine whether pursuant section 12j exchange act sec suspend revoke registration class cti’s securities registered section 12 exchange act process established sec recipients “wells notice” opportunity make wells submission staff sec makes formal recommendation sec regarding action brought sec february 25 2010 cti submitted wells submission sec response wells notice march 23 2010 sec issued order instituting administrative proceedings “oip” pursuant section 12j exchange act suspend revoke registration cti’s common stock prior filing annual report form 10k fiscal years ended january 31 2009 2008 2007 2006 october 4 2010 cti filed annual report form 10k since april 20 2005 quarterly report form 10q since december 12 2005 july 22 2010 administrative law judge issued initial decision revoke registration cti’s common stock initial decision become effective sec issues final order would indicate date sanctions would take effect august 17 2010 sec issued order granting petition cti review administrative law judge’s initial decision revoke registration cti’s common stock setting forth briefing schedule final brief filed november 1 2010 matter including motion cti oral arguments pending sec issues final order either party may appeal order federal court appeals although sec granted review administrative law judge’s initial decision revoke registration cti’s common stock cti cannot time predict outcome review appeal therefrom registration cti’s common stock ultimately revoked cti intends complete necessary financial statements file appropriate registration statement sec seek declared effective order resume registration common stock exchange act soon practicable comverse technology inc subsidiaries notes consolidated financial statements continued april 9 2008 verint systems received “wells notice” staff sec arising staff’s investigation verint systems’ past stock option grant practices certain unrelated accounting matters accounting matters also subject verint’s internal investigation march 3 2010 settlement verint systems sec respect matters announced date sec filed civil action verint systems united states district court eastern district new york alleging violations certain provisions federal securities laws relating certain verint’s accounting reserve practices simultaneous filing complaint without admitting denying allegations therein verint systems consented issuance final judgment approved united states district court eastern district new york march 9 2010 pursuant final judgment verint systems permanently restrained enjoined violating section 17a securities act sections 13a 13b2a 13b2b exchange act rules 13a1 13a13 thereunder monetary penalties assessed verint systems conjunction settlement result previous failure current periodic reporting obligations federal securities laws verint systems received additional “wells notice” staff sec december 23 2009 march 3 2010 sec issued oip pursuant section 12j exchange act suspend revoke registration verint systems’ common stock previous failure file certain annual quarterly reports may 28 2010 verint systems entered agreement principle sec’s division enforcement regarding terms settlement section 12j administrative proceeding agreement subject approval sec june 18 2010 verint systems satisfied requirements agreement subsequently submitted offer settlement sec july 28 2010 sec issued order accepting verint systems’ offer settlement dismissing section 12j administrative proceeding description investigation sec stock option grant practices witness acquired verint may 2007 see note 24 commitments contingencies ulticom shareholder class action october 14 2010 purported shareholder class action filed superior court new jersey chancery division burlington county entitled greenbaum v ulticom inc et al c 8610 ulticom platinum equity certain affiliates ulticom’s board directors complaint alleged ulticom’s directors breached fiduciary duties failing ensure ulticom’s shareholders receive maximum value shares connection proposed acquisition ulticom platinum equity platinum equity aided abetted breaches fiduciary duty action sought among things injunctive relief rescission attorneys’ fees costs december 16 2010 plaintiff filed notice voluntary dismissal terminate action without prejudice party bear expenses stockbased compensation first quarter fiscal year ending january 31 2011 cti’s board directors granted dsu awards covering aggregate 1013000 shares cti’s common stock certain executive officers key employees including dsu award covering 300000 shares cti’s common stock cti’s president chief executive officer dsu award covering 150000 shares cti’s common stock cti’s executive vice president chief financial officer second quarter fiscal year ending january 31 2011 cti’s compensation leadership committee pursuant authority delegated cti’s board directors granted dsu awards covering aggregate 366000 shares cti’s common stock certain executive officers key employees including dsu award covering 130000 shares cti’s common stock executive vice president global sales comverse inc third quarter fiscal year ending january 31 2011 upon recommendation compensation leadership committee cti’s board directors approved dsu awards covering aggregate 223607 shares cti’s common stock certain executive officers key employees director nine months ended october 31 2010 verint granted restricted awards covering aggregate 10 million shares verint common stock auction rate securities nine months ended october 31 2010 company recorded additional otherthantemporary pretax charges 04 million certain ars additionally nine months ended october 31 2010 1120 million aggregate principal amount ars recorded value 487 million sold redeemed proceeds 570 million amounts included comverse technology inc subsidiaries notes consolidated financial statements continued 426 million aggregate principal amount ars subject ubs put 326 million aggregate principal amount ars purchased ubs cti pursuant purchase right prior june 30 2010 100 million aggregate principal amount ars purchased ubs upon exercise cti ubs put effective june 30 2010 business acquisition february 4 2010 verint acquired outstanding shares iontas limited privately held provider desktop analytics solutions total consideration 219 million including cash consideration 179 million additional milestonebased contingent payments 38 million tied certain performance targets achieved twoyear period following acquisition date voting conversion rights verint systems’ preferred stock originally preferred stock confer cti voting rights convertible verint systems’ common stock october 5 2010 verint systems’ stockholders approved special stockholders meeting issuance verint systems’ common stock underlying preferred stock accordingly date preferred stock became voting convertible verint systems’ common stock see note 23 related party transactions 2010 restructuring initiative first quarter 2010 restructuring initiative first quarter fiscal year ending january 31 2011 comverse’s management approved restructuring plan eliminate staff positions close certain facilities order appropriately streamline comverse’s activities aggregate cost plan 68 million severancerelated facilitiesrelated costs 54 million 05 million respectively paid fiscal year ending january 31 2011 remaining costs expected substantially paid january 31 2012 third quarter 2010 restructuring initiative october 2010 company commenced first phase plan restructure operations comverse view toward aligning operating costs expenses anticipated revenue first phase plan includes termination certain employees located primarily israel us asia pacific united kingdom aggregate cost first phase estimated 124 million expected substantially paid january 31 2011 second phase measures developed company focus process reengineering maximize business performance productivity operational efficiency company expects commence implementation second phase measures first half fiscal year ending january 31 2012 fourth quarter 2010 restructuring initiative part initiatives improve focus core business maintain ability face intense competitive pressures markets comverse pursuing wind netcentrex business connection therewith fourth quarter fiscal year ending january 31 2011 comverse’s management approved restructuring plan eliminate staff positions primarily located france estimated aggregate cost approximately 281 million plan expected implemented fiscal years ending january 31 2011 2012 2013 alternative wind management continues evaluate strategic options netcentrex business schedule condensed financial information registrant comverse technology inc parent company condensed balance sheets thousands except share data see notes condensed financial statements s1 comverse technology inc parent company condensed statements operations thousands except share per share data see notes condensed financial statements s2 comverse technology inc parent company condensed statements cash flows thousands see notes condensed financial statements s3 notes condensed financial information registrant 1 basis presentation comverse technology inc “parent company” holding company conducts substantially business operations subsidiaries parentonly presentation parent company’s investments consolidated subsidiaries presented equity method accounting losses subsidiary applied investment subsidiary balance advances subsidiary investment subsidiary balance reduced zero accordingly nontrade advances subsidiaries investments subsidiaries presented together “advances investments subsidiaries” condensed balance sheets parentonly condensed financial statements read conjunction comverse technology inc’s audited consolidated financial statements included item 15 annual report restrictions access subsidiary cash parent company’s verint subsidiary longterm debt outstanding january 31 2010 2009 places restrictions declaration payment dividends whether cash property parent company january 31 2009 parent company’s comverse ltd subsidiary floating liens assets support potential future borrowings banking services two israeli banks liens included provisions prohibited comverse ltd selling transferring assets ordinary course business effect restricting comverse ltd’s ability pay dividends extend loans shareholders without obtaining banks’ prior written approval december 2009 liens assets comverse ltd released january 31 2010 comverse ltd required maintain aggregate 450 million compensating cash balances terms lines credit comverse ltd two banks restricting comverse ltd’s ability use funds addition pursuant investment agreements parent company’s starhome subsidiary precluded paying cash dividends shareholders without approval certain minority shareholders restricted net assets represent significant portion company’s consolidated net assets condensed financial statements presented “parentonly” basis 2 restricted cash auction rate securities january 31 2010 restricted cash includes proceeds sale auction rate securities ars restricted pursuant consolidated shareholder class action settlement agreement addition january 31 2010 ars restricted pursuant settlement agreement see note 3 investments note 24 commitment contingencies consolidated financial statements disclosures relating restriction ars cash proceeds sale ars january 31 2010 90 million sales proceeds classified “restricted cash” 171 million sales proceeds classified within “other assets” longterm restricted cash 3 debt january 31 2010 2009 parent company outstanding convertible debt obligations “convertible debt obligations” 22 million 4195 million aggregate principal amount respectively fiscal year ended january 31 2010 parent company commenced tender offer accordance terms indenture pursuant parent company purchased 4173 million aggregate principal amount convertible debt obligations refer note 12 debt consolidated financial statements description significant provisions convertible debt obligations purchase convertible debt obligations fiscal year ended january 31 2010 effective february 1 2009 parent company adopted fasb’s guidance relating debt conversion options may settled cash upon conversion including partial cash payments see note 2 recent accounting pronouncements standards implemented note 12 debt consolidated financial statements disclosure relating application fasb’s guidance following tables set forth effect retrospective application guidance certain previously reported items parent company’s condensed financial statements s4 notes condensed financial information registrant continued s5 notes condensed financial information registrant continued 4 commitments contingencies parent company party various lawsuits discussed note 24 commitments contingencies consolidated financial statements december 2009 parent company entered agreements settle shareholder class action consolidated shareholder derivative actions aggregate amount 1744 million including legal fees expenses plaintiffs 94 million accrued fiscal year ended january 31 2007 agreement settle consolidated shareholder class action amended june 19 2010 pursuant amendment cti agreed waive certain rights terminate settlement exchange deferral timing scheduled payments settlement consideration right credit “optout credit” respect portion settlement funds would payable class member elected participate bound settlement see note 24 commitments contingencies settlement agreements consolidated financial statements provisions settlement 5 perpetual preferred stock subsidiary may 25 2007 parent company entered agreement subsidiary verint systems purchase aggregate 293000 shares verint systems’ series convertible perpetual preferred stock “preferred stock” aggregate purchase price 2930 million see note 23 related party transactions verint’s series perpetual preferred stock consolidated financial statements details including provisions preferred stock 6 ulticom’s special cash dividend april 2009 ulticom inc paid special cash dividend 1996 million shareholders parent company received 1353 million remaining amount paid ulticom inc’s minority shareholders see note 23 related party transactions ulticom’s special cash dividend stock option modification consolidated financial statements disclosure relating ulticom’s special cash dividend s6 schedule ii valuation qualifying accounts reserves 1 primarily consists translation adjustments 2 included ‘accounts payable accrued expenses’ consolidated balance sheets s7nanitem 15 exhibits financial statement schedules documents filed part annual report 1 financial statements consolidated financial statements filed part annual report listed index consolidated financial statements page incorporated herein reference 2 financial statement schedules following financial statement schedules comverse technology inc subsidiaries included annual report read conjunction consolidated financial statements notes thereto schedule condensed financial information registrant s1 schedule ii valuation qualifying accounts reserves s6 financial statement schedules required regulation sx omitted applicable required information included applicable consolidated financial statements notes thereto 3 exhibits see b exhibits incorporated reference filed herewith exhibit “furnished” pursuant item 601b32 sec regulation sk deemed “filed” securities exchange commission incorporated reference filing registrant securities act 1933 securities exchange act 1934 accordance rule 406t regulation st interactive data files exhibit 1011 hereto deemed filed part registration statement prospectus purposes sections 11 12 securities act 1933 amended deemed filed purposes section 18 securities exchange act 1934 amended otherwise subject liability sections  constitutes management contract compensatory plan arrangement signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated comverse technology inc subsidiaries index consolidated financial statements report independent registered public accounting firm consolidated balance sheets consolidated statements operations consolidated statements equity consolidated statements cash flows notes consolidated financial statements schedule icondensed financial information registrant s1 schedule iivaluation qualifying accounts reserves s6 report independent registered public accounting firm board directors shareholders comverse technology inc new york new york audited accompanying consolidated balance sheets comverse technology inc subsidiaries “company” january 31 2011 2010 related consolidated statements operations equity cash flows three years period ended january 31 2011 audits also included financial statement schedules listed index page item 15 financial statements financial statement schedules responsibility company’s management responsibility express opinion financial statements financial statement schedules based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects consolidated financial position comverse technology inc subsidiaries january 31 2011 2010 results operations cash flows three years period ended january 31 2011 conformity accounting principles generally accepted united states america also opinion financial statement schedules considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting january 31 2011 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated may 31 2011 expressed adverse opinion company’s internal control financial reporting material weaknesses deloitte touche llp new york new york may 31 2011 comverse technology inc subsidiaries consolidated balance sheets thousands except share per share data accompanying notes integral part consolidated financial statements comverse technology inc subsidiaries consolidated statements operations thousands except share per share data accompanying notes integral part consolidated financial statements comverse technology inc subsidiaries consolidated statements equity thousands except share data comverse technology inc subsidiaries consolidated statements equity continued thousands except share data accompanying notes integral part consolidated financial statements comverse technology inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part consolidated financial statements comverse technology inc subsidiaries notes consolidated financial statements 1 organization business summary significant accounting policies basis presentation comverse technology inc “cti” together subsidiaries “company” holding company organized new york corporation october 1984 conducts business whollyowned subsidiary comverse inc together subsidiaries “comverse” majorityowned subsidiaries verint systems inc “verint systems” together subsidiaries “verint” starhome bv together subsidiaries “starhome” prior sale third party december 3 2010 ulticom inc together subsidiaries “ulticom” comverse leading provider softwarebased products systems related services provide prepaid postpaid converged billing active customer management wireless wireline cable network operators “business support systems” “bss” delivering value proposition designed ensure timely efficient service monetization enable realtime offers made end users based relevant customer profile information ii enable wireless wireline including cable networkbased valueadded services “vas” comprised two categories voice messaging include voicemail call completion visual voicemail short messaging service “sms” text messaging “texting” multimedia picture video messaging internet protocol “ip” communications iii provide wireless users optimized access mobile internet websites content applications generate data usage revenue wireless operators comverse’s products services designed generate carrier voice data network traffic revenue customer loyalty monetize network operators’ services improve operational efficiency 450 wireless wireline network communication service provider customers 125 countries including majority world’s 100 largest wireless network operators comverse comprises company’s comverse segment verint global leader actionable intelligence solutions valueadded services verint’s solutions enable organizations sizes make timely effective decisions improve enterprise performance enhance safety verint’s customers use verint’s actionable intelligence solutions capture distill analyze complex underused information sources voice video unstructured text enterprise market verint’s workforce optimization solutions help organizations enhance customer service operations contact centers branches backoffice environments increase customer satisfaction reduce operating costs identify revenue opportunities improve profitability security intelligence market verint’s video intelligence public safety communications intelligence solutions used government commercial organizations efforts protect people property neutralize terrorism crime verint comprises company’s verint segment january 14 2011 cti completed sale 23 million shares verint systems’ common stock secondary public offering cti continues retain majority interest verint systems following offering see note 25 related party transactions starhome provider wireless service mobility solutions enhance international roaming wireless operators use starhome’s softwarebased solutions generate additional revenue improve profitability directing international roaming traffic preferred networks providing wide range services subscribers traveling outside home network starhome part company’s segment comverse technology inc subsidiaries notes consolidated financial statements continued ulticom inc majorityowned publiclytraded subsidiary cti sold affiliate platinum equity advisors llc “platinum equity” december 3 2010 “ulticom sale” ulticom reportable segment company prior sale result ulticom sale results operations ulticom including gain ulticom sale reflected discontinued operations less applicable income taxes separate component net loss company’s consolidated statements operations fiscal periods presented assets liabilities ulticom reflected discontinued operations company’s consolidated balance sheet january 31 2010 see note 19 discontinued operations principles consolidation consolidated financial statements accompanying notes prepared accordance accounting principles generally accepted united states america “us gaap” accompanying consolidated financial statements include cti whollyowned subsidiaries controlled majorityowned subsidiaries include verint systems cti owned 439 common stock held 548 voting power january 31 2011 starhome bv 665 owned january 31 2011 ulticom inc majorityowned subsidiary prior sale december 3 2010 included consolidated balance sheets consolidated statements operations consolidated statements cash flows date controlled subsidiaries whollyowned noncontrolling interest included separate component “net loss” consolidated statements operations “total equity” consolidated balance sheets verint systems holds 50 equity interest variable interest entity primary beneficiary investments businesses company control ability exercise significant influence operating financial policies accounted using equity method equity losses unconsolidated affiliates net tax recorded “other income expense net” consolidated statements operations represents company’s portion net income equity earnings unconsolidated affiliates company control equity losses unconsolidated affiliates net tax included “other income expense net” insignificant fiscal years ended january 31 2011 2010 10 million fiscal year ended january 31 2009 equity investments included “other assets” consolidated balance sheets company monitors equity method investments factors indicating otherthantemporary impairment loss recognized loss value affiliate considered otherthantemporary intercompany balances transactions eliminated company includes results operations acquired business date acquisition use estimates preparation consolidated financial statements accompanying notes conformity us gaap requires company make estimates judgments affect reported amounts assets liabilities revenue expenses significant estimates include • determination vendor specific objective evidence “vsoe” fair value arrangement elements • inventory reserves • allowance doubtful accounts • fair value stockbased compensation • valuation assets acquired liabilities assumed business combinations • fair value reporting units purpose goodwill impairment test • valuation intangible assets • valuation investments financial instruments • realization deferred tax assets • identification measurement uncertain tax positions company’s actual results may differ estimates company accounted certain items obtained additional information subsequent balance sheet date relates conditions existed balance sheet date affect estimates inherent process preparing consolidated financial statements subsequent information became available prior issuance consolidated financial statements assessed management evaluation comverse technology inc subsidiaries notes consolidated financial statements continued conditions estimates based therefore consolidated financial statements adjusted significant changes estimates resulting use subsequent additional information applicable functional currency foreign currency translation transactions determination functional currency company’s foreign subsidiaries made based appropriate economic factors including currency subsidiary sells products sales market subsidiary operates currency subsidiary’s financing denominated foreign subsidiaries whose functional currency us dollar assets liabilities translated using current exchange rates balance sheet date income expense accounts using average exchange rates period except revenue previously deferred translated using historical rates resulting foreign currency translation adjustments reported separate component “total comprehensive loss” consolidated statements equity foreign subsidiaries whose functional currency local currency remeasurement gains losses recorded period “other income expense net” consolidated statements operations unrealized realized foreign currency transaction gains losses transactions denominated currencies functional currency entity included consolidated statements operations “other income expense net” period exchange rates changed business combinations company allocates fair value consideration transferred business combination estimated fair value acquisition date tangible intangible assets acquired liabilities assumed noncontrolling interest acquisition costs expensed incurred residual consideration recorded goodwill fair value consideration includes cash assets contingent consideration transferred company estimates fair value contingent consideration using probabilityadjusted discounted cash flow method based significant inputs observable market company remeasures fair value contingent consideration reporting period change fair value either passage time events occurring acquisition date recorded earnings company’s determination fair values assets acquired liabilities assumed requires company make significant estimates primarily respect intangible assets estimates primarily derived historical experience information related acquired business estimates include limited cash flow projections acquired business appropriate weightedaverage cost capital results operations acquired business included company’s consolidated results operations date acquisition noncontrolling interest noncontrolling interest represents minority shareholders’ interest verint starhome bv company’s majorityowned subsidiaries ulticom inc prior sale third party december 3 2010 company recognizes noncontrolling interest separate component total equity consolidated balance sheets recognizes income attributable noncontrolling interest separate component net loss consolidated statements operations january 31 2011 2010 respectively noncontrolling interest verint 561 430 noncontrolling interest starhome 335 359 company’s majorityowned subsidiaries verint systems starhome bv sharebased payment award plans provide issuance company’s subsidiary common shares based service performance market conditions company accounts dilution may occur exercise awards granted sharebased payment award plans otherwise capital transactions segment reporting company determines reportable segments accordance financial accounting standards board’s “fasb” guidance relating disclosures segments enterprise related information company three reportable segments comprised following comverse consisting comverse netcentrex reporting units ii verint consisting enterprise workforce optimization “workforce optimization” solutions video intelligence solutions communications intelligence investigative “communications intelligence” solutions reporting units iii consisting starhome reporting unit miscellaneous operations cti’s holding company operations ulticom reportable segment company prior ulticom sale december 3 2010 see discontinued operations note 19 discontinued operations cti’s chief executive officer company’s chief operating decision maker “codm” company uses segment performance comverse technology inc subsidiaries notes consolidated financial statements continued primary basis assessing financial results segments allocation resources see note 23 business segment information additional discussion including definition segment performance discontinued operations december 3 2010 company sold shares common stock ulticom inc part initiatives improve cash position ulticom reportable segment company prior sale result ulticom sale results operations ulticom including gain ulticom sale reflected discontinued operations less applicable income taxes separate component net loss company’s consolidated statements operations fiscal periods presented assets liabilities ulticom reflected discontinued operations company’s consolidated balance sheet january 31 2010 assets liabilities ulticom previously classified held sale probable december 2 2010 connection ulticom sale company received aggregate consideration 172 million recorded gain sale 29 million net tax see note 19 discontinued operations cash equivalents cash primarily consists cash hand bank deposits cash equivalents primarily consist interestbearing money market accounts commercial paper agency notes highly liquid investments original maturity three months less purchased company maintains cash equivalents us dollars foreign currencies subject risks related foreign currency exchange rate fluctuations restricted cash bank time deposits restricted cash bank time deposits include compensating cash balances related existing lines credit deposits pledged collateral restricted use settle specified creditrelated bank instruments vendor payables general liability insurance workers’ compensation insurance pending tax judgments warranty programs addition restricted cash includes proceeds sales redemptions auction rate securities “ars” including interest thereon restricted terms settlement agreement consolidated shareholder class action see note 3 investments note 26 commitments contingencies cash restricted one year classified within “other assets” longterm restricted cash restricted bank time deposits generally consist certificates deposit original maturities twelve months less accounts receivable net application company’s revenue recognition policy often results circumstances company unable recognize revenue relating sales transactions billed circumstances company recognize deferred revenue related account receivable amounts recognized consolidated balance sheets transactions exception certain arrangements recognized accordance fasb’s guidance relating accounting performance constructiontype certain productiontype contracts extent company recognized revenue received cash transactions amounts included “accounts receivable net” also extent company received cash transactions amount included “deferred revenue” consolidated balance sheets allowance doubtful accounts company estimates collectability accounts receivable balances accounting period adjusts allowance doubtful accounts accordingly company exercises judgment assessing collectability accounts receivable including consideration current economic conditions creditworthiness customers collection history related aging past due receivables balances company evaluates specific accounts becomes aware customer may experiencing deterioration financial condition due lower credit ratings bankruptcy factors may affect customer’s ability meet payment obligations company charges uncollectible trade receivables collection efforts exhausted company believes amount collected comverse technology inc subsidiaries notes consolidated financial statements continued investments otherthantemporary impairments company accounts investments accordance fasb’s guidance relating accounting certain investments debt equity securities company’s investments reported fair value designates marketable securities availableforsale purchased purchases recorded settlement date interest shortterm investments recognized consolidated statements operations earned realized gains losses availableforsale securities recognized securities sold calculated using specific identification method recorded “other income expense net” consolidated statements operations unrealized gains losses net taxes recorded component “total comprehensive loss” consolidated statements equity generally investments original maturities greater three months remaining maturities less one year classified shortterm investments company reviews investments indications impairment value quarterly basis company considers investment impaired fair value less carrying value amortized cost company evaluated impaired investment individually determine whether investment otherthantemporarily impaired equity securities company considers among factors severity decline value financial condition issuer company’s ability hold security length time necessary allow recovery market value debt securities company considers whether company intent sell security ii likely company required sell security recovery fair value amortized cost iii credit loss exists measured difference amortized cost basis security present value projected future cash flows expected collected debt securities company intend sell security likely company required sell security recovery fair value amortized cost portion otherthantemporary impairment attributable credit loss recognized current earnings remaining portion recognized component comprehensive income inventories net inventories stated lower cost market cost determined firstin firstout weightedaverage methods company reduces carrying value inventory holds excess obsolete inventories determined evaluation historical usage expected future demand charges included component “product costs” consolidated statements operations property equipment property equipment carried cost less accumulated depreciation amortization company depreciates amortizes property equipment straightline basis leasehold improvements capitalized amortized shorter estimated useful lives related lease term cost maintenance repairs expensed incurred estimated useful lives property equipment follows goodwill represents excess fair value consideration transferred business combination fair value tangible intangible assets acquired net fair value liabilities assumed fair value noncontrolling interest acquiree company indefinitelived intangible assets goodwill carrying amount goodwill reviewed annually impairment november 1 whenever events changes circumstances indicate carrying value may recoverable comverse technology inc subsidiaries notes consolidated financial statements continued goodwill impairment analysis comprised two steps first step company compares fair value reporting unit carrying value company considers incomebased approach using projected discounted cash flows marketbased approach using multiples comparable companies determine fair value company’s estimate fair value reporting unit based number subjective factors including appropriate weighting valuation approaches incomebased approach marketbased approach ii estimates future revenue cash flows iii discount rate estimated cash flows iv selection peer group companies marketbased approach v required levels working capital vi assumed terminal value vii time horizon cash flow forecasts viii control premium fair value reporting unit exceeds carrying value net assets assigned unit goodwill considered impaired analysis required performed carrying value net assets assigned reporting unit exceeds fair value second step performed determine implied fair value reporting unit’s goodwill carrying value reporting unit’s goodwill exceeds implied fair value impairment charge equal difference recorded company’s forecasts estimates based assumptions consistent plans estimates used manage business changes estimates could change conclusion regarding impairment goodwill impairment longlived assets company reviews recoverability longlived assets property equipment intangible assets finite lives whenever events changes circumstances occur indicate carrying value asset may recoverable assessment impairment based company’s ability recover carrying value asset analyzing expected future undiscounted pretax cash flows specific asset group circumstances could trigger review include limited significant decrease market price asset significant adverse changes business climate legal factors accumulation costs significantly excess amount expected acquisition longlived asset current period negative cash flow operating losses combined history losses forecast continuing losses associated use asset company assesses recoverability carrying value longlived assets lowest level identifiable cash flows largely independent cash flows assets liabilities undiscounted cash flows less carrying value asset group impairment loss measured based difference estimated fair value carrying value impairment loss intangible assets reported component “other operating income expense” consolidated statements operations assets disposed writtendown greater fair value salvage value estimated fair values based assumptions regarding amount timing estimated future cash flows appropriate discount rates reflect varying degrees perceived risk fair value measurements fasb’s guidance fair value defined price would received sale asset paid transfer liability orderly transaction market participants measurement date ie “the exit price” determining fair value company uses various valuation approaches including quoted market prices discounted cash flows fasb’s guidance also establishes hierarchy inputs used measuring fair value maximizes use observable inputs minimizes use unobservable inputs requiring observable inputs used available observable inputs market participants would use pricing asset liability developed based market data obtained independent sources unobservable inputs reflect company’s judgment concerning assumptions market participants would use pricing asset liability developed based best information available circumstances fair value hierarchy broken three levels based reliability inputs follows • level 1valuations based quoted prices active markets identical instruments company able access since valuations based quoted prices readily regularly available active market valuation instruments entail significant degree judgment • level 2valuations based quoted prices active markets instruments similar quoted prices markets active identical similar instruments modelderived valuations significant inputs significant value drivers observable active markets comverse technology inc subsidiaries notes consolidated financial statements continued • level 3valuations based inputs unobservable significant overall fair value measurement extent valuation based models inputs less observable unobservable market determination fair value requires judgment accordingly company’s degree judgment exercised determining fair value greatest instruments categorized level 3 certain cases inputs used measure fair value may fall different levels fair value hierarchy cases asset liability classified entirety based lowest level input significant measurement fair value fair value marketbased measure considered perspective market participant holds asset owes liability rather entityspecific measure therefore even market assumptions readily available company’s assumptions set reflect market participants would use pricing asset liability measurement date company uses prices inputs current measurement date including periods market dislocation recent illiquidity ars market periods market dislocation observability prices inputs may reduced many instruments condition caused future may cause financial instruments company reclassified level 1 level 2 level 2 level 3 fasb’s guidance requires valuation techniques used consistent least one three possible approaches market approach income approach andor cost approach level 1 valuations based market approach consist primarily quoted prices identical items active securities exchanges company’s level 2 valuations also use market approach based significant observable inputs quoted prices financial instruments traded daily basis company’s level 3 valuations based income approach specifically discounted cash flow analyses utilize significant inputs observable active markets fasb’s guidance relating fair value option financial assets financial liabilities permits instrumentbyinstrument irrevocable election account selected financial instruments fair value company elected apply fair value option eligible financial assets financial liabilities company also elected apply fair value option nonfinancial assets nonfinancial liabilities derivative instruments hedge accounting part company’s risk management strategy uses derivative financial instruments including forward contracts interest rate swap agreements hedge certain foreign currency interest rate exposures respectively company recognizes derivatives either assets liabilities consolidated balance sheets fair value trade date basis derivatives gain position reported “prepaid expenses current assets” consolidated balance sheets derivatives loss position recorded “other current liabilities” “other longterm liabilities” applicable consolidated balance sheets order qualify hedge accounting company formally documents inception hedging relationship hedging instrument hedged item risk management objective strategy undertaking hedging relationship method used assess hedge effectiveness includes company’s assessment creditworthiness party ability comply contractual terms hedging derivative financial instruments qualify cash flow hedge accounting company records effective portion changes fair value part “total comprehensive loss” consolidated statements equity hedged item recognized consolidated statements operations related derivative gain loss reclassified “accumulated comprehensive income loss” consolidated statements equity consolidated statements operations within line item hedged item recorded cash flows derivative financial instrument qualifying cash flow hedge accounting classified consolidated statements cash flows category cash flows hedged item derivative financial instrument qualify hedge accounting company records changes fair value derivative instruments “other income expense net” consolidated statements operations company purchase hold sell derivative financial instruments trading speculative purposes comverse technology inc subsidiaries notes consolidated financial statements continued treasury stock repurchased shares common stock recorded cost treasury stock time company repurchases shares common stock upon delivery shares settlement deferred stock unit vesting restricted stock awards employees directors order provide funds payment associated minimum statutory withholding taxes fiscal years ended january 31 2011 2010 2009 company repurchased 248982 47901 57659 shares common stock respectively recorded treasury stock concentration credit risk financial instruments potentially expose company credit risk consist primarily investments derivatives accounts receivable time company invests excess cash high creditquality financial institutions invests primarily money market funds placed major banks financial institutions ii corporate commercial paper iii corporate municipal short medium term notes iv mortgage asset backed securities v us government agency securities vi repurchase agreements vii mutual funds company believes significant concentration credit risk exists respect investments beginning third quarter fiscal year ended january 31 2008 auctions supporting liquidity company’s investment ars failed curtailing liquidity investments company consequently limited ability manage exposure ars counterparty risk result change liquidity decline credit quality fair value ars declined company recorded otherthantemporary impairment charges investments see note 3 investments significant portion company’s accounts receivable primarily related comverse communication service providers however concentration credit risk diversified due large number commercial government entities comprising company’s customer base dispersion across many geographical regions company manages concentration credit risk trade accounts receivable performing ongoing credit evaluations customers’ financial condition limiting extension credit deemed necessary customer accounted 10 total revenue fiscal years ended january 31 2011 2010 2009 customer accounted 10 consolidated accounts receivable january 31 2011 2010 company believes significant customer credit risk exists revenue recognition company reports revenue two categories product revenue including hardware software products ii service revenue including revenue professional services training services postcontract customer support “pcs” professional services primarily include installation customization consulting services vast majority company’s revenue accounted accordance fasb’s guidance relating revenue recognition software arrangements software component company’s multiple element arrangements incidental products sold applying fasb’s guidance company exercises judgment uses estimates determining revenue recognized accounting period arrangements require significant modification customization underlying software company recognizes revenue persuasive evidence arrangement product shipped services provided customer sales price fixed determinable collectability probable pertinent criteria met required fasb’s guidance certain instances payment terms extend beyond company’s customary practices situations customer adequate history abiding contractual payment terms without concessions sales price considered fixed determinable revenue recognition commences upon collection provided revenue recognition criteria met certain contractual arrangements company required pay penalty liquidated damages delivery company’s products installation services completed certain date arrangements company guaranteed product performance warranty service response rates met result penalties company accounts penalties liquidated damages accordance fasb’s guidance relating contingencies shipping handling amounts billed company’s customers included product revenue related shipping handling costs included product costs comverse technology inc subsidiaries notes consolidated financial statements continued company reports revenue net revenuebased taxes assessed governmental authorities imposed concurrent specific revenue producing transactions following specific revenue recognition policies major category revenue multiple element arrangements majority company’s software license arrangements contain multiple elements including perpetual software licenses hardware pcs training professional services company allocates revenue delivered elements arrangement using residual method whereby revenue allocated undelivered elements based vendor specific objective evidence “vsoe” fair value undelivered elements remaining arrangement fee allocated delivered elements recognized revenue assuming revenue recognition criteria met company unable establish vsoe fair value undelivered elements arrangement revenue recognition deferred entire arrangement elements arrangement delivered however undelivered element pcs company recognizes arrangement fee ratably pcs period pcs revenue derived primarily providing technical software support services unspecified software updates upgrades customers available basis pcs revenue recognized ratably term pcs period pcs included within multiple element arrangement company primarily utilizes substantive renewal rate establish vsoe fair value pcs much lesser extent bellshaped curve approach used certain verint arrangements depending upon geographical region product line company’s policy establishing vsoe fair value professional services training based upon analysis separate sales services compared fees charged elements included multiple element arrangement comverse yet established vsoe fair value element pcs using substantive renewal rate method company may unable establish vsoe fair value pcs renewal rate deemed nonsubstantive contractuallystated renewal rates stated renewal rate nonsubstantive entire arrangement fee recognized ratably estimated economic life product five eight years beginning upon delivery elements pcs company believes estimated economic life product best estimate long customer renew pcs contractually stated renewal rate entire arrangement fee recognized ratably relevant contractual pcs term beginning upon delivery elements pcs bellshaped curve approach establishing vsoe fair value verint performs vsoe fair value compliance test ensure substantial majority actual pcs renewals within narrow range pricing certain verint’s arrangements explicit obligation provide pcs matter business practice provided pcs implied pcs implied pcs accounted separate element vsoe fair value exist arrangements contain implied pcs recognized period implied pcs provided exceed estimated economic life product certain multiple element arrangements company obligated provide training services customers related operation company’s software products comverse training services either provided customer “defined” basis limited specified number days training classes “asrequested” basis unlimited training contractual period multiple element arrangements containing asrequested training obligations company recognizes total arrangement consideration ratably contractual period training company required “stand ready” perform training provided criteria revenue recognition met multiple element arrangements containing defined training obligations training services typically provided customer prior completion installation services situations revenue recognition commence completion installation defined training obligations impact timing recognition revenue certain circumstances training provided end installation period company commences revenue recognition upon completion training provided criteria revenue recognition met comverse technology inc subsidiaries notes consolidated financial statements continued multiple element arrangements company may offer discount future purchases products services discount considered additional element arrangement discount considered insignificant morethaninsignificant discount respect future purchases discount incremental range discounts reflected pricing elements arrangement ii incremental range discounts typically given comparable transactions iii significant insignificant discounts incremental affect revenue recognition discount considered insignificant portion fee received deferred recognized revenue future purchases made customer upon expiration period discount available company’s arrangements require significant customization product meet particular requirements customer arrangements revenue typically recognized accordance fasb’s guidance longterm construction type contracts using percentageofcompletion “poc” method determination whether services entail significant customization requires judgment primarily based alterations features functionality standard release complex unusual interfaces well amount hours necessary complete customization solution relative size contract revenue arrangements recognized poc method based ratio total hours incurred date compared estimated total hours complete contract management required make judgments estimate total estimated costs progress completion changes estimates impact timing revenue recognition period company uses historical experience project plans assessment risks uncertainties inherent arrangement establish estimates uncertainties arrangements include implementation delays performance issues may within company’s control level profitability assured related revenue costs cannot reasonably estimated revenue recognized extent costs incurred time project’s profitability estimated services completed vsoe fair value pcs exist revenues recognized extent costs incurred services completed provided company able make reliable cost estimates level profitability assured services completed remaining unrecognized portion arrangement fee recognized ratably remaining pcs period situations company able make reliable estimates level profitability assured revenue deferred completion professional services recognized ratably respective pcs period company determines based estimates costs exceed sales price entire amount estimated loss accrued period losses become evident revenue comverse derives sales distributors resellers valueadded resellers recognized resellers turn sell software product customers installation software product occurred provided revenue recognition criteria met commonly referred sellthrough method contractual arrangements reseller end user reseller comverse generally obligate comverse provide services end user subject end user acceptance payment terms generally subject reseller’s receiving payment end user end user’s acceptance product therefore comverse defers recognition “sellthrough” reseller actual enduser customer acceptance enduser product revenue verint derives shipments resellers original equipment manufacturers “oems” purchase products resale generally recognized products shipped “sellin” basis verint historically experienced insignificant product returns resellers oems payment terms customers similar granted endusers reseller oem develops pattern payment delinquency seeks payment terms longer generally accepted verint defers recognition revenue receipt cash verint’s arrangements resellers oems periodically reviewed business products change verint’s shipment products include embedded firmware deemed incidental company recognizes revenue provided persuasive evidence arrangement exists delivery occurred services rendered fee fixed determinable collectability fee reasonably assured shipments hardware products delivery considered occurred upon shipment provided risks loss title certain jurisdictions transferred customer consolidated statements operations company classifies revenue product revenue service revenue multiple element arrangements include product service elements company unable determine vsoe fair value elements arrangement management evaluates various available indicators fair value applies judgment reasonably classify arrangement fee product revenue service revenue amount multiple element arrangement fees classified product service revenue based management estimates fair value vsoe fair value elements arrangement exist could differ amounts classified product service revenue vsoe fair value elements existed allocation multiple element arrangement fees product revenue service revenue comverse technology inc subsidiaries notes consolidated financial statements continued vsoe fair value elements exist consolidated financial statement presentation purposes affect timing amount revenue recognized determining amount multiple element arrangement fee classified product revenue service revenue comverse first allocates arrangement fee product revenue pcs classified service revenue based management’s estimate fair value elements remainder arrangement fee comprised service elements allocated service revenue estimate fair value product element based primarily management’s evaluation direct costs reasonable profit margins products determined appropriate methodology comverse historically productoriented respect pricing policies facilitates evaluation product costs related margins arriving reasonable estimate product element fair value management’s estimate reasonable profit margins requires significant judgment consideration various factors impact economic environment margins complexity projects stability product profit margins nature products estimate fair value pcs based management’s evaluation weightedaverage pcs rates arrangements vsoe fair value pcs exists determining classification revenue products services verint reviews vsoe fair value training installation pcs services similar transactions stand alone services arrangements compares peers order determine reasonable consistent approximations fair values service revenue remaining amount allocated product revenue postcontract customer support renewals company’s multiple element arrangements typically provide renewal pcs terms upon expiration original term amounts pcs renewals recognized revenue ratably specified pcs renewal period professional services arrangements based type nature professionalservicesonly arrangements company recognizes revenue using either proportional performance method completed performance method time materials basis fixedfee arrangements recognized based proportional performance method company typically measures progress completion based ratio hours incurred total estimated project hours input method fixedfee arrangements recognized based completed performance method company recognizes revenue services completed obligations company recognizes revenue time materials arrangements services performed based contractually stipulated billing rates product service costs company’s product service costs include costs materials compensation benefit costs operations service personnel contractor costs royalties license fees depreciation equipment used operations service amortization capitalized software costs certain purchased intangible assets related overhead costs revenue recognized multiple periods accordance company’s revenue recognition policies material cost including hardware thirdparty software license fees deferred amortized period product revenue recognized costs recognized “deferred cost revenue” consolidated balance sheets however company made accounting policy election whereby cost installation service costs expensed incurred except arrangements recognized accordance fasb’s guidance longterm construction type contracts certain contracts revenue recognized accordance fasb’s guidance longterm construction type contracts revisions estimates costs reflected accounting period facts require revision become known costs include direct material labor costs overhead related contract performance research development net research development expense primarily consists personnel costs involved product development research development expense also includes thirdparty development programming costs amortization purchased software code services content used research development activities research development costs expensed incurred comverse technology inc subsidiaries notes consolidated financial statements continued company receives nonrefundable grants fund portion research development expenditures grants recorded reduction “research development net” consolidated statements operations software costs software developed internal use capitalized accordance fasb’s guidance application development stage amortized estimated useful life software date four years less software ready intended use costs included “property equipment net” consolidated balance sheets costs software developed sale customers capitalized accordance fasb’s guidance relating costs computer software sold leased otherwise marketed customers software costs incurred capitalized subsequent establishing technological feasibility continue general release software products capitalized costs included “other assets” consolidated balance sheets amortization capitalized costs begins period related product available general release customers recorded straightline basis estimated economic life related software products approximates pattern economic benefits expected realized economic life related software products generally seven years less sales marketing sales marketing expenses include payroll employee benefits stockbased compensation headcountrelated expenses associated sales marketing personnel costs advertising promotions programs addition company expenses customer acquisition origination costs including sales commissions incurred exception certain sales referral fees capitalized amortized ratably revenue recognition period advertising costs expensed incurred stockbased compensation company estimates fair value sharebased payment awards date grant using optionpricing model fasb’s guidance stockbased compensation expense measured grant date based fair value award cost recognized expense ratably award’s vesting period company uses blackscholes optionpricing model measure fair value stock option awards blackscholes model requires company make judgments regarding assumptions used within model significant stock price volatility assumption term awards expected life option award based actual projected employee stock option behaviors assumptions include riskfree rate return dividends expected term company estimates expected forfeitures stockbased awards grant date recognize compensation cost awards expected vest forfeiture assumption adjusted actual forfeitures occur therefore changes forfeiture assumptions may impact amount timing total amount expense recognized vesting period estimated forfeitures reassessed subsequent periods may change based new facts circumstances fair value equity instruments issued nonemployee measured using stock price measurement assumptions date earlier either commitment performance nonemployee reached ii counterparty’s performance complete expenses related nonemployee awards generally recognized period manner company incurs related liability goods services received apic pool company uses long form method determine hypothetical apic pool excess tax benefits resulting stock option exercises recognized additions apic period benefit realized event shortfall tax benefit realized less amount previously recognized periodic stockbased compensation expense recognition related deferred tax accounting shortfall charged apic extent previous excess benefits including hypothetical apic pool tax expense comverse technology inc subsidiaries notes consolidated financial statements continued income taxes income taxes provided using asset liability method income taxes ie deferred tax assets deferred tax liabilities taxes currently payablerefunds receivable tax expensebenefit recorded based amounts refundable payable current year include results difference us gaap tax reporting deferred income taxes reflect tax effect net operating losses capital losses general business credit carryforwards net tax effects temporary differences carrying amount assets liabilities financial statement income tax purposes determined enacted tax laws rates valuation allowances established management determines morelikelythannot portion deferred tax asset realized financial effect changes tax laws rates accounted period enactment subsequent realization net operating loss general business credit carryforwards acquired acquisitions accounted using acquisition method accounting recognized consolidated statement operations research development credits recorded based amount benefit company believes morelikelythannot earned additionally company required recognize consolidated financial statements tax positions determined morelikelythannot sustained upon examination based technical merits positions time company engages transactions tax consequences may subject uncertainty examples transactions include business acquisitions dispositions certain financing transactions significant judgment required assessing estimating tax consequences transactions company prepares files tax returns based interpretation tax laws regulations normal course business company’s tax returns subject examination various taxing authorities examinations may result future tax interest assessments taxing authorities determining company’s tax provision financial reporting purposes company establishes liability uncertain tax positions unless positions determined morelikelythannot sustained upon examination based technical merits financial reporting purposes company recognizes tax benefits taken tax return believes morelikelythannot sustained considerable judgment involved determining whether positions taken tax return morelikelythannot sustained company adjusts estimated liability uncertain tax positions periodically ongoing examinations settlements various taxing authorities well changes tax laws regulations interpretations consolidated tax provision given year includes adjustments prior year income tax accruals considered appropriate related estimated interest company’s policy recognize applicable interest penalties uncertain tax positions part income tax expense see note 22 income taxes part accounting business combinations purchase price allocated goodwill intangible assets impairment charges associated goodwill generally tax deductible result increased effective income tax rate quarter impairment recorded amortization expenses associated acquired intangible assets generally tax deductible pursuant company’s existing tax structure however deferred taxes recorded nondeductible amortization expenses part purchase price allocation process company taken account allocation identified intangibles among different taxing jurisdictions including nominal zero percent tax rates establishing related deferred tax liabilities income tax contingencies existing acquisition dates acquired companies evaluated quarterly adjustments recorded adjustments goodwill fasb’s guidance tax benefit future release acquisition date valuation allowances reflected tax provision rather adjustment purchase price allocation loss per share attributable comverse technology inc’s shareholders basic loss per share attributable comverse technology inc’s shareholders computed dividing net loss attributable comverse technology inc weightedaverage number cti’s shares common stock outstanding period diluted loss per share attributable comverse technology inc’s shareholders computed using weightedaverage number cti’s shares common stock dilutive common equivalent shares outstanding period common equivalent shares consist shares common stock issuable respect stock options restricted stock deferred stock units “dsus” convertible debt obligations “convertible debt obligations” see note 12 debt treasury stock method used compute dilutive effect options dsus similar instruments ifconverted method used compute dilutive effect company’s convertible debt obligations additionally purposes calculating diluted loss per share attributable comverse technology inc’s shareholders net loss attributable comverse technology inc adjusted difference verint’s starhome’s reported diluted basic earnings per share multiplied number shares common stock common share equivalents cti holds verint starhome basic diluted loss per share continuing operations discontinued operations computed dividing net loss continuing operations loss discontinued operations comverse technology inc subsidiaries notes consolidated financial statements continued net tax attributable comverse technology inc shareholders respectively basic diluted weightedaverage number cti’s shares common stock outstanding period contingencies nature relate uncertainties require management exercise judgment assessing likelihood liability incurred well estimating amount potential loss company accrues costs relating litigation claims contingent matters liabilities become probable reasonably estimable working capital position management’s plans reflected accompanying consolidated financial statements company incurred substantial losses experienced declines cash flows working capital three fiscal years ended january 31 2011 significant accumulated deficit january 31 2011 company forecasts available cash equivalents sufficient meet liquidity needs including capital expenditures cti comverse least next 12 months enhance cash position cti comverse company continues evaluate capital raising alternatives company’s forecast based upon number assumptions including use cti’s stock satisfy 825 million 1125 million payment obligation settlement agreement consolidated shareholder class action due november 15 2011 company believes assumptions reasonable however one assumptions prove incorrect one risks uncertainties attendant company business materialize company’s business operations could materially adversely affected event company may need seek new borrowings asset sales issuance equity securities management believes sources liquidity could identified reclassifications addition discontinued operations certain prior period amounts relating verint starhome reclassified conform current year presentation reclassifications certain prior period amounts material consolidated financial statements impact previously reported consolidated revenue loss operations net loss per share 2 recent accounting pronouncements standards implemented june 2009 fasb issued guidance modifies approach determining primary beneficiary variable interest entity “vie” modified approach enterprise required make qualitative assessment whether power direct activities vie significantly impact entity’s economic performance ii obligation absorb losses vie right receive benefits vie could potentially significant vie enterprise characteristics enterprise considered primary beneficiary must consolidate vie modified approach determining primary beneficiary vie effective company commencing february 1 2010 application guidance material impact consolidated financial statements january 2010 fasb issued guidance amend disclosure requirements related recurring nonrecurring fair value measurements guidance requires new disclosures transfers assets liabilities level 1 quoted prices active market identical assets liabilities level 2 significant observable inputs fair value measurement hierarchy including reasons timing transfers additionally guidance requires gross presentation activity within level 3 significant unobservable inputs roll forward presenting information purchases sales issuance settlements separately guidance effective company interim annual periods commenced february 1 2010 except gross presentation level 3 roll forward became effective company interim annual periods commenced february 1 2011 adoption guidance resulted additional disclosures anticipated result additional disclosures gross presentation level 3 roll forward effective comverse technology inc subsidiaries notes consolidated financial statements continued standards implemented september 2009 fasb issued revenue recognition guidance applicable multipledeliverable arrangements • applies multipledeliverable revenue arrangements contain software hardware elements focusing determining revenue arrangements within scope software revenue guidance • addresses separate consideration multipledeliverable arrangements excluding software arrangements establishes hierarchy determining selling price deliverable also eliminates residual method allocation requiring arrangement consideration allocated inception arrangement deliverables using relative selling price method also significantly expands disclosure requirements company elected early adopt guidance result effective prospective basis revenue arrangements entered materially modified february 1 2011 subsequent adoption portion company’s multipledeliverable arrangements contain hardware longer included within scope software revenue guidance generally results accelerated revenue recognition comparison historical treatment primarily relates arrangements multiple product deliverables well arrangements recognized ratably pcs period due absence vsoe fair value adoption guidance material impact consolidated financial statements fiscal quarter ended april 30 2011 company believes could materially increase revenue fiscal year ending january 31 2012 december 2010 fasb issued guidance perform step two goodwill impairment test reporting units zero negative carrying amounts upon adoption carrying amount reporting unit zero negative reporting entity must perform step two goodwill impairment test likely goodwill impaired date adoption determining likely goodwill impairment exists entity consider whether adverse qualitative factors indicating impairment may exist goodwill impairment recognized upon adoption guidance presented cumulativeeffect adjustment opening retained earnings adoption date reflecting change accounting principle guidance effective company interim annual periods commenced february 1 2011 company assessing impact adoption guidance consolidated financial statements fiscal year ending january 31 2012 based carrying value company’s comverse reporting unit negative february 1 2011 qualitative factors step two goodwill impairment test performed date performance impairment test ongoing company believes adoption guidance lead material impairment goodwill consolidated financial statements fiscal year ending january 31 2012 december 2010 fasb issued guidance amend disclosure requirements related reporting pro forma revenue earnings business combinations amended guidance requires acquiring entity report pro forma revenue earnings information combined entity though business combination occurred current year occurred beginning comparable prior annual reporting period addition amended guidance also expands supplemental pro forma disclosures include description nature amount material nonrecurring pro forma adjustments directly attributable business combination included reported pro forma revenue earnings company elected early adopt guidance result effective prospective basis business combinations entered february 1 2011 business combinations material individual aggregate basis entered february 1 2011 adoption guidance anticipated result additional disclosures 3 investments company accounts investments accordance fasb’s guidance relating accounting certain investments debt equity securities related pronouncements classifies debt equity securities availableforsale january 31 2011 2010 investments ars disclosed held cti date restricted pursuant settlement agreement consolidated shareholder class action cti entered december 16 2009 amended june 19 2010 january 31 2010 cash proceeds sales redemptions ars held account ubs received prior settlement agreement sales redemptions ars received original date settlement agreement prior amendment restricted january 31 2011 cash proceeds sales redemptions comverse technology inc subsidiaries notes consolidated financial statements continued ars held account ubs including interest thereon restricted see note 26 commitments contingencies auction rate securities company invested ars supported corporate issuers student loans ars portfolio supported corporate issuers consists collateralized debt obligations regulation xxx securities insurance industryrelated ars company’s ars supported corporate issuers rated aaa aa standard poor’s “sp” aaa a3 moody’s investor service “moody’s” purchased corporate issued holdings downgraded since original purchase date remaining two securities rated sp c moody’s respectively january 31 2011 ars portfolio supported student loans substantially guaranteed federal government federal family education loan program company’s ars supported student loans rated aaa sp aaa moody’s purchased ars supported student loans rated aaa bb sp aaa ba1 moody’s january 31 2011 classification august 2010 company began forecast sell remaining ars fourth quarter fiscal year ending january 31 2012 expiration restrictions sales ars use proceeds sales thereof following final payment settlement agreement consolidated shareholder class action due november 15 2011 accordingly ars classified current assets january 31 2011 beginning third quarter fiscal year ended january 31 2008 auctions ars began fail although auctions began fail ars largely continued pay interest dividends stated terms january 31 2011 ars principal amounts associated failed auctions would accessible company either successful auction occurs ii active secondary market develops iii security called iv security matures therefore company believed may able access underlying principal amounts par within twelvemonth period accordingly company reclassified ars experienced failed auctions shortterm investments longterm assets beginning period failure january 31 2010 company classified ars longterm investments except ars subject ubs put required exercised settlement agreement consolidated shareholder class action june 30 2010 exercised cti date company sold 1122 million 299 million aggregate principal amount ars fiscal years ended january 31 2011 2010 resulting gains 238 million 108 million respectively recognized “other income expense net” gains represent recovery previously recognized otherthantemporary impairments fair market value ars recovered toward par value january 31 2011 proceeds sales redemptions ars including interest received subsequent date settlement agreement consolidated shareholder class action 334 million classified within consolidated balance sheet “restricted cash bank time deposits” january 31 2010 90 million sales ars subject ubs put classified “restricted cash bank time deposits” sales proceeds 171 million ars including interest received subsequent date settlement agreement classified within “other assets” longterm restricted cash otherthantemporary impairment result historic auction failures declines credit quality fair value ars declined fair value ars determined quarterly basis company utilizing discounted cash flow model considers among factors assumptions underlying collateral ii credit risk associated issuer iii contractual maturity discounted cash flow model considers contractual future cash flows representing interest principal payments future interest payments projected using us treasury swap curves remaining term ars accordance terms specific security principal payments assumed made estimated contractual maturity date taking account applicable prepayments yields used discount payments determined based specific characteristics security key considerations determination appropriate discount rate include securities’ remaining term maturity capital structure subordination quality level collateralization complexity payout structure credit rating issuer presence absence additional insurance enhancement monoline insurers comverse technology inc subsidiaries notes consolidated financial statements continued ars company determined could assert intended hold ars fair value recovered amortized cost company recorded otherthantemporary impairment charges 04 million 69 million 865 million pretax basis fiscal years ended january 31 2011 2010 2009 respectively otherthantemporary impairment charges recorded component “other income expense net” consolidated statements operations see note 21 income expense net carrying amount company’s ars january 31 2011 724 million corresponding principal amount 944 million classified shortterm availableforsale investments “auction rate securities” carrying amount company’s ars january 31 2010 1147 million 358 million classified shortterm availableforsale investments “auction rate securities” 788 million classified longterm availableforsale investments “auction rate securities” corresponding aggregate principal amounts 426 million 1640 million respectively ubs put november 2008 cti accepted offer ubs ag “ubs” providing rights related 516 million aggregate principal amount ars held account ubs “ubs put” terms ubs put cti right obligation sell eligible ars par value ubs time period june 30 2010 july 2 2012 additionally ubs right discretion time july 2 2012 purchase ars cti par value defined price equal principal amount ars plus accrued unpaid dividends interest terms settlement agreement consolidated shareholder class action cti required exercise ubs put june 30 2010 apply proceeds exercise toward amounts payable settlement effective june 30 2010 cti exercised ubs put balance ars subject ubs put ubs purchased cti pursuant purchase right upon exercise ubs put cti approximately 426 million 90 million aggregate principal amount ars fiscal years ended january 31 2011 2010 respectively fiscal year ended january 31 2009 company recorded ubs put fair value 136 million “other assets” corresponding gain recorded “other income expense net” company elect fair value option fasb’s guidance consequently ubs put carried historical cost assessed impairment company evaluated ubs put impairment based redemptions changes fair value related ars subject ubs put fiscal years ended january 31 2011 2010 recorded 67 million 69 million respectively pretax impairment charges classified “other income expense net” due exercise june 30 2010 company recorded amounts connection ubs put january 31 2011 january 31 2010 ubs put’s carrying value 67 million recorded “prepaid expenses current assets” fair value related ars 358 million consideration ubs put corresponding principal amount 426 million following summary availableforsale securities january 31 2011 2010 comverse technology inc subsidiaries notes consolidated financial statements continued ars stated maturities excess 5 years investments original maturities three months less purchased included cash equivalents “restricted cash bank time deposits” longterm restricted cash longterm restricted cash classified within “other assets” consolidated balance sheets investments reflected tables january 31 2011 2010 include commercial paper money market funds totaling 1958 million 2366 million january 31 2011 2010 respectively unrealized gains losses january 31 2011 2010 investments unrealized loss positions january 31 2011 2010 company sold investments proceeds 573 million 1752 million 4381 million fiscal years ended january 31 2011 2010 2009 respectively gross realized gains losses company’s investments follows fiscal years presented comverse technology inc subsidiaries notes consolidated financial statements continued components comprehensive income loss related availableforsale securities follows 4 inventories net inventories net reserves 264 million 268 million january 31 2011 2010 respectively consist comverse technology inc subsidiaries notes consolidated financial statements continued 5 property equipment net property equipment net january 31 2011 2010 consist depreciation amortization expense property equipment 325 million 423 million 487 million fiscal years ended january 31 2011 2010 2009 respectively company also wrote property equipment net 13 million 64 million 46 million fiscal years ended january 31 2011 2010 2009 respectively september 16 2010 comverse ltd israeli company whollyowned subsidiary comverse inc entered agreement sale land ra’anana israel third party approximately 285 million approximately 271 million proceeds received balance held escrow cover extent necessary applicable taxes levies company recorded net gain 24 million sale land 6 business combinations results operations acquired entities included respective dates acquisition excess fair value consideration transferred sum fair value amounts assigned identifiable tangible intangible assets liabilities assumed noncontrolling interest recorded goodwill accordance fasb’s guidance verint segment february 4 2010 verint acquired outstanding shares iontas limited “iontas” privately held provider desktop analytics solutions prior acquisition verint licensed certain technology iontas whose solutions measure application usage analyze workflows help improve staff performance contact center branch backoffice operations environments verint acquired iontas among objectives expand desktop analytical capabilities workforce optimization solutions financial results iontas included consolidated financial statements february 4 2010 verint acquired iontas total consideration valued 217 million including cash consideration 177 million additional milestonebased contingent payments 38 million tied certain performance targets achieved twoyear period following acquisition date verint recorded acquisitiondate estimated fair value contingent consideration 32 million component purchase price iontas acquisitiondate fair value contingent consideration measured based probabilityadjusted present value contingent consideration expected earned transferred fair value contingent consideration remeasured january 31 2011 35 million change fair value contingent consideration acquisition date january 31 2011 recorded within selling general administrative expenses consolidated statements operations comverse technology inc subsidiaries notes consolidated financial statements continued purchase price acquire iontas also included 15 million prepayments product licenses support services procured iontas prior acquisition date partially offset 07 million trade accounts payable iontas acquisition date following table sets forth components allocation purchase price iontas 1 weightedaverage amortization period finitelived identifiable intangible assets 59 years among factors contributed recognition goodwill transaction expansion verint’s desktop analytical capabilities suite products services addition assembled workforce transaction costs primarily professional fees directly related acquisition iontas totaled 13 million expensed incurred pro forma impact iontas acquisition material consolidated operating results therefore presented revenue iontas fiscal year ended january 31 2011 also material comverse technology inc subsidiaries notes consolidated financial statements continued 7 goodwill changes carrying amount goodwill comverse verint segments fiscal years ended january 31 2011 2010 2009 follows 1 amount goodwill “all other” segment attributable starhome 2 fiscal years ended january 31 2010 2009 goodwill related certain acquisitions adjusted due earnout payments recoveries tax adjustments lease abandonment settlement comverse technology inc subsidiaries notes consolidated financial statements continued company tests goodwill impairment annually november 1 frequently events circumstances indicate potential impairment exists company performed goodwill impairment tests reporting units november 1 2010 2009 2008 annual goodwill impairment tests result impairment charges company continues monitor goodwill impairment subsequent fiscal periods fiscal year ended january 31 2011 company identified circumstances required goodwill tested impairment prior november 1 2010 annual impairment testing date due comverse reporting unit experiencing continued operating losses cash flows result company performed interim impairment test goodwill july 31 2010 comverse reporting unit determined fair value comverse reporting unit exceeded carrying value goodwill impaired date fiscal year ended january 31 2010 company identify circumstances required goodwill tested impairment prior november 1 2009 annual impairment testing date however subsequent november 1 2009 impairment testing date comverse reporting unit experienced continued operating losses cash outflows result company performed interim impairment test goodwill january 31 2010 comverse reporting unit determined fair value comverse reporting unit exceeded carrying value goodwill impaired date fiscal year ended january 31 2009 company identified circumstances required goodwill tested impairment prior november 1 2008 annual impairment testing date result company performed interim impairment test goodwill july 31 2008 netcentrex reporting unit comverse segment due continuing decrease results operations compared prior performance continued reduction orders key customer company determined carrying value netcentrex reporting unit exceeded fair value recorded impairment charge 214 million writedown remaining goodwill netcentrex reporting unit comverse segment date verint recorded noncash goodwill impairment charges 260 million consolidated statements operations fiscal year ended january 31 2009 company’s reporting units combined higher level verint standalone consolidated financial statements fair value company’s verint reporting units exceeded carrying value accordingly impairment charge recorded company’s consolidated financial statements comverse technology inc subsidiaries notes consolidated financial statements continued 8 intangible assets net acquired intangible assets january 31 2011 2010 follows acquired intangible assets operating segment january 31 2011 2010 follows amortization intangible assets 491 million 523 million 603 million fiscal years ended january 31 2011 2010 2009 respectively connection testing goodwill company also tested longlived assets including finitelived intangible assets company record impairment charge finitelived intangible assets fiscal year ended january 31 2011 company recorded noncash pretax impairment charges finitelived intangible assets netcentrex reporting unit assets 34 million 270 million fiscal years ended january 31 2010 2009 representing remainder netcentrex reporting unit’s intangible assets comverse technology inc subsidiaries notes consolidated financial statements continued estimated amortization expense five succeeding fiscal years thereafter follows 9 assets january 31 2011 2010 consist 1 represents deposits insurance policies fund severance liability see note 16 longterm liabilities capitalized software costs included assets capitalized software costs represent costs incurred primarily develop verint’s commercial software products roll forward net capitalized software costs follows comverse technology inc subsidiaries notes consolidated financial statements continued 10 accounts payable accrued expenses accounts payable accrued expenses january 31 2011 2010 consist 1 includes liabilities related company’s 401k plans cti comverse verint maintains 401k plan fulltime employees plans allow eligible employees elect contribute 60 percent annual compensation subject prescribed maximum amount respective company matches employee contributions rate 50 percent limited maximum annual matched contribution 2000 per employee contributions always fully vested respective company’s matching contributions year vest last day calendar year providing employee remains employed respective company day fiscal years ended january 31 2011 2010 2009 company’s matching contributions 401k plan amounted 25 million 25 million 25 million respectively 11 restructuring company reviews business manages costs aligns resources market demand conjunction various acquisitions result company taken several actions reduce fixed costs eliminate redundancies strengthen operational focus better position respond market pressures unfavorable economic conditions following restructuring initiatives taken place company’s comverse verint segments comverse technology inc subsidiaries notes consolidated financial statements continued comverse 2010 restructuring initiatives first quarter 2010 restructuring initiative first quarter fiscal year ended january 31 2011 comverse’s management approved restructuring plan eliminate staff positions close certain facilities order streamline comverse’s activities aggregate cost plan 70 million recorded fiscal year ended january 31 2011 severancerelated facilitiesrelated costs 60 million 09 million respectively paid fiscal year ended january 31 2011 remaining costs 01 million expected substantially paid january 31 2012 third quarter 2010 restructuring initiative third quarter fiscal year ended january 31 2011 company commenced first phase plan restructure operations comverse view towards aligning operating costs expenses anticipated revenue first phase plan includes termination certain employees located primarily israel us asia pacific united kingdom relation first phase company recorded severancerelated costs 116 million facilitiesrelated costs 02 million fiscal year ended january 31 2011 severancerelated facilitiesrelated costs 91 million 01 million respectively paid fiscal year ended january 31 2011 remaining costs 25 million expected substantially paid january 31 2012 first quarter fiscal year ending january 31 2012 comverse commenced implementation phase ii business transformation focuses process reengineering maximize business performance productivity operational efficiency see note 28 subsequent events netcentrex 2010 initiative fiscal year ended january 31 2011 comverse’s management part initiatives improve focus core business maintain ability face intense competitive pressures markets began pursuing wind netcentrex business connection wind comverse’s management approved first phase restructuring plan eliminate staff positions primarily located france relation first phase company recorded severancerelated costs 109 million paid 80 million costs fiscal year ended january 31 2011 remaining costs first phase 29 million expected substantially paid january 31 2012 alternative wind management continues evaluate strategic options netcentrex business comverse pre 2010 initiatives prior fiscal years comverse implemented number restructuring programs various objectives including changes organizational structure product offerings better align cost structure business environment improve efficiency operations reductions workforce restructuring operations abandoning closing certain facilities innovations enhance quality product offerings better meet customers’ needs improve delivery service capabilities balance severance facilitiesrelated costs relation programs 03 million january 31 2011 expected paid various dates january 2017 verint initiatives conjunction acquisition witness may 2007 verint took several actions primarily fiscal years ended january 31 2009 2008 reduce fixed costs eliminate redundancies strengthen operational focus better position respond market pressures unfavorable economic conditions result verint incurred restructuring charges 09 million fiscal year ended january 31 2009 paid 13 million accrued costs fiscal year ended january 31 2009 representing amounts accrued verint recorded additional restructuring charges relation actions 01 million fiscal year ended january 31 2010 paid fiscal year ended january 31 2011 comverse technology inc subsidiaries notes consolidated financial statements continued fiscal year ended january 31 2009 result reduced demand consulting services europe verint implemented cost reduction plan resulted elimination approximately 30 positions verint recorded paid charges 14 million fiscal year ended january 31 2009 addition fiscal year ended january 31 2009 verint implemented global cost reduction plan order reduce operating costs response uncertainty global economic environment cost reduction initiatives included restructuring plan included elimination approximately 90 positions throughout functional areas global workforce reducing utilization outside contractors consultants closing one leased facility verint recorded majority restructuring expenses charges 32 million including 28 million severance related benefits 04 million exit leased facility costs amount accrued 27 million paid fiscal year ended january 31 2009 remaining 05 million paid fiscal year ended january 31 2010 activity plan completed january 31 2010 initiatives fiscal years ended january 31 2010 2009 various insignificant initiatives occurred starhome following table represents roll forward workforce reduction restructuring activities noted comverse technology inc subsidiaries notes consolidated financial statements continued 12 debt january 31 2011 2010 debt comprised following convertible debt obligations may 2003 cti issued 4200 million aggregate principal amount convertible debt obligations “existing convertible debt obligations” january 26 2005 cti completed offer holders outstanding existing convertible debt obligations exchange existing convertible debt obligations new convertible debt obligations “new convertible debt obligations” 4200 million aggregate principal amount existing convertible debt obligations outstanding prior exchange offer approximately 4177 million aggregate principal amount representing approximately 995 original issue existing convertible debt obligations validly tendered exchange equal principal amount new convertible debt obligations convertible debt obligations mature may 15 2023 bear interest provisions fasb’s guidance relating debt conversion options may settled cash upon conversion including partial cash payments company recorded debt discount 731 million exchange date january 26 2005 new convertible debt obligations amortized amount “interest expense” utilizing effective interest method 33 year period expected life liability may 15 2008 first designated date holders right require cti repurchase new convertible debt obligations debt discount fully amortized interest expense may 15 2008 effective rate 583 convertible debt obligations secured assets company guaranteed cti’s subsidiaries terms indenture governing new convertible debt obligations cti obligation offer purchase cash new convertible debt obligations may 15 2009 meet obligations indenture cti commenced tender offer april 17 2009 upon completion tender offer may 15 2009 cti purchased using available cash 4173 million aggregate principal amount new convertible debt obligations following repurchase new convertible debt obligations january 31 2011 2010 cti 22 million aggregate principal amount outstanding convertible debt obligations dates included 01 million aggregate principal amount outstanding new convertible debt obligations 1000 principal amount new convertible debt obligations existing convertible debt obligations convertible option holder upon circumstances described shares cti’s common stock conversion price 179744 per share equal conversion rate 556347 shares per 1000 principal amount existing convertible debt obligations subject adjustment certain events conversion new convertible debt obligations made based net share settlement feature provides upon conversion cti would pay holder cash equal lesser conversion value principal amount new convertible debt obligations converted would issue holder remainder conversion value excess principal amount shares cti’s common stock comverse technology inc subsidiaries notes consolidated financial statements continued convertible debt obligations convertible quarter closing price per share period least twenty days thirty consecutive tradingday period ending last trading day preceding fiscal quarter 120 conversion price per share effect thirtieth day ii may 15 2018 five businessday period following ten consecutive tradingday period daily average trading price convertible debt obligations ten tradingday period less 105 average conversion value convertible debt obligations period iii period following date credit rating assigned convertible debt obligations sp lower “b” upon withdrawal suspension convertible debt obligations rating cti’s request iv cti calls convertible debt obligations redemption v upon specified corporate transactions august 19 2010 sp discontinued rating convertible debt obligations time became convertible reclassified current liabilities date addition cti right redeem new convertible debt obligations existing convertible debt obligations cash time may 15 2009 may 15 2008 respectively principal amount may 15 2013 may 15 2018 following termination trading cti’s common stock national securities exchange established automated overthecounter trading market united states certain instances upon change control holder convertible debt obligations right principal amount convertible debt obligations portion principal amount thereof repurchased cti cash purchase price 100 principal amount holder’s convertible debt obligations verint credit facilities may 25 2007 verint entered credit agreement group banks fund portion acquisition witness april 29 2011 verint entered credit agreement “new credit agreement” group lenders credit suisse ag administrative agent collateral agent lenders capacities “agent” ii terminated credit agreement dated may 25 2007 “prior facility” discussion relates prior facility effect fiscal year ended january 31 2011 discussion terms new credit agreement see note 28 subsequent events prior facility prior facility provided 6500 million sevenyear term loan facility 250 million sixyear revolving line credit scheduled mature may 25 2014 may 25 2013 respectively verint’s 250 million revolving line credit effectively reduced 150 million fiscal quarter ended october 31 2008 connection bankruptcy lehman brothers related subsequent termination revolving commitment prior facility june 2009 discussed borrowing capacity revolving line credit increased 750 million july 2010 quarter ended january 31 2009 verint borrowed full 150 million available revolving line credit verint repaid fiscal quarter ended january 31 2011 july 2010 prior facility amended among things change method calculation applicable interest rate margin based verint’s periodic consolidated leverage ratio b add london interbank offered rate “libor” floor 150 c change certain negative covenants including providing covenant relief respect permitted consolidated leverage ratio increase aggregate amount incremental revolving commitment term loan increases permitted prior facility 500 million 2000 million also july 2010 verint amended prior facility increase revolving line credit 150 million 750 million commitment fee unused capacity revolving line credit increased 050 075 per annum consideration july 2010 amendments verint paid 26 million lenders payments included within deferred debtrelated costs january 31 2011 fiscal year ended january 31 2010 subject amortization remaining contractual term prior facility discussed legal fees outofpocket costs directly relating amendments expensed incurred significant comverse technology inc subsidiaries notes consolidated financial statements continued substantial modifications credit terms require assessment determine whether modifications accounted reported manner formal extinguishment prior arrangement replacement new arrangement potential recognition gain loss extinguishment july 2010 prior facility amendments determined modifications prior arrangement requiring extinguishment accounting following july 2010 modifications borrowings verint’s term loan revolving credit facilities bore interest rate either verint’s election highest prime rate ii federal funds rate plus 050 iii onemonth libor subject 150 floor plus 100 b libor subject 150 floor plus either case applicable interest rate margin case prime rate federal funds rate “base rate” borrowings interest rate adjusted unison underlying index case libor borrowings interest rate adjusted end relevant libor period prior july 2010 modifications applicable interest rate margin prior facility determined reference verint’s corporate ratings twice increased february 2008 august 2008 due verint’s failure deliver certain audited financial statements lack corporate ratings subsequently decreased june 2010 verint delivered required audited financial statements obtained corporate ratings july 2010 applicable interest rate margin determined reference verint’s consolidated leverage ratio discussed could vary 250 325 respect base rate borrowings 350 425 respect libor borrowings january 31 2011 interest rate term loan 525 optional prepayments loans permitted without premium penalty customary breakage costs associated prepayment loans bearing interest based libor loans also subject mandatory prepayment requirements based upon certain asset sales excess cash flow certain events term loan originally amortized 27 consecutive quarterly installments 16 million beginning august 1 2007 followed final amortization payment remaining outstanding principal amount loan matured july 2007 verint made optional term loan prepayment 400 million 130 million applied eight immediately following principal payments 270 million applied pro rata remaining principal payments may 2009 verint made 41 million mandatory excess cash flow prepayment term loan related fiscal year ended january 31 2009 applied three immediately following principal payments may 2010 verint made 221 million mandatory excess cash flow prepayment term loan related fiscal year ended january 31 2010 124 million scheduled applied eight immediately following principal payments 97 million scheduled applied pro rata remaining principal payments based terms prior facility mandatory excess cash flow prepayment required respect verint’s fiscal year ended january 31 2011 verint paid debt issuance costs 136 million associated may 2007 origination prior facility incurred 43 million additional costs subsequent modifications prior facility deferred classified within “other assets” deferred costs subject amortization original remaining term prior facility applicable amortization deferred costs associated term loan recorded using effective interest rate method amortization deferred costs associated revolving credit facility recorded straightline basis fiscal years ended january 31 2011 2010 2009 verint incurred 262 million 226 million 352 million interest expense respectively borrowings prior facility verint also recorded amortization deferred debt issuance costs 28 million 19 million 17 million fiscal years ended january 31 2011 2010 2009 respectively reported within interest expense included deferred debtrelated cost amortization fiscal years ended january 31 2011 2010 03 million 01 million respectively additional amortization associated principal prepayments fiscal years verint’s obligations prior facility guaranteed certain verint’s domestic subsidiaries including witness secured substantially assets verint systems subsidiaries prior facility guaranteed cti secured assets comverse technology inc subsidiaries notes consolidated financial statements continued prior facility contained customary affirmative negative covenants credit facilities type including limitations verint subsidiaries respect indebtedness liens dividends distributions acquisitions dispositions assets investments loans transactions affiliates nature business accordingly prior facility precluded verint systems paying cash dividends limited ability make asset distributions stockholders including cti prior facility contained one financial covenant required verint exceed certain consolidated leverage ratio fiscal quarter end respect applicable trailing twelve months consolidated leverage ratio defined verint’s consolidated net total debt divided consolidated earnings interest taxes depreciation amortization “ebitda” defined agreement amended july 2010 consolidated leverage ratio permitted exceed 3501 periods october 31 2011 permitted exceed 3001 quarterly periods thereafter january 31 2011 verint compliance requirements prior facility also included requirement verint submit audited consolidated financial statements lenders within 90 days end fiscal year beginning financial statements fiscal year ended january 31 2010 verint failed deliver audited consolidated financial statements required agreement provided thirty day period cure default event default would occur april 2010 verint entered amendment prior facility extend due date delivery audited consolidated financial statements related documentation fiscal year ended january 31 2010 may 1 2010 june 1 2010 consideration amendment verint paid 09 million lenders included within deferred debtrelated costs subject amortization remaining term prior facility discussed legal fees outofpocket costs directly relating amendment expensed incurred significant prior facility contained customary events default corresponding grace periods event default occurred continuing lenders could terminate andor suspend obligations make loans issue letters credit prior facility andor accelerate amounts due andor exercise rights remedies case certain events default related insolvency receivership commitments lenders would automatically terminated outstanding loans would become immediately due payable may 25 2007 concurrently entry prior facility verint entered payfixedreceivevariable interest rate swap agreement multinational financial institution notional amount 4500 million mitigate portion risk associated variable interest rates term loan original term interest rate swap extended may 2011 however july 2010 verint terminated interest rate swap exchange payment 217 million counterparty made august 2010 representing approximate present value expected remaining quarterly settlement payments verint otherwise would owed swap agreement verint recorded 31 million loss interest rate swap fiscal year ended january 31 2011 see note 13 “derivatives financial instruments” details regarding interest rate swap agreement comverse ltd lines credit january 31 2010 comverse ltd whollyowned israeli subsidiary comverse inc 250 million line credit bank used various performance guarantees customers vendors letters credit foreign currency transactions ordinary course business line credit available borrowings line credit bears interest subject renewal annual basis comverse ltd required maintain cash balances bank less capacity line credit times regardless amounts utilized line credit june 2010 line credit decreased 150 million corresponding decrease cash balances comverse ltd required maintain bank 150 million december 2010 line credit decreased 100 million corresponding decrease cash balances comverse ltd required maintain bank 100 million january 31 2011 2010 comverse ltd utilized 40 million 77 million respectively capacity line credit guarantees foreign currency transactions comverse technology inc subsidiaries notes consolidated financial statements continued january 31 2010 comverse ltd additional line credit bank 200 million used borrowings various performance guarantees customers vendors letters credit foreign currency transactions ordinary course business line credit bears interest borrowings thereunder subject renewal annual basis borrowings line credit bear interest annual rate libor plus variable margin determined based bank’s underlying cost capital comverse ltd required maintain cash balances bank less capacity line credit times regardless amounts borrowed utilized line credit june 2010 line credit decreased 150 million corresponding decrease cash balances comverse ltd required maintain bank 150 million january 31 2010 comverse ltd outstanding borrowings line credit december 2010 comverse ltd borrowed repaid 60 million line credit january 2011 comverse ltd borrowed 60 million line credit remained outstanding january 31 2011 weightedaverage interest rate outstanding borrowings fiscal year ended january 31 2011 1425 fiscal quarter ended april 30 2011 comverse ltd repaid full borrowings line credit january 31 2011 2010 comverse ltd utilized 73 million 98 million respectively capacity line credit guarantees foreign currency transactions comverse ltd’s requirement maintain cash balances banks disclosed lines credit financial covenant provisions cash balances required maintained banks classified within consolidated balance sheets “restricted cash bank time deposits” january 31 2011 2010 debt maturities company’s debt maturities follows 13 derivatives financial instruments company entered derivative arrangements manage variety risk exposures fiscal years ended january 31 2011 2010 2009 including interest rate risk associated verint’s prior facility foreign currency risk related forecasted foreign currency denominated payroll costs company’s comverse verint starhome subsidiaries company assessed counterparty credit risk party related derivative financial instruments periods presented forward contracts fiscal years ended january 31 2011 2010 2009 comverse entered series shortterm foreign currency forward contracts shortterm participating foreign currency forward contracts limit variability exchange rates us dollar “usd” new israeli shekels “nis” hedge probable cash flow exposure expected future payroll expense transactions qualified cash flow hedge accounting fasb’s guidance hedge ineffectiveness accordingly company recorded changes fair value forward contracts part “total comprehensive loss” consolidated statements equity amounts reclassified consolidated statements operations effects item hedged recognized consolidated statements operations comverse derivatives outstanding january 31 2011 shortterm nature due contractually settle within next twelve months comverse technology inc subsidiaries notes consolidated financial statements continued fiscal years ended january 31 2011 2010 2009 verint entered shortterm foreign currency forward contracts mitigate risk fluctuations foreign currency exchange rates primarily relating compensation related expenses denominated currencies usd primarily nis canadian dollar verint’s joint venture singapore dollar functional currency also utilizes foreign exchange forward contracts manage exposure exchange rate fluctuations related settlement liabilities denominated usd certain foreign currency forward contracts designated hedging instruments fasb’s guidance therefore gains losses changes fair values reported “other income expense net” consolidated statements operations changes fair value effective forward contracts qualifying cash flow hedge accounting fasb’s guidance recorded part “total comprehensive loss” consolidated statements equity amounts reclassified consolidated statements operations effects item hedged recognized consolidated statements operations verint derivatives outstanding january 31 2011 shortterm nature generally maturities longer twelve months january 31 2011 several contracts extended beyond twelve months settling various dates february 2012 fiscal years ended january 31 2011 2010 starhome entered shortterm foreign currency forward contracts mitigate risk fluctuations foreign currency exchange rates mainly relating payroll costs denominated nis certain foreign currency forward contracts designated hedging instruments therefore gains losses changes fair values reported “other income expense net” consolidated statements operations fiscal year ended january 31 2011 certain starhome shortterm foreign currency forward contracts designated hedging instruments therefore extent effective changes fair value recorded “total comprehensive income” consolidated statements equity amounts reclassified consolidated statements operations effects item hedged recognized consolidated statements operations starhome derivatives outstanding january 31 2011 shortterm nature due contractually settle within next twelve months starhome enter foreign currency forward contracts fiscal year ended january 31 2009 interest rate swap agreement may 25 2007 concurrently entry prior facility verint executed payfixedreceivevariable interest rate swap agreement multinational financial institution mitigate portion risk associated variable interest rates term loan prior facility verint paid fixed interest 518 received variable interest equal threemonth libor notional amount 4500 million original term interest rate swap agreement extended may 2011 cash settlements counterparty occurred quarterly basis july 30 2010 verint entered agreement terminate interest rate swap agreement exchange payment 217 million counterparty representing approximate present value expected remaining quarterly settlement payments otherwise would occurred interest rate swap agreement verint paid obligation august 3 2010 verint recorded 31 million loss interest rate swap fiscal year ended january 31 2011 interest rate swap agreement designated hedging instrument derivative accounting guidance gains losses changes fair value therefore reported “other income expense net” comverse technology inc subsidiaries notes consolidated financial statements continued following tables fiscal years ended january 31 2011 2010 summarize company’s derivative positions respective fair value 1 total notional amount interest rate swap 4500 million comverse technology inc subsidiaries notes consolidated financial statements continued following tables fiscal years ended january 31 2011 2010 2009 summarize company’s classification gains losses derivative instruments 1 amounts reclassified accumulated comprehensive income loss statement operations classified operating expenses comverse technology inc subsidiaries notes consolidated financial statements continued components comprehensive income loss related cash flow hedges follows 14 fair value measurements assets liabilities measured fair value recurring basis fair value financial instruments estimated company using available market information appropriate valuation methodologies however considerable judgment required interpreting market data develop estimates fair value accordingly estimates presented herein necessarily indicative amounts company could realize market exchange use different market assumptions andor estimation methodologies may material effect estimated fair value amounts money market funds company values assets using quoted market prices funds commercial paper company uses quoted prices similar assets liabilities ars company determines fair value ars quarterly basis utilizing discounted cash flow model considers among factors assumptions underlying collateral ii credit risk associated issuer iii contractual maturity discounted cash flow model considers contractual future cash flows representing interest principal payments future interest payments projected using us treasury swap curves remaining term ars accordance terms specific security principal payments assumed made estimated contractual maturity date taking account applicable prepayments yields used discount payments determined based specific characteristics security key considerations determination appropriate discount rate include securities’ remaining term maturity capital structure subordination quality level collateralization complexity payout structure credit rating issuer presence absence additional insurance enhancement monoline insurers contingent consideration company values contingent consideration using estimated probabilityadjusted discounted cash flow model fair value measurement based significant inputs observable market fair value contingent consideration remeasured reporting period changes fair value recorded earnings derivative assets liabilities fair value derivative instruments based quotes data received counterparties third party financial institutions quotes reviewed reasonableness discounting future estimated cash flows contracts considering terms maturities contracts markets rates similar contracts using readily observable market prices thereof comverse technology inc subsidiaries notes consolidated financial statements continued following tables present financial instruments according fair value hierarchy defined fasb’s guidance january 31 2011 2010 financial assets liabilities measured fair value recurring basis january 31 2011 financial assets liabilities measured fair value recurring basis january 31 2010 1 january 31 2011 1624 million commercial paper money market funds classified “cash equivalents” 334 million money market funds classified “restricted cash bank time deposits” january 31 2010 2105 million commercial paper money market funds classified “cash equivalents” 90 million money market funds classified “restricted cash bank time deposits” 171 million money market funds classified “other assets” longterm restricted cash comverse technology inc subsidiaries notes consolidated financial statements continued following table summary changes fair value level 3 financial assets liabilities fiscal years ended january 31 2011 2010 company recognize transfers levels fair value measurement hierarchy fiscal years ended january 31 2011 2010 assets liabilities measured fair value recurring basis addition assets liabilities measured fair value recurring basis company also measures certain assets liabilities fair value nonrecurring basis company measures nonfinancial assets including goodwill intangible assets property plant equipment fair value indication impairment assets recorded fair value impairment charge recognized details regarding impairment reviews see note 1 organization business summary significant accounting policies following table presents fair value financial instruments january 31 2011 2010 carried cost consolidated balance sheets carrying amounts cash equivalents restricted cash bank time deposits accounts receivable accounts payable reasonable estimates fair value comverse technology inc subsidiaries notes consolidated financial statements continued ubs put recorded inception fair value 136 million subsequently assessed impairment company determined fair value ubs put 67 million january 31 2010 recognition pretax impairment charge 69 million using discounted cash flow technique incorporates market interest yield curve adjustments duration optionality risk profile considered significant unobservable inputs determining market interest yield curve company considered credit rating ubs see note 3 investments ubs put fair value based inputs consistent asset included level 3 fair value hierarchy due exercise june 30 2010 company recorded amounts connection ubs put january 31 2011 january 31 2011 estimated fair value verint’s term loan borrowings 5862 million january 31 2010 estimated fair values verint’s term loan revolving credit borrowings outstanding 5726 million 150 million respectively estimated fair value term loan based upon estimated bid ask prices determined agent responsible syndication verint’s term loan fair value revolving credit facility estimated equal principal amount outstanding january 31 2010 january 31 2011 fair value comverse ltd’s borrowings line credit estimated equal principal amount outstanding carrying amount convertible debt obligations reported consolidated balance sheet january 31 2011 2010 22 million company determined fair value january 31 2011 2010 08 million 12 million respectively 15 leases company leases office warehouse space well certain equipment vehicles noncancelable operating leases gross rent expense 447 million 495 million 449 million fiscal years ended january 31 2011 2010 2009 respectively sublease income 46 million 44 million 43 million fiscal years ended january 31 2011 2010 2009 respectively majority company’s leases include options allow renew extend lease term beyond initial lease period subject terms conditions agreed upon inception lease terms conditions include rental rates agreed upon inception lease could represent belowor abovemarket rental rates later life lease depending upon market conditions time renewal extension company entered various sublease agreements lease excess space january 31 2011 minimum annual rent obligations excluding taxes maintenance passthroughs sublease income received noncancelable subleases minimum net rentals company follows fiscal years ending january 31 comverse technology inc subsidiaries notes consolidated financial statements continued 16 longterm liabilities longterm liabilities january 31 2011 2010 consist following severance israeli law company obligated make severance payments employees israeli subsidiaries basis individual’s current salary length employment company’s liability severance pay calculated pursuant israel’s severance pay law based recent monthly salary employee multiplied number years employment balance sheet date employees entitled one month’s salary year employment portion thereof gross severance liability january 31 2011 2010 619 million 686 million respectively portion liability funded monthly deposits insurance policies restricted used satisfy severance payments amount deposits classified “other assets” severance pay fund amounts 447 million 478 million january 31 2011 2010 respectively see note 9 assets 17 research development arrangements portion company’s research development operations located israel certain company’s subsidiaries derive benefits participation programs sponsored government israel support research development activities israel certain company’s research development activities include projects partially funded office chief scientist ministry industry trade state israel “ocs” funding organization reimburses portion company’s research development expenditures approved project budgets although government israel proprietary rights ocsfunded products specific restriction ocs regard export ocsfunded products certain circumstances may limitations ability transfer technology knowhow manufacture ocsfunded products outside israel limitations could result requirement pay increased royalties redemption fee calculated according applicable regulations company’s gross research development expenses fiscal years ended january 31 2011 2010 2009 2601 million 2734 million 3358 million respectively amounts reimbursable ocs others fiscal years ended january 31 2011 2010 2009 70 million 62 million 66 million respectively recorded reduction gross research development expenses within “research development net” comverse technology inc subsidiaries notes consolidated financial statements continued 18 stockbased compensation stockbased compensation expense associated awards made cti subsidiaries included company’s consolidated statements operations follows consolidated stockbased compensation expense consists expense recognized awards related separate cti verint starhome stock incentive plans following table presents company’s stockbased compensation expense included consolidated statements operations based underlying subsidiary plans fiscal years ended january 31 2011 2010 2009 1 stock options purchase cti’s common stock deferred stock awards awarded employees cti’s subsidiaries including employees verint starhome accordingly related stockbased compensation expense recognized respective subsidiary statements operations 2 verint’s stockbased compensation expense consists stock options purchase verint common stock verint phantom stock units verint restricted stock awards restricted stock units company recognize excess tax benefits fiscal years ended january 31 2011 2010 2009 comverse technology inc subsidiaries notes consolidated financial statements continued following discussion material stockbased compensation plans company cti plans overview cti’s stock incentive plans cti granted stock options deferred stock units “dsus” awards various stock incentive plans fiscal years ended january 31 2011 2010 2009 plans generally permit issuance incentive nonqualified stock options dsu awards restricted stock appreciation rights “sars” employees officers directors cti subsidiaries terminate ten years termination plan affect awards outstanding plan plans generally provide unexercised options expire within 90 days termination service company stock options designated “incentive stock options” plans may granted exercise price less fair market value underlying shares date grant subject certain limitations specified section 422 internal revenue code stock options intended qualify incentive stock options may granted price fair market value stock options underlying shares subject adjustment accordance terms plans event stock dividends recapitalizations similar transactions stock options dsus generally vest three fouryear period date grant right exercise maximum term ten years stock options granted stockbased compensation expense recognized straightline basis life vesting period reduced estimated forfeitures upon exercise stock options issuance restricted stock dsu awards issuance shares stock incentive plans cti issues authorized unissued common stock unless treasury stock available 1996 stock option plan cti’s 1996 stock option plan provided stock options qualify incentive stock options section 422a internal revenue code may granted key employees nonqualifying options may granted employees independent contractors directors company plan authorized 3 million shares cti’s common stock granted plan provided qualified awards exercise price based fair value cti’s common stock date grant except individuals hold 10 percent interest cti exercise price less 110 percent share price plan also provided nonqualified awards exercise price lower 010 per share due lapse ten years date approval awards may granted cti plan boston technology inc 1996 stock option plan authorized granting awards form stock options qualified nonqualified cti’s common stock form dsus restricted unrestricted stock awards sars plan authorized 585 million shares options purchase shares cti’s common stock granted plan provided qualified stock option awards exercise price based fair value cti’s common stock date grant except individuals hold 10 percent interest cti exercise price less 110 percent share price due lapse ten years date approval awards may granted cti plan 1997 1999 stock incentive compensation plans cti’s 1997 1999 stock incentive compensation plans authorized granting awards form stock options qualified nonqualified well cti’s common stock form dsu restricted stock awards additionally plan provided sars may issued officer key employee company plans authorized 75 70 million shares options respectively purchase shares cti’s common stock granted plans provided qualified awards exercise price based fair value cti’s common stock date grant except individuals hold 10 percent interest cti exercise price less 110 percent share price plans also provided exercise price nonqualified awards form stock options may less fair market value cti’s common stock date grant determined compensation committee due lapse ten years dates approval awards may granted cti plans comverse technology inc subsidiaries notes consolidated financial statements continued 2000 2001 2004 2005 stock incentive compensation plans cti’s 2000 stock incentive compensation plan authorized 2001 2004 2005 stock incentive compensation plans authorize granting awards form stock options qualified nonqualified well cti’s common stock form dsus restricted stock awards additionally plans sars may issued officer key employee company 2000 plan authorized 90 million 2001 2004 2005 plans authorize 97 25 60 million shares options purchase shares cti’s common stock granted plans maximum term 10 years 2000 plan terminated september 2010 additional awards may granted cti plan 2001 2004 2005 plans scheduled terminate june 2011 2014 2015 respectively plans provide qualified awards exercise price based fair value cti’s common stock date grant except individuals hold 10 percent interest cti exercise price less 110 percent share price plans also provide exercise price nonqualified awards form stock options may less fair market value cti’s common stock date grant determined compensation committee cti’s board directors provided discount expressly granted lieu reasonable amount salary bonus discount shall exceed 15 percent fair market value cti’s common stock date grant restricted period result delinquency filing periodic reports since april 2006 cti ineligible use registration statements form s8 offer sale equity securities including exercise stock options employees consequently ensure violate applicable securities laws cti prohibited exercise vested stock options april 2006 time determined cti filed periodic reports required 12month period effective registration statement form s8 file sec period referred “restricted period” april 2006 modification restricted period certain employees left company whose vested stock options lapsed result prohibition exercise stock options planmandated postemployment exercise period order accommodate former employees company extended exercise rights respect vested stock options later 90 days date termination employment ii 30 days restricted period expired however accommodation extend stock option’s term beyond contractual termination date typically ten years date grant company accounted additional time exercise afforded employees modifications original awards date restricted period commenced certain individuals received additional time exercise terminated employees time modification modifications accounted using liability method accounting referred “april 2006 modification” july 2006 modification consistent commitment employees upon approval board directors cti voluntarily compensated cash current employees holding inthemoney options whose original 10year terms expired restricted period resulting modification charge fiscal years ended january 31 2011 2010 2009 changes fair value awards decreased increased company’s liability compensation expense 05 million 02 million 39 million respectively cti made cash payments expired stock options 44 thousand 1 thousand 19 million fiscal years ended january 31 2011 2010 2009 respectively referred “july 2006 modification” comverse technology inc subsidiaries notes consolidated financial statements continued liability awards primarily result aforementioned decision made restricted period cash settle expired cti options held current employees modification certain cti awards held employees terminated april 2006 modification could still exercise awards april 2006 modification awards accounted liability method accounting liability method cti measures award balance sheet date based estimated fair value compensation expense period thereafter based change fair value award january 31 2011 2010 company liability related awards 03 million 14 million respectively related stockbased compensation expense fiscal years ended january 31 2011 2010 2009 includes credits expense 05 million 02 million 37 million respectively restricted awards stock options cti grants restricted stock dsu awards subject vesting provisions collectively “restricted awards” certain key employees fiscal years ended january 31 2011 2010 2009 cti granted restricted awards valued 144 million 78 million 168 million respectively based fair market value cti’s common stock date grant cti’s stockbased compensation associated restricted awards net credits forfeitures fiscal years ended january 31 2011 2010 2009 94 million 93 million 103 million respectively primarily included “selling general administrative” consolidated statements operations addition restricted awards cti granted dsu awards covering aggregate 246200 shares common stock vesting delivery conditioned upon achievement certain performance criteria “performance awards” fiscal year ended january 31 2010 performance awards valued 17 million based fair market value cti’s common stock date grant however cti later determined performance criteria unlikely achieved stockbased compensation expense recorded awards performance awards cancelled subsequently performance criteria achieved january 31 2011 11137991 stock options purchase cti’s common stock 2152817 restricted awards outstanding 4226102 shares available future grant cti’s stock incentive compensation plans following table summarizes exercisable options vested restricted awards january 31 2011 cti committed issue 690880 shares restricted award holders elected deferred delivery vested awards comverse technology inc subsidiaries notes consolidated financial statements continued following table presents combined activity cti stock incentive plans fiscal years ended january 31 2011 2010 2009 1 fair value options vested 06 million 23 million 93 million fiscal years ended january 31 2011 2010 2009 respectively 2 fiscal year ended january 31 2009 cti canceled 920146 stock options granted previous years replaced fiscal year address internal revenue code section 409a noncompliance associated previously backdated stock options vested remained unexercised december 31 2004 3 total fair value restricted awards vested fiscal years ended january 31 2011 2010 2009 88 million 88 million 82 million respectively 4 part settlement agreements consolidated shareholder derivative action another separate litigation matter 143500 vested stock options held former directors former employee canceled june 2010 comverse technology inc subsidiaries notes consolidated financial statements continued 5 outstanding stock options january 31 2011 include 399068 nonvested stock options weightedaverage grant date fair value 234 expected term 398 years total fair value 09 million unrecognized compensation expense related remaining nonvested stock options 07 million expected recognized weightedaverage period 134 years 6 january 31 2011 unrecognized compensation expense related nonvested restricted awards 121 million expected recognized weightedaverage period 189 years 7 january 31 2011 options purchase aggregate 10738923 shares cti’s common stock vested exercisable plans following table summarizes information cti’s stock options january 31 2011 january 31 2011 aggregate intrinsic value 06 million 06 million outstanding exercisable stock options respectively fair value assumptions cti estimated fair value stock options date grant modification utilizing blackscholes option valuation model assumptions grants significant modifications detailed fair value assumptions july 2006 modification period july 2006 january 31 2011 follows fair value assumptions stock options granted fiscal year ended january 31 2010 weightedaverage grant date fair value 234 follows grants fiscal year ended january 31 2011 net grants fiscal year ended january 31 2009 cti based riskfree interest rate implied yields us treasury zerocoupon issues equivalent remaining term time grant comverse technology inc subsidiaries notes consolidated financial statements continued cti used implied volatility approach believes implied volatility better indicator expected volatility generally reflective historical volatility expectation future volatility differ historical volatility cti used options traded exchange estimate implied volatility stock subsequent february 1 2007 cti could determine implied volatility trading options ceased due delisting common stock nasdaq historical price stock volatility used proxy expected volatility sufficient volume trading traded options cti resume using implied volatility expected term years represents period time awards granted expected outstanding based historical exercise patterns assumption dividend yield zero cti historically paid dividends expect foreseeable future verint plans overview verint’s stock incentive plans verint consolidated subsidiary cti whose common stock publicly traded granted stock options restricted stock various stock incentive plans generally permit issuance awards deferred stock restricted stock awards “rsas” restricted stock units “rsus” incentive nonqualified stock options performance awards performance compensation awards sars employees directors consultants verint subsidiaries affiliates awards granted plans generally subject multiyear vesting periods generally expire 10 years less date grant verint recognizes compensation expense awards straightline basis life vesting period reduced estimated forfeitures upon exercise stock options issuance restricted stock issuance shares plans verint generally issue new shares verint systems’ common stock occasionally may issue treasury shares january 31 2011 1766931 stock options purchase shares verint systems’ common stock outstanding 2647451 shares available future grants verint’s stock incentive plans restricted period result verint’s previous inability current periodic reporting obligations federal securities laws verint ineligible use registration statements form s8 offer sale equity securities including exercise stock options employees consequently verint prohibited exercise vested stock options commencing march 2006 verint modified grants held terminated employees extending time terminated employee would normally exercise vested stock option awards modification communicated employees time termination verint accounted additional time exercise afforded employees modifications original awards date employee termination resulting modification expense fiscal years ended january 31 2011 2010 2009 01 million 02 million 07 million respectively verint became current periodic reporting obligations federal securities laws june 2010 resumed allowing option exercises equity initiative plans june 18 2010 excess tax benefits recognized verint fiscal years ended january 31 2011 2010 2009 restricted awards verint grants restricted stock plans includes grants rsas rsus fair value awards equivalent market values verint systems’ common stock grant date principal difference instruments rsus shares verint systems’ common stock rights privileges thereof including voting dividend rights applicable vesting date holder rsu becomes entitled share verint systems’ common stock rsas rsus subject certain restrictions forfeiture provisions prior vesting unrecognized compensation expense related unvested rsas rsus expected vest january 31 2011 approximately 131 million remaining weighted average vesting periods approximately 03 years 07 years respectively expense expected recognized total fair value restricted stock awards units vested fiscal years ended january 31 2011 2010 2009 435 million 35 million 29 million respectively comverse technology inc subsidiaries notes consolidated financial statements continued following table summarizes verint’s exercisable options vested restricted awards following table presents combined activity certain verint stock incentive plans fiscal years ended january 31 2011 2010 2009 1 total fair value restricted shares vested fiscal years ended january 31 2011 2010 2009 435 million 35 million 29 million respectively 2 others includes addition 8485 shares deduction 2542 shares verint systems’ common stock cancelled one verint’s stock incentive plans available grant 3 outstanding stock options purchase verint systems’ common stock january 31 2011 include 2551 nonvested stock options weightedaverage grant date fair value 1133 expected term 483 years total fair value 29 comverse technology inc subsidiaries notes consolidated financial statements continued thousand total unrecognized compensation cost related nonvested options 19 thousand expected recognized weightedaverage period 01 years 4 january 31 2011 unrecognized compensation expense related nonvested rsas rsus 131 million expected recognized weightedaverage period 03 07 years respectively 5 january 31 2011 stock options purchase aggregate 1764380 shares verint systems’ common stock vested currently exercisable plans 6 total fair value vested stock options purchase verint systems’ common stock 302 million 696 million 683 million fiscal years ended january 31 2011 2010 2009 respectively intrinsic value verint stock options exercised 184 million cash received exercise verint stock options 408 million fiscal year ended january 31 2011 following table summarizes information verint’s stock options january 31 2011 january 31 2011 aggregate intrinsic value 131 million outstanding exercisable stock options verint granted stock options subsequent january 31 2006 verint phantom stock units fiscal year ended january 31 2007 verint began awarding phantom stock units nonofficer employees settle expected settle cash payments upon vesting pursuant terms form phantom stock award agreement approved verint board directors phantom stock units provide payment cash bonus equivalent value verint common stock vesting date award phantom stock units generally multiyear vesting generally subject vesting conditions verint equity awards granted date verint recognizes compensation expense phantom stock units straightline basis reduced estimated forfeitures phantom stock units accounted liabilities value tracks verint’s stock price subject market volatility total accrued liability verint phantom stock units 98 million 145 million january 31 2011 2010 respectively total cash payments made upon vesting verint phantom stock units 229 million 25 million 03 million fiscal years ended january 31 2011 2010 2009 respectively comverse technology inc subsidiaries notes consolidated financial statements continued following table summarizes verint phantom stock unit activity fiscal years ended january 31 2011 2010 2009 phantom stock units granted fiscal years ended january 31 2011 2010 2009 primarily vest twoyear threeyear periods subject applicable performance conditions unrecognized compensation expense related 04 million unvested phantom stock units expected vest january 31 2011 approximately 35 million based verint’s stock price 3446 january 31 2011 remaining weightedaverage vesting period approximately 09 years expense expected recognized 19 discontinued operations december 3 2010 “effective date” ulticom inc completed merger “merger” affiliate platinum equity advisors llc “platinum equity” pursuant terms conditions merger agreement dated october 12 2010 “merger agreement” utah intermediate holding corporation “uihc” delaware corporation utah merger corporation “merger sub” new jersey corporation whollyowned subsidiary uihc result merger ulticom inc became whollyowned subsidiary uihc immediately prior effective time merger ulticom inc paid special cash dividend aggregate amount 641 million “dividend” amounting 574 per share shareholders record november 24 2010 cti received 424 million respect dividend pursuant terms merger ulticom inc’s shareholders cti received 233 cash without interest per share common stock ulticom inc payment dividend shares ulticom inc common stock held cti purchased affiliate platinum equity pursuant terms conditions share purchase agreement dated october 12 2010 following payment dividend immediately prior consummation merger consideration thereof cti received aggregate consideration 172 million amounting 233 per share consisting approximately 132 million cash ii issuance merger sub cti two noninterest bearing promissory notes originally aggregate principal amount 40 million first promissory note originally amount 14 million subsequently reduced 07 million connection purchase certain products ulticom payable cti 14 months effective date second promissory note amount 26 million payable cti following determination ulticom’s revenue 24month period beginning january 1 2011 subject reduction 40 difference 75 million revenue generated ulticom period note carrying amount january 31 2011 prior sale ulticom inc majorityowned subsidiary cti ulticom constituted one company’s reporting segments ulticom inc previously classified held sale probable december 2 2010 date noncontrolling shareholders approved sale results operations ulticom including gain sale ulticom 29 million net tax reflected discontinued operations less applicable income taxes separate component net loss company’s consolidated statements operations fiscal periods presented assets liabilities ulticom reflected discontinued operations company’s consolidated balance sheet january 31 2010 comverse technology inc subsidiaries notes consolidated financial statements continued results ulticom’s operations included discontinued operations follows company previously entered transactions ulticom supply circuit boards expected transactions continue purchases made company ulticom prior ulticom sale fiscal years ended january 31 2011 2010 2009 11 million 30 million 42 million respectively amounts eliminated consolidated financial statements purchases made company ulticom subsequent ulticom sale fiscal year ended january 31 2011 03 million held inventory january 31 2011 upon sale company’s products utilize circuit boards cost circuit boards reflected “product costs” consolidated statements operations assets liabilities ulticom presented discontinued operations consolidated balance sheet january 31 2010 follows comverse technology inc subsidiaries notes consolidated financial statements continued 20 loss per share attributable comverse technology inc’s shareholders purposes computing basic loss per share attributable comverse technology inc’s shareholders nonvested shares restricted stock issued company vest solely basis service condition excluded weighted average number shares common stock outstanding restricted stock allow holders receive dividends participate undistributed earnings incremental potential shares common stock options nonvested restricted stock dsus included computation diluted loss per share attributable comverse technology inc’s shareholders except effect would antidilutive dilutive impact subsidiary stockbased awards comverse technology inc’s reported net loss recorded adjustment net loss purposes calculating loss per share calculation loss per share attributable comverse technology inc’s shareholders fiscal years ended january 31 2011 2010 2009 follows result company’s net loss attributable comverse technology inc fiscal years ended january 31 2011 2010 2009 diluted loss per share attributable comverse technology inc’s shareholders computation excludes 09 million 07 million 11 million contingently issuable shares respectively effect would antidilutive fasb’s guidance requires contingently convertible instruments included diluted earnings per share dilutive regardless whether market price trigger met convertible debt obligations meet definition contingently convertible instrument convertible debt obligations excluded computation diluted earnings per share attributable comverse technology inc’s shareholders effect would anti dilutive fiscal years ended january 31 2011 2010 2009 comverse technology inc subsidiaries notes consolidated financial statements continued 21 income expense net income expense net fiscal years ended january 31 2011 2010 2009 comprised following 22 income taxes components united states foreign loss continuing operations income taxes follows provision benefit income taxes consists following comverse technology inc subsidiaries notes consolidated financial statements continued reconciliation us federal statutory income tax rate effective tax rate loss income tax provision equity losses earnings consolidated affiliate follows significant differences impact effective tax rate relate changes valuation allowance tax contingencies dividend received deduction difference us federal statutory rate rates foreign jurisdictions us tax effect foreign earnings remeasurement certain foreign assets ulticom sale addition significant changes include investments affiliates certain nondeductible executive compensation expenses comverse technology inc subsidiaries notes consolidated financial statements continued deferred income taxes provided effects temporary differences amounts assets liabilities recognized financial reporting purposes amounts recognized income tax purposes significant components company’s deferred tax assets deferred tax liabilities follows company’s operations israel granted “approved enterprise” status investment center israeli ministry industry trade labor makes company eligible tax benefits israeli law encouragement capital investments 1959 terms program income attributable approved enterprise exempt income tax period two years subject reduced income tax rate subsequent five fifteen years generally 1015 depending percentage foreign investment company us income foreign withholding taxes recorded permanently reinvested earnings certain subsidiaries aggregating 1547 million 2074 million 2712 million january 31 2011 2010 2009 respectively time determination amounts deferred us federal state income taxes foreign withholding taxes related foreign subsidiaries practicable january 31 2011 1622 million earnings certain subsidiaries considered permanently reinvested therefore related deferred us income taxes foreign withholding taxes provided portion earnings subsidiaries following countries considered permanently reinvested australia israel brazil canada hong kong new zealand mexico portugal netherlands united kingdom company net operating loss carryforwards tax purposes “nols” deferred tax benefits available offset future taxable income comverse technology inc subsidiaries notes consolidated financial statements continued company’s gross nols tax return purposes follows us federal net operating loss carry forwards expire various years ending january 31 2016 january 31 2031 us state net operating loss carry forwards expire various years ending january 31 2012 january 31 2031 january 31 2011 574 million foreign nols indefinite carryforward periods certain federal state foreign loss carryforwards credits subject internal revenue code section 382 similar provisions impose limitations utilization following certain changes ownership entity generating loss carryforward table reflects gross nols tax return purposes different nols financial statement purposes primarily due reduction nols financial statement purposes fasb’s guidance accounting uncertainty income taxes company us federal state foreign tax credit carryforwards approximately 422 million 387 million january 31 2011 2010 respectively utilization carryforwards subject limitations federal amt credit expiration date foreign tax credit carryforwards expire various years ending january 31 2012 2031 accordance fasb’s guidance relating accounting uncertainty income taxes company recognizes unrecognized tax benefits noncurrent tax liabilities following table reconciles amounts recorded unrecognized tax benefits fiscal years ended january 31 2011 2010 balances unrecognized tax benefits january 31 2011 2010 3898 million 3700 million 1099 million 1002 million represent amounts recognized may impact effective income tax rate future periods company recognized interest penalties related unrecognized tax benefits income tax provision company accrued 549 million 462 million interest penalties january 31 2011 2010 respectively company estimates reasonably possible balance unrecognized tax benefits january 31 2011 may decrease approximately 101 million next twelve months result lapse statutes limitation settlements tax authorities unrecognized tax benefits relate permanent establishment events related majorityowned subsidiaries tax positions amounts 46 million 47 million 08 million respectively comverse technology inc subsidiaries notes consolidated financial statements continued significant tax jurisdictions company currently examination tax authorities include israel india canada brazil united kingdom united states hong kong new york state new york city california minnesota texas company currently discussions israeli tax authorities regarding tax adjustments fiscal years ended january 31 2005 january 31 2010 company anticipates reasonably possible new tax matters could raised tax authorities may require increases decreases balance unrecognized tax benefits however estimate increases decreases cannot made company files income tax returns us federal various state local foreign tax jurisdictions january 31 2011 company subject income tax examination major jurisdictions company regularly assesses adequacy provisions income tax contingencies accordance fasb’s guidance result company may adjust liabilities unrecognized tax benefits impact new facts developments changes interpretations relevant tax law assessments taxing authorities settlements taxing authorities lapses statutes limitations company maintains valuation allowances morelikelythannot portion deferred tax asset may realized changes valuation allowances included company’s tax provision period change except items related additional paidin capital determining whether valuation allowance warranted company evaluates factors prior earnings history expected future earnings reversal existing taxable temporary differences carryback carryforward periods tax strategies could potentially enhance likelihood realization deferred tax asset company’s activity valuation allowance follows 23 business segment information company three reportable segments comverse verint segment comprised starhome bv subsidiaries miscellaneous operations cti’s holding company operations ulticom reportable segment company prior sale third party december 3 2010 result ulticom sale results comverse technology inc subsidiaries notes consolidated financial statements continued operations ulticom including gain ulticom sale reflected discontinued operations less applicable income taxes separate component net loss company’s consolidated statements operations fiscal periods presented assets liabilities ulticom reflected discontinued operations company’s consolidated balance sheet january 31 2010 see note 19 discontinued operations company evaluates business assessing performance segments cti’s chief executive officer chief operating decision maker chief operating decision maker uses segment performance defined primary basis assessing financial results segments allocation resources segment performance company defines accordance fasb’s guidance relating segment reporting necessarily comparable similarly titled captions companies segment performance defined management represents operating results segment without impact significant expenditures incurred segment connection efforts become current periodic reporting obligations federal securities laws certain noncash charges certain insignificant gains charges segment performance segment performance computed management loss income operations adjusted following stockbased compensation expense ii amortization acquisitionrelated intangibles iii compliancerelated professional fees iv compliancerelated compensation expenses v impairment charges vi litigation settlements related costs vii acquisitionrelated charges viii restructuring integration charges ix certain insignificant gains charges compliancerelated professional fees compliancerelated compensation expenses relate fees expenses incurred connection company’s efforts complete current previously issued financial statements audits financial statements b company’s efforts become current periodic reporting obligations federal securities laws evaluating segment’s performance management uses segment revenue consists revenue generated segment including intercompany revenue certain segment performance adjustments relate expenses included calculation loss income operations time certain segment performance adjustments may presented adjustments revenue calculating verint’s segment performance fiscal year ended january 31 2009 presentation segment revenue gives effect segment revenue adjustments represent impact fair value adjustments required fasb’s guidance relating acquired customer support contracts would otherwise recognized revenue standalone basis ii certain sales concession adjustments relating accounts receivable balances existed prior acquisition date case respect acquisition witness may 2007 verint segment revenue adjustment fiscal years ended january 31 2011 2010 calculation comverse’s segment performance fiscal years ended january 31 2010 2009 disclosed cti’s previously issued financial statements presentation segment revenue gave effect segment revenue adjustment attributable patent litigation settlement first quarter fiscal year ending january 31 2012 management ceased utilizing patent litigation segment revenue adjustment assessing financial results comverse segment allocation resources accordingly company omitted segment revenue adjustment presentation comverse’s segment performance fiscal years presented financial statements comverse technology inc subsidiaries notes consolidated financial statements continued tables present information total revenue total costs expenses loss income operations interest expense depreciation amortization significant noncash items total assets segment performance fiscal years ended january 31 2011 2010 2009 1 significant noncash items consist primarily writeoffs impairments goodwill intangible assets property equipment 2 total assets “all other” segment includes 2930 million series convertible perpetual preferred stock issued verint systems held cti see note 25 related party transactions comverse technology inc subsidiaries notes consolidated financial statements continued 1 significant noncash items consist primarily writeoffs impairments goodwill intangible assets property equipment 2 total assets “all other” segment includes 2930 million series convertible perpetual preferred stock issued verint systems held cti see note 25 related party transactions comverse technology inc subsidiaries notes consolidated financial statements continued 1 significant noncash items consist primarily writeoffs impairments goodwill intangible assets property equipment 2 total assets “all other” segment includes 2930 million series convertible perpetual preferred stock issued verint systems held cti see note 25 related party transactions comverse technology inc subsidiaries notes consolidated financial statements continued revenue major geographical region based upon geographic location customers purchase company’s products services geographical locations distributors resellers systems integrators purchase products utilize company’s services may different geographical locations end customers revenue geographic region revenue geographic region percentage total revenue fiscal years ended january 31 2011 2010 2009 follows 1 foreign consists numerous countries none represents 5 total revenue fiscal year presented revenue similar type product line solution fiscal years ended january 31 2011 2010 2009 follows 1 consists product lines solutions individually less 5 total revenue fiscal year presented longlived assets primarily consist property equipment net capitalized software development costs net deferred costs revenue company believes property equipment net exposed geographic area risks uncertainties longlived assets tangible assets difficult move relatively illiquid comverse technology inc subsidiaries notes consolidated financial statements continued property equipment net country domicile consists following january 31 2011 2010 24 supplemental cash flow information following represents noncash activities supplemental information consolidated statements cash flows comverse technology inc subsidiaries notes consolidated financial statements continued 25 related party transactions ulticom’s 2010 special cash dividend december 2010 ulticom inc paid special cash dividend aggregate amount 641 million shareholders including cti ulticom inc’s minority shareholders paid 217 million special cash dividend paid immediately prior ulticom sale see note 19 discontinued operations ulticom’s 2009 special cash dividend stock option modification april 2009 ulticom inc paid special cash dividend 1996 million shareholders including cti ulticom inc’s minority shareholders paid 643 million additional 02 million payable holders deferred stock units awarded ulticom inc’s equity incentive plan upon issuance common stock subject awards effective april 21 2009 exercise prices outstanding options purchase 2982104 shares ulticom inc’s common stock reduced connection payment special cash dividend 458 per share reductions option exercise prices resulted change ulticom’s sharebased payment expense sale shares verint systems’ common stock effective july 15 2010 cti made demand pursuant original registration rights agreement 28 million shares verint systems’ common stock registered registration statement form s1 january 14 2011 cti completed sale 23 million shares verint systems’ common stock secondary public offering aggregate proceeds net underwriting discounts commissions 765 million offering completed part initiatives undertaken management improve company’s cash position following completion offering cti maintained controlling financial interest verint systems’ common stock accordance fasb’s guidance accounted sale shares verint systems’ common stock equity transaction result company increased “additional paidin capital” 522 million increased “noncontrolling interest” 45 million representing change ownership interest noncontrolling shareholders increased “accumulated comprehensive income” 26 million gain recognized result transaction determined using company’s inside basis cost basis shares held value contributed verint’s joint venture cash dividend fiscal years ended january 31 2011 2010 22 million 41 million dividends paid noncontrolling shareholders verint’s joint venture respectively january 31 2009 21 million dividend paid fiscal year ended january 31 2010 accrued dividends accrued january 31 2011 2010 sonus networks inc dr nottenburg member cti’s board directors served president chief executive officer sonus networks inc telecommunications company june 13 2008 october 12 2010 sonus networks inc customer comverse verint company wellestablished ongoing business relationship sonus networks inc prior appointment dr nottenburg cti’s board directors fiscal year ended january 31 2011 2010 revenue derived comverse sonus networks inc 02 million 03 million respectively january 31 2011 comverse accounts receivable sonus networks inc january 31 2010 comverse accounts receivable sonus networks inc 03 million fiscal year ended january 31 2009 revenue derived comverse verint sonus networks inc 05 million 04 million respectively verint derived revenue sonus networks inc fiscal years ended january 31 2011 2010 accounts receivable therefrom january 31 2011 2010 verint’s series convertible perpetual preferred stock may 25 2007 connection verint’s acquisition witness cti entered securities purchase agreement verint “securities purchase agreement” whereby cti purchased cash aggregate 293000 shares verint’s series convertible perpetual preferred stock “preferred stock” represents verint’s outstanding preferred stock aggregate purchase price 2930 million proceeds issuance preferred stock used partially finance acquisition preferred stock eliminated consolidation comverse technology inc subsidiaries notes consolidated financial statements continued preferred stock issued purchase price 1000 per share ranks senior verint systems’ common stock preferred stock initial liquidation preference equal purchase price preferred stock 1000 per share event voluntary involuntary liquidation dissolution windingup verint cti entitled receive assets available distribution verint’s stockholders distribution assets holders verint systems’ common stock amount equal thencurrent liquidation preference includes accrued unpaid dividends january 31 2011 liquidation preference preferred stock 3387 million terms preferred stock provide upon fundamental change defined cti would right require verint repurchase preferred stock 100 liquidation preference effect fundamental change events include sale substantially verint’s assets certain changes beneficial ownership board directors’ representation business reorganizations verint fails repurchase preferred stock required upon fundamental change number directors constituting board directors increased two cti right elect two directors fill vacancies upon repurchase preferred stock subject fundamental change repurchase right cti longer right elect additional directors term office additional director terminate immediately upon repurchase number directors without action reduced two addition event fundamental change conversion rate described section entitled voting conversion increased provide additional shares common stock issuable cti upon conversion based sliding scale depending acquisition price defined ranging zero 37 additional shares common stock every share preferred stock converted shares common stock cti holder preferred stock various rights preferences follows dividends cash dividends preferred stock cumulative calculated quarterly specified dividend rate liquidation preference effect time dividends paid declared verint’s board directors initially specified annual dividend rate 425 per share quarter ended january 31 2008 interest rate verint’s term loan prior facility reduced 50 basis points initial interest rate accordingly dividend rate preferred stock reset 3875 effective february 1 2008 rate subject future change event verint unable obtain approval issuance common shares underlying preferred stock’s conversion feature october 5 2010 verint systems’ stockholders approved issuance verint systems’ common stock underlying preferred stock accordingly dividend rate longer subject change verint prohibited paying cash dividends preferred stock terms prior facility continues prohibited paying cash dividends terms new credit agreement verint may elect make dividend payments shares common stock common stock used dividends declared would valued 95 volume weightedaverage price verint systems’ common stock five consecutive trading days ending second trading day immediately prior record date dividend preferred stock participate verint’s earnings described january 31 2011 dividends declared paid preferred stock date cumulative undeclared dividends preferred stock 457 million voting conversion preferred stock voting conversion rights underlying shares common stock approved issuance vote holders majority verint systems’ common stock october 5 2010 verint systems’ stockholders approved issuance verint systems’ common stock underlying preferred stock following receipt stockholder approval share preferred stock became entitled number votes equal number shares common stock preferred stock would convertible using conversion rate effect upon issuance preferred stock may 2007 matters voted upon verint systems’ common stockholders initial conversion rate set 306185 shares common stock share preferred stock addition following receipt stockholder approval issuance underlying common shares share preferred stock became convertible option cti number shares verint systems’ common stock equal liquidation preference effect divided conversion price effect initially set 3266 remained unchanged january 31 2011 conversion price subject periodic adjustment upon occurrence certain comverse technology inc subsidiaries notes consolidated financial statements continued dilutive events january 31 2011 preferred stock convertible approximately 104 million shares verint systems’ common stock time verint right cause preferred stock whole part automatically converted common stock conversion price effect however verint may exercise right closing sale price common stock immediately prior conversion equals exceeds conversion price effect 140 conversion may 25 2010 prior may 25 2011 b 135 conversion may 25 2011 transfer registration rights cti right sell preferred stock since november 25 2007 either private public transactions pursuant registration rights agreement cti verint entered concurrently securities purchase agreement “new registration rights agreement” subject certain conditions satisfied cti entitled two demands require verint register preferred stock andor shares common stock underlying preferred stock resale securities act 1933 amended “securities act” resales may made underwritten offerings upon cti’s request new registration rights agreement also provides cti unlimited piggyback registration rights certain securities act registrations filed verint behalf verint stockholders cti’s rights new registration rights agreement addition rights previous registration rights agreement cti entered verint shortly verint’s initial public offering 2002 registration rights agreement “original registration rights agreement” covers shares common stock held cti additional shares common stock acquired cti later dates original registration rights agreement cti entitled unlimited demand registrations shares registration statements form s3 long verint eligible use registration statement form s3 cti also entitled one demand registration statement form s1 effective july 15 2010 cti made demand pursuant original registration rights agreement 28 million shares verint systems’ common stock registered registration statement form s1 january 14 2011 completed sale 23 million shares verint systems’ common stock secondary public offering addition similar new registration rights agreement original registration rights agreement also provides cti unlimited piggyback registration rights 26 commitments contingencies guarantees company provides certain customers ordinary course business financial performance guarantees certain cases backed standby letters credit surety bonds majority cash collateralized accounted restricted cash bank time deposits company liable amounts guarantees event nonperformance would permit customer exercise guarantee january 31 2011 2010 company believes compliance performance obligations contracts financial performance guarantee liabilities arising connection guarantees material adverse effect company’s consolidated results operations financial position cash flows company also obtained bank guarantees primarily provide customer assurance relating performance certain obligations required customer agreements guarantee certain payment obligations guarantees aggregated 476 million january 31 2011 generally scheduled released upon company’s performance specified contract milestones majority scheduled completed various dates january 31 2012 unconditional purchase obligations ordinary course business company enters certain unconditional purchase obligations agreements purchase goods services enforceable legally binding specify significant terms including fixed minimum quantities purchased fixed minimum variable price provisions approximate timing transaction purchase obligations exclude aggregate amounts cancelable without penalty company unconditional purchase obligations approximately 646 million january 31 2011 obligations 560 million due next twelve months 86 million due one three years comverse technology inc subsidiaries notes consolidated financial statements continued litigation overview except disclosed company believe currently party claims assessments pending legal action could reasonably expected material adverse effect business financial condition results operations proceedings related cti’s special committee investigations overview march 14 2006 cti announced creation special committee board directors “special committee” composed outside directors review cti’s historic stock option grant practices related accounting matters including limited accuracy stated dates option grants whether proper corporate procedures followed november 2006 special committee’s investigation expanded financial accounting matters including recognition revenue related certain contracts errors recording certain deferred tax accounts misclassification certain expenses misuse accounting reserves misstatement backlog special committee issued report january 28 2008 following commencement special committee’s investigation cti certain subsidiaries cti’s former directors officers current director named defendants several class derivative actions cti commenced direct actions certain former officers directors petition remission civil forfeiture july 2006 us attorney filed forfeiture action certain accounts jacob “kobi” alexander cti’s former chairman chief executive officer resulted united states district court eastern district entering order freezing approximately 500 million mr alexander’s assets order ensure cti receives assets mr alexander’s frozen accounts july 2007 cti filed us attorney petition remission civil forfeiture requesting remission funds forfeited mr alexander united states district court entered order november 30 2010 directing assets accounts liquidated remitted cti process liquidating assets completed proceeds assets accounts transferred class action settlement fund conjunction settlements direct actions defined consolidated shareholder class action shareholder derivative actions agreement settle shareholder class action approved court action pending june 23 2010 agreement settle federal state derivative actions approved courts actions pending july 1 2010 september 23 2010 respectively direct actions based special committee’s findings cti commenced litigations three former executive officers result misconduct relating historical stock option grants january 16 2008 cti commenced action mr alexander former chairman chief executive officer william f sorin former senior general counsel director supreme court state new york captioned comverse technology inc v alexander et al 08600142 january 17 2008 cti commenced action david kreinberg former executive vice president chief financial officer superior court new jersey captioned comverse technology inc v kreinberg nj super ct action discontinued january 8 2009 separate action commenced mr kreinberg supreme court state new york captioned comverse technology inc v kreinberg 09600052 actions captioned comverse technology inc v alexander et al comverse technology inc v kreinberg referred collectively “direct actions” direct actions asserted claims fraud breach fiduciary duty unjust enrichment connection defendants’ conduct related historical stock option grants part agreement settle federal state derivative actions approved courts actions pending july 1 2010 september 23 2010 respectively cti dismissed direct actions september 29 2010 shareholder derivative actions beginning april 11 2006 several purported shareholder derivative lawsuits filed new york supreme court new york county united states district court eastern district new york defendants actions included certain cti’s former directors officers current director state court action cti’s independent registered public accounting firm cti named nominal defendant consolidated complaints state federal actions alleged defendants breached certain duties cti certain former officers directors unjustly enriched federal action violated federal securities laws specifically sections 10b 14a exchange act rules 10b5 14a9 promulgated thereunder among things allowing participating alleged scheme comverse technology inc subsidiaries notes consolidated financial statements continued backdate grant dates employee stock options provide improper benefits recipients ii allowing insiders including certain defendants profit trading cti’s stock allegedly possession material inside information iii failing oversee properly implement procedures detect prevent alleged improper practices iv causing cti issue allegedly materially false misleading proxy statements file allegedly false misleading documents sec v exposing cti civil liability complaints sought unspecified damages various forms equitable relief state court derivative actions consolidated one action captioned comverse technology inc derivative litigation 6012722006 august 7 2007 new york supreme court dismissed consolidated state court derivative action granting cti’s motion dismiss decision successfully appealed plaintiffs appellate division new york state supreme court decision issued october 7 2008 reinstated action federal court derivative actions consolidated one action captioned comverse technology inc derivative litigation 06cv1849 cti filed motion stay action deference state court proceeding motion denied court october 16 2007 cti filed motion dismiss federal court action based plaintiffs’ failure make demand board state court’s ruling demand required date various individual defendants also filed motions dismiss complaint april 22 2008 court ordered dismissal motions would held abeyance pending resolution appeal new york state supreme court’s decision state court derivative action december 17 2009 parties shareholder derivative actions entered agreement settle actions settlement approved courts federal state derivative actions pending july 1 2010 september 23 2010 respectively company recorded charge 94 million associated settlement fiscal year ended january 31 2007 see settlement agreements shareholder class action beginning april 19 2006 class action lawsuits filed persons identifying cti shareholders purportedly behalf class cti’s shareholders purchased publicly traded securities two actions filed united states district court eastern district new york three actions filed united states district court southern district new york august 28 2006 actions pending united states district court southern district new york transferred united states district court eastern district new york consolidated amended complaint caption comverse technology inc sec litig 06cv1825 filed courtappointed lead plaintiff menorah group march 23 2007 consolidated amended complaint brought behalf purported class cti shareholders purchased cti’s publicly traded securities april 30 2001 november 14 2006 complaint named cti certain former officers directors defendants alleged among things violations sections 10b 14a exchange act rule 10b5 promulgated thereunder section 20a exchange act connection prior statements made cti respect among things accounting treatment stock options action sought compensatory damages unspecified amount parties action entered settlement agreement december 16 2009 amended june 19 2010 approved court action pending june 23 2010 company recorded charge 1650 million associated settlement fiscal year ended january 31 2007 see settlement agreements settlement agreements december 16 2009 december 17 2009 cti entered agreements settle consolidated shareholder class action consolidated shareholder derivative actions described respectively agreement settle consolidated shareholder class action amended june 19 2010 pursuant amendment cti agreed waive certain rights terminate settlement exchange deferral timing scheduled payments settlement consideration right credit “optout credit” respect portion settlement funds would payable class member elected participate bound settlement connection settlements cti dismissed direct actions messrs alexander kreinberg sorin turn dismissed counterclaims filed cti part settlement consolidated shareholder class action amended cti agreed make payments class action settlement fund aggregate amount 1650 million paid remain payable follows • 10 million paid following signing settlement agreement december 2009 comverse technology inc subsidiaries notes consolidated financial statements continued • 179 million paid july 2010 representing agreed 215 million payment less holdback 36 million respect anticipated optout credit holdback required paid cti optout credit less • 300 million paid may 2011 • 1125 million less amount optout credit exceeds holdback described payable november 15 2011 1125 million due november 15 2011 825 million payable cash cti’s election shares cti’s common stock valued using ten day average closing prices cti’s common stock prior election provided cti’s common stock listed national securities exchange payment date shares delivered one time aggregate value least 275 million payment 300 million made may 2011 could also paid shares cti’s common stock prior thereto cti met conditions using shares payment consideration cti receives net cash proceeds sale certain ars held aggregate amount excess 500 million cti required use 500 million proceeds prepay settlement amounts referred cti receives net cash proceeds sale ars aggregate amount excess 1000 million cti required use additional 500 million proceeds prepay settlement amounts referred january 31 2011 2010 cti 334 million 171 million restricted cash received sales redemptions ars including interest thereon provisions settlement agreement apply respectively addition cti granted security interest benefit plaintiff class account cti holds ars held account ubs proceeds sales thereof restricting cti’s ability use proceeds sales ars amounts payable settlement agreement paid full january 31 2011 2010 company 334 million 261 million respectively cash received sales redemptions ars including interest thereon restricted terms consolidated shareholder class action settlement agreement january 31 2011 334 million cash receipts classified “restricted cash bank time deposits” january 31 2010 90 million cash proceeds classified “restricted cash bank time deposits” 171 million classified within “other assets” longterm restricted cash addition part settlements direct actions consolidated shareholder class action shareholder derivative actions mr alexander agreed pay 600 million cti deposited derivative settlement fund transferred class action settlement fund amounts payable mr alexander paid also part settlement shareholder derivative actions mr alexander transferred cti shares starhome bv representing 25 outstanding share capital pursuant amendment mr alexander agreed waive certain rights terminate settlement received right credit respect portion settlement funds would payable class member elected participate bound settlement cti’s settlement claims class action aggregate consideration 1650 million less optout credit contingent upon mr alexander satisfying payment obligations certain defendants direct actions shareholder derivative actions paid agreed pay cti aggregate 14 million certain former directors agreed relinquish certain outstanding unexercised stock options part settlement shareholder derivative actions cti paid october 2010 94 million cover legal fees expenses plaintiffs september 2010 cti received insurance proceeds 165 million directors’ officers’ insurance policies connection settlements shareholder derivative actions consolidated shareholder class action terms settlements mr alexander wife relinquished claims assets mr alexander’s frozen accounts subject forfeiture action united states district court entered order november 30 2010 directing assets accounts liquidated remitted cti process liquidating assets completed proceeds assets accounts transferred class action settlement fund agreement settle consolidated shareholder class action amended approved court action pending june 23 2010 agreement settle federal state derivative actions approved courts actions pending july 1 2010 september 23 2010 respectively comverse technology inc subsidiaries notes consolidated financial statements continued optout plaintiffs’ action september 28 2010 action filed united states district court eastern district new york caption maverick fund ldc et al v comverse technology inc et al 10cv4436 plaintiffs allege cti shareholders purchased cti’s publicly traded securities 2005 2006 2007 plaintiffs maverick fund ldc certain affiliated investment funds opted participate settlement consolidated shareholder class action described complaint names cti former chief executive officer certain former officers directors defendants alleges among things violations sections 10b 18 20a exchange act rule 10b5 promulgated thereunder negligent misrepresentation connection prior statements made cti respect among things accounting treatment stock options accounting practices cti timeline cti become current periodic reporting obligations action seeks compensatory damages unspecified amount company filed motion dismiss complaint december 2010 hearing motion conducted march 4 2011 court yet issued decision disgorgement derivative action june 1 2007 mark levy filed purported shareholder derivative action cti’s behalf entitled levy v koren john 120 07cv0896 former officer one cti’s subsidiaries based israel twenty unidentified “john doe” defendants action filed united states district court southern district new york alleged violations section 16b exchange act specifically complaint alleged defendant purchased sold cti equity securities within sixmonth period exercising stock options awarded cti selling stock 40 million profit complaint sought disgorgement gains realized purchases sales complaint set forth specific damage amount sought plaintiff cti named solely nominal defendant action discovery action completed defendants moved summary judgment january 15 2008 march 25 2010 parties entered stipulation settlement pursuant defendant paid 150000 cti ii defendant relinquished rights outstanding stock options purchase 92500 shares cti’s common stock iii cti paid plaintiff’s counsel’s attorneys’ fees costs 250000 settlement provides release claims section 16b exchange act might asserted action approved court action pending june 24 2010 israeli optionholder class actions cti certain subsidiaries named defendants four potential class action litigations state israel involving claims recover damages incurred result purported negligence breach contract allegedly prevented certain current former employees exercising certain stock options company intends vigorously defend actions two cases filed tel aviv district court cti march 26 2009 plaintiffs katriel former comverse ltd employee deutsch former verint systems ltd employee katriel case number 133409 deutsch case number 133509 seek approve class actions recover damages claimed incurred result cti’s negligence reporting filing financial statements allegedly prevented exercise certain stock options certain employees former employees stipulation parties september 30 2009 court ordered cases including claims cti israel motion approve class action stayed resolution actions pending united states regarding stock option accounting without prejudice parties’ ability investigate assert unique facts claims defenses cases date stay yet lifted two cases also filed tel aviv labor court plaintiffs katriel deutsch seek approve class actions recover damages claimed incurred result breached employment contracts allegedly prevented exercise certain employees former employees certain cti verint systems stock options respectively katriel litigation case number 344409 filed march 16 2009 comverse ltd deutsch litigation case number 418609 filed march 26 2009 verint systems ltd tel aviv labor court ruled lacks jurisdiction cases transferred tel aviv district court katriel case consolidated katriel case filed tel aviv district court case number 133409 subject stay discussed deutsch case scheduled preliminary hearing tel aviv district court october 2011 sec civil actions promptly following discovery errors improprieties related cti’s historic stock option grant practices creation special committee cti special committee representatives met informed staff sec underlying facts initiation special committee investigation march april 2008 cti verint comverse technology inc subsidiaries notes consolidated financial statements continued systems ulticom inc received “wells notice” staff sec arising sec’s respective investigations respective historical stock option grant practices certain unrelated accounting matters wells notices provided notification staff sec intended recommend sec bring civil actions cti verint systems ulticom inc alleging violations certain provisions federal securities laws june 18 2009 settlement cti sec respect matters announced date sec filed civil action cti united states district court eastern district new york alleging violations certain provisions federal securities laws regarding cti’s improper backdating stock options accounting practices including improper establishment maintenance release reserves reclassification certain expenses improper calculation backlog sales orders simultaneous filing complaint without admitting denying allegations therein cti consented issuance final judgment “final judgment” approved united states district court eastern district new york june 25 2009 pursuant final judgment cti permanently restrained enjoined future violations federal securities laws addressed complaint ordered become current periodic reporting obligations section 13a exchange act later february 8 2010 monetary penalties assessed cti conjunction settlement matters result actions principally taken senior executives cti terminated 2006 cti however unable file requisite periodic reports february 8 2010 result cti’s inability become current periodic reporting obligations federal securities laws accordance final judgment court order february 8 2010 cti received additional “wells notice” staff sec february 4 2010 wells notice provided notification staff sec intended recommend sec institute administrative proceeding determine whether pursuant section 12j exchange act sec suspend revoke registration class cti’s securities registered section 12 exchange act process established sec recipients “wells notice” opportunity make wells submission staff sec makes formal recommendation sec regarding action brought sec february 25 2010 cti submitted wells submission sec response wells notice march 23 2010 sec issued order instituting administrative proceedings “oip” pursuant section 12j exchange act suspend revoke registration cti’s common stock prior filing annual report form 10k fiscal years ended january 31 2009 2008 2007 2006 sec october 4 2010 cti filed annual report form 10k since april 20 2005 quarterly report form 10q since december 12 2005 july 22 2010 administrative law judge issued initial decision revoke registration cti’s common stock initial decision become effective sec issues final order would indicate date sanctions would take effect august 17 2010 sec issued order granting petition cti review administrative law judge’s initial decision revoke registration cti’s common stock setting forth briefing schedule final brief filed november 1 2010 february 17 2011 sec issued order directing parties file additional briefs matter briefs filed march 7 2011 may 2011 sec granted cti’s motion oral argument scheduled july 14 2011 sec issues final order either party may appeal order federal court appeals although sec granted review administrative law judge’s initial decision revoke registration cti’s common stock cti cannot time predict outcome review appeal therefrom registration cti’s common stock ultimately revoked cti intends complete necessary financial statements file appropriate registration statement sec seek declared effective order resume registration common stock exchange act soon practicable april 9 2008 verint systems received “wells notice” staff sec arising staff’s investigation verint systems’ past stock option grant practices certain unrelated accounting matters accounting matters also subject verint’s internal investigation march 3 2010 settlement verint systems sec respect matters announced date sec filed civil action verint systems united states district court eastern district new york alleging violations certain provisions federal securities laws relating certain verint’s accounting reserve practices simultaneous filing complaint without admitting denying allegations therein verint systems consented issuance final judgment approved united states district court eastern district new york march 9 2010 pursuant final judgment verint systems permanently restrained enjoined violating section 17a securities act sections 13a 13b2a 13b2b exchange act rules 13a1 13a13 thereunder monetary penalties assessed verint systems conjunction settlement result previous failure current periodic reporting obligations federal securities laws verint systems received additional “wells notice” staff sec december 23 2009 march 3 2010 sec issued oip pursuant section 12j exchange act suspend revoke registration verint systems’ common stock previous failure file certain annual quarterly reports may 28 2010 verint systems entered agreement comverse technology inc subsidiaries notes consolidated financial statements continued principle sec’s division enforcement regarding terms settlement section 12j administrative proceeding agreement subject approval sec june 18 2010 verint systems satisfied requirements agreement subsequently submitted offer settlement sec july 28 2010 sec issued order accepting verint systems’ offer settlement dismissing section 12j administrative proceeding investigation alleged unlawful payments march 16 2009 cti disclosed audit committee board directors conducting internal investigation alleged improper payments made certain comverse employees external sales agents foreign jurisdictions connection sale certain products audit committee found conduct issue involve cti’s current executive officers audit committee also reviewed comverse’s existing prior arrangements agents audit committee commenced investigation cti voluntarily disclosed sec doj facts advised audit committee initiated internal investigation audit committee would provide results investigation agencies april 27 2009 sec advised cti investigating matter issued subpoena cti connection investigation audit committee provided information cooperated fully doj sec respect findings internal investigation resulting remedial action april 7 2011 cti entered nonprosecution agreement doj sec submitted settlement agreement cti united states district court eastern district new york approval obtained april 12 2011 agreements resolved allegations cti certain foreign subsidiaries violated books records internal controls provisions fcpa inaccurately recording certain improper payments made 2003 2006 certain former employees external sales agent comverse ltd subsidiaries connection sale certain products foreign jurisdictions nonprosecution agreement doj cti paid fine 12 million doj agreed continue implement improvements internal controls anticorruption practices policies settlement agreement sec cti paid approximately 16 million disgorgement prejudgment interest required conductbased injunction comply books records internal controls provisions fcpa company recorded charges 29 million associated matter fiscal year ended january 31 2009 ulticom shareholder class action october 14 2010 purported shareholder class action filed superior court new jersey chancery division burlington county entitled greenbaum v ulticom inc et al c 8610 ulticom platinum equity certain affiliates ulticom’s board directors complaint alleged ulticom’s directors breached fiduciary duties failing ensure ulticom’s shareholders receive maximum value shares connection proposed acquisition ulticom platinum equity platinum equity aided abetted breaches fiduciary duty action sought among things injunctive relief rescission attorneys’ fees costs december 16 2010 plaintiff filed notice voluntary dismissal terminate action without prejudice party bear expenses case dismissed december 21 2010 legal proceedings addition litigation discussed company future may involved various lawsuits claims proceedings incident ordinary course business results litigation inherently unpredictable claims company whether meritorious could time consuming result costly litigation require significant amounts management time result diversion significant resources results lawsuits claims proceedings cannot predicted certainty however company believes ultimate resolution current matters material adverse effect consolidated financial statements taken whole comverse technology inc subsidiaries notes consolidated financial statements continued indemnifications normal course business company provides indemnifications varying scopes customers claims intellectual property infringement made third parties arising use company’s products company evaluates indemnifications potential losses evaluation considers factors degree probability unfavorable outcome ability make reasonable estimate amount loss generally company encountered significant charges result indemnification provisions extent permitted state laws applicable laws company agreements indemnify directors officers certain events occurrences director officer serving company’s request capacity indemnification period covers pertinent events occurrences company’s director’s officer’s lifetime maximum potential amount future payments company could required make indemnification agreements unlimited however company certain director officer insurance coverage limits company’s exposure enables company recover portion future amounts paid company able estimate fair value indemnification agreements excess applicable insurance coverage 27 quarterly information unaudited following table shows selected results operations quarters fiscal years ended january 31 2011 2010 comverse technology inc subsidiaries notes consolidated financial statements continued unaudited quarterly information shown reflects presentation discontinued operations periods presented result ulticom sale december 3 2010 see note 19 discontinued operations 28 subsequent events phase ii business transformation fiscal year ended january 31 2011 company commenced certain initiatives improve cash position including plan restructure operations comverse view towards aligning operating costs expenses anticipated revenue comverse implemented first phase plan fiscal year ended january 31 2011 reducing annualized operating costs first quarter fiscal year ending january 31 2012 comverse commenced implementation second phase measures “phase ii business transformation” focuses process reengineering maximize business performance productivity operational efficiency part phase ii business transformation comverse process creating new business units bss vas mobile internet golive services designed improve operational efficiency business performance one primary purposes phase ii business transformation solidify comverse’s leadership bss leverage growth mobile data usage maintaining leadership vas comverse technology inc subsidiaries notes consolidated financial statements continued appointment chief executive officer february 25 2011 company mr dahan entered separation consulting agreement pursuant mutual agreement mr dahan agreed resign company’s president chief executive officer member board directors company subsidiaries effective march 4 2011 ii serve consultant company period 90 days thereafter february 25 2011 board directors appointed charles j burdick served company’s nonexecutive chairman board chairman chief executive officer effective march 4 2011 result mr burdick’s appointment chairman mr burdick longer “independent” purposes serving board’s audit committee corporate governance nominating committee consequently resigned committees verint’s new credit facility april 29 2011 verint entered credit agreement “new credit agreement” group lenders “lenders” credit suisse ag administrative agent collateral agent lenders capacities “agent” ii terminated certain credit agreement dated may 25 2007 amended supplemented otherwise modified time “prior facility” group lenders party thereto “prior lenders” credit suisse ag successor administrative agent prior lenders new credit agreement provides 7700 million secured senior credit facilities comprised 6000 million term loan maturing october 2017 “term loan facility” 1700 million revolving credit facility maturing april 2016 “revolving credit facility” subject increase maximum increase 3000 million reduction time according terms new credit agreement april 30 2011 verint outstanding borrowings revolving credit facility loans new credit agreement bear interest payable quarterly case eurodollar loans interest period three months shorter end interest period per annum rate verint’s election case eurodollar loans adjusted libo rate plus 325 verint’s corporate ratings least bb ba3 better 300 “adjusted libo rate” greater 125 per annum ii product libo rate statutory reserves defined credit agreement b case base rate loans base rate plus 225 verint’s corporate ratings least bb ba3 better 200 “base rate” greatest agent’s prime rate ii federal funds effective rate defined new credit agreement plus 050 iii adjusted libo rate one month interest period plus 100 verint agreed pay commitment fee respect undrawn availability revolving credit facility payable quarterly rate 050 per annum customary administrative agent fees respect letters credit new credit agreement requires verint make term loan principal payments 15 million per quarter august 2017 beginning august 2011 remaining balance due october 2017 optional prepayments loan permitted without premium penalty customary breakage costs associated prepayment loans bearing interest based libo rates 10 premium applicable event repricing transaction defined new credit agreement prior april 30 2012 loans also subject mandatory prepayment requirements respect certain asset sales excess cash flow defined new credit agreement certain events prepayments applied first eight immediately following scheduled term loan principal payments pro rata remaining scheduled term loan principal payments comverse technology inc subsidiaries notes consolidated financial statements continued verint’s obligations new credit agreement guaranteed substantially verint’s domestic subsidiaries secured security interest substantially assets verint guarantor subsidiaries subject certain exceptions verint’s obligations new credit agreement guaranteed cti secured cti’s assets new credit agreement contains customary affirmative negative covenants credit facilities type including limitations verint subsidiaries respect indebtedness liens nature business investments loans distributions acquisitions dispositions assets saleleaseback transactions affiliates accordingly new credit agreement similar prior facility precludes verint systems paying cash dividends limits ability make asset distributions stockholders including cti new credit agreement also contains financial covenant requires verint maintain consolidated total debt consolidated ebitda defined new credit agreement leverage ratio july 31 2013 greater 500 100 thereafter greater 450 100 limitations imposed covenants subject certain exceptions new credit agreement provides customary events default corresponding grace periods including failure pay principal interest new credit agreement due failure comply covenants representation warranty made verint proving inaccurate material respect defaults certain indebtedness verint subsidiaries change control defined new credit agreement verint certain insolvency receivership events affecting verint significant subsidiaries upon event default obligations verint owing new credit agreement may declared immediately due payable lenders’ commitments make loans new credit agreement may terminated schedule condensed financial information registrant comverse technology inc parent company condensed balance sheets thousands except share per share data see notes condensed financial statements s1 comverse technology inc parent company condensed statements operations thousands except share per share data see notes condensed financial statements s2 comverse technology inc parent company condensed statements cash flows thousands see notes condensed financial statements s3 notes condensed financial information registrant 1 basis presentation comverse technology inc “parent company” holding company conducts substantially business operations subsidiaries parentonly presentation parent company’s investments consolidated subsidiaries presented equity method accounting losses subsidiary applied investment subsidiary balance advances subsidiary investment subsidiary balance reduced zero accordingly nontrade advances subsidiaries investments subsidiaries presented together “advances investments subsidiaries” condensed balance sheets december 3 2010 parent company sold subsidiary ulticom inc third party “ulticom sale” aggregate consideration 172 million result ulticom sale results operations ulticom including gain sale ulticom net tax 29 million reflected discontinued operations less applicable income taxes separate component net loss parent company’s statements operations fiscal periods presented investment ulticom reflected “investment discontinued operations” parent company’s balance sheet january 31 2010 see note 8 discontinued operations parentonly condensed financial statements read conjunction comverse technology inc’s audited consolidated financial statements included item 15 annual report restrictions access subsidiary cash parent company’s verint subsidiary longterm debt outstanding january 31 2011 2010 places restrictions declaration payment dividends whether cash property parent company january 31 2011 2010 parent company’s comverse ltd subsidiary required maintain aggregate 250 million 450 million respectively compensating cash balances terms lines credit comverse ltd two banks restricting comverse ltd’s ability use funds addition pursuant investment agreements parent company’s starhome subsidiary precluded paying cash dividends shareholders without approval certain minority shareholders restricted net assets represent significant portion company’s consolidated net assets condensed financial statements presented “parentonly” basis 2 restricted cash auction rate securities january 31 2011 2010 restricted cash includes proceeds sale auction rate securities “ars” including interest thereon restricted pursuant consolidated shareholder class action settlement agreement addition january 31 2011 2010 ars restricted pursuant settlement agreement see note 3 investments note 26 commitments contingencies consolidated financial statements disclosures relating restrictions ars cash proceeds sale redemption ars january 31 2011 334 million sales proceeds including interest thereon classified “restricted cash” january 31 2010 90 million 171 million sales proceeds including interest thereon classified “restricted cash” within “other assets” longterm restricted cash respectively 3 debt january 31 2011 2010 parent company 22 million aggregate principal amount outstanding convertible debt obligations “convertible debt obligations” fiscal year ended january 31 2010 parent company commenced tender offer accordance terms indenture pursuant parent company purchased 4173 million aggregate principal amount convertible debt obligations refer note 12 debt consolidated financial statements description significant provisions convertible debt obligations purchase convertible debt obligations fiscal year ended january 31 2010 4 commitments contingencies parent company party various lawsuits discussed note 26 commitments contingencies consolidated financial statements december 2009 parent company entered agreements settle shareholder class action consolidated shareholder derivative actions aggregate amount 1744 million including legal fees expenses plaintiffs 94 million accrued fiscal year ended january 31 2007 agreement settle consolidated shareholder class action amended june 19 2010 pursuant amendment cti agreed waive certain rights terminate settlement exchange deferral timing scheduled payments settlement consideration right credit “optout credit” respect portion settlement funds would payable class member elected participate bound settlement see note 26 commitments contingencies settlement agreements consolidated financial statements comprehensive discussion settlements s4 notes condensed financial information registrant continued 5 sale shares verint systems’ common stock effective july 15 2010 cti made demand pursuant original registration rights agreement 28 million shares verint systems’ common stock registered registration statement form s1 january 14 2011 cti completed sale 23 million shares verint systems’ common stock secondary public offering aggregate proceeds net underwriting discounts commissions 765 million sale shares verint systems’ common stock accounted equity transaction result parent company increased “additional paidin capital” 522 million increased “accumulated comprehensive income” 26 million reduced investments subsidiaries 45 million see note 25 related party transactions sale shares verint systems’ common stock consolidated financial statements details 6 perpetual preferred stock subsidiary may 25 2007 parent company entered agreement subsidiary verint systems purchase aggregate 293000 shares verint systems’ series convertible perpetual preferred stock “preferred stock” aggregate purchase price 2930 million see note 25 related party transactions verint’s series convertible perpetual preferred stock consolidated financial statements comprehensive discussion including terms preferred stock 7 ulticom’s special cash dividends december 2010 ulticom inc paid special cash dividend aggregate amount 641 million shareholders parent company received 424 million remaining amount paid ulticom inc’s minority shareholders special cash dividend paid immediately prior ulticom sale april 2009 ulticom inc paid special cash dividend 1996 million shareholders parent company received 1353 million remaining amount paid ulticom inc’s minority shareholders see note 25 related party transactions ulticom’s 2010 special cash dividend ulticom’s 2009 special cash dividend stock option modification consolidated financial statements disclosure relating ulticom’s special cash dividends 8 discontinued operations ulticom inc majorityowned subsidiary parent company prior sale december 3 2010 comprehensive discussion ulticom sale see note 19 discontinued operations consolidated financial statements equity losses ulticom net tax gain sale ulticom net tax 29 million reflected discontinued operations less applicable income taxes separate component net loss parent company’s statements operations fiscal periods presented investment ulticom reflected “investment discontinued operations” parent company’s balance sheet january 31 2010 amounts included discontinued operations follows s5 schedule ii valuation qualifying accounts reserves 1 primarily consists allocation tax continuing operations discontinued operations additional paidin capital comprehensive income ii translation adjustments 2 included “accounts payable accrued expenses” consolidated balance sheets s6nannanitem 15 exhibits financial statement schedules documents filed part annual report 1 financial statements consolidated financial statements filed part annual report listed index consolidated financial statements page incorporated herein reference 2 financial statement schedules following financial statement schedules comverse technology inc subsidiaries included annual report read conjunction consolidated financial statements notes thereto schedule condensed financial information registrant s1 schedule ii valuation qualifying accounts reserves s7 financial statement schedules required regulation sx omitted applicable required information included applicable consolidated financial statements notes thereto 3 exhibits see b exhibits exhibit description 1011 following materials registrant’s annual report form 10k fiscal year ended january 31 2012 formatted xbrl extensible business reporting language include consolidated balance sheets ii consolidated statements operations iii consolidated statements equity iv consolidated statements cash flows v notes consolidated financial statements vi financial statement schedule vii financial statement schedule ii incorporated reference filed herewith exhibit “furnished” pursuant item 601b32 sec regulation sk deemed “filed” securities exchange commission incorporated reference filing registrant securities act 1933 securities exchange act 1934 accordance rule 406t regulation st interactive data files exhibit 1011 hereto deemed filed part registration statement prospectus purposes sections 11 12 securities act 1933 amended deemed filed purposes section 18 securities exchange act 1934 amended otherwise subject liability sections † constitutes management contract compensatory plan arrangement signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized comverse technology inc april 2 2012 charles j burdick charles j burdick chief executive officer principal executive officer april 2 2012 joel e legon joel e legon senior vice president interim chief financial officer principal financial officer principal accounting officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated comverse technology inc subsidiaries index consolidated financial statements report independent registered public accounting firm consolidated balance sheets consolidated statements operations consolidated statements equity consolidated statements cash flows notes consolidated financial statements schedule icondensed financial information registrant s1 schedule iivaluation qualifying accounts reserves s7 report independent registered public accounting firm board directors shareholders comverse technology inc new york new york audited accompanying consolidated balance sheets comverse technology inc subsidiaries company january 31 2012 2011 related consolidated statements operations equity cash flows three years period ended january 31 2012 audits also included financial statement schedules listed index page item 15 financial statements financial statement schedules responsibility companys management responsibility express opinion financial statements financial statement schedules based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position comverse technology inc subsidiaries january 31 2012 2011 results operations cash flows three years period ended january 31 2012 conformity accounting principles generally accepted united states america also opinion financial statement schedules considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein discussed note 1 consolidated financial statements company changed method recognizing revenue multiple element arrangements year ended january 31 2012 accordance financial accounting standards boards accounting standards update asu 200913 multipledeliverable revenue arrangements asu 200914 certain revenue arrangements include software elements also audited accordance standards public company accounting oversight board united states companys internal control financial reporting january 31 2012 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated april 2 2012 expressed adverse opinion companys internal control financial reporting material weakness deloitte touche llp new york new york april 2 2012 comverse technology inc subsidiaries consolidated balance sheets thousands except share per share data accompanying notes integral part consolidated financial statements comverse technology inc subsidiaries consolidated statements operations thousands except share per share data accompanying notes integral part consolidated financial statements comverse technology inc subsidiaries consolidated statements equity thousands except share data accompanying notes integral part consolidated financial statements comverse technology inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part consolidated financial statements comverse technology inc subsidiaries notes consolidated financial statements 1 organization business summary significant accounting policies company background comverse technology inc “cti” together subsidiaries “company” holding company organized new york corporation october 1984 conducts business subsidiaries principally whollyowned subsidiary comverse inc together subsidiaries “comverse” majorityowned subsidiaries verint systems inc “verint systems” together subsidiaries “verint” starhome bv together subsidiaries “starhome” prior sale third party december 3 2010 ulticom inc together subsidiaries “ulticom” september 2011 nasdaq stock market “nasdaq” approved ctis application relisting common stock nasdaq global select market trading exchange resumed september 23 2011 comverse overview comverse leading provider softwarebased products systems related services • provide converged prepaid postpaid billing active customer management systems business support systems bss wireless wireline cable network operators delivering value proposition designed ensure timely efficient service monetization consistent customer experience reduced complexity cost enable realtime marketing based relevant customer profile information • enable wireless wireline including cable networkbased valueadded services vas comprised two categoriesvoice messagingthat include voicemail visual voicemail call completion short messaging service sms text messaging texting multimedia picture video messaging internet protocol ip communications • provide wireless users optimized access internet websites content applications manage enforce policy generate data usage revenue wireless operators comverses products services used 450 wireless wireline cable network communication service provider customers 125 countries including majority worlds 100 largest wireless network operators comverses products services designed generate voice data network traffic increase revenue customer loyalty monetize services improve operational efficiency comverse share distribution cti intends distribute 100 shares comverse inc ctis shareholders pro rata basis comverse share distribution cti currently exploring expects finalize announce structure result efficient method distribution comverse share distribution expected occur second half fiscal year ending january 31 2013 addition cti exploring alternatives eliminate holding company structure either simultaneous shortly distribution comverse inc shares comverse share distribution subject number conditions including final approval transaction ctis board filings completion review process securities exchange commission sec approval cti shareholders final approval certain material agreements boards cti comverse share distribution may also conditioned upon receipt favorable ruling internal revenue service regarding certain tax aspects distribution upon completion proposed comverse share distribution prior effect transaction would eliminate cti holding company structure cti shareholders time distribution would continue hold equity cti well 100 equity comverse inc verint overview verint global leader actionable intelligence solutions valueadded services verint’s solutions enable organizations sizes make timely effective decisions improve enterprise performance enhance safety verint’s customers use verint’s actionable intelligence solutions capture distill analyze complex underused comverse technology inc subsidiaries notes consolidated financial statements continued information sources voice video unstructured text enterprise intelligence market verints workforce optimization voice customer solutions help organizations enhance customer service operations contact centers branches backoffice environments increase customer satisfaction reduce operating costs identify revenue opportunities improve profitability security intelligence market verints communications cyber intelligence video situation intelligence public safety solutions help government commercial organizations efforts protect people property neutralize terrorism crime verint strategic alternative exploration cti exploring options maximize value equity interests verint benefit shareholders cti verint ultimate execution alternative take account number considerations including without limitation tax efficiency depending upon circumstances separate recommendation verints directors officers cti starhome provider wireless service mobility solutions enhance international roaming wireless operators use starhome’s softwarebased solutions generate additional revenue improve profitability directing international roaming traffic preferred networks providing wide range services subscribers traveling outside home network ulticom inc majorityowned publiclytraded subsidiary cti sold affiliate platinum equity advisors llc “platinum equity” december 3 2010 “ulticom sale” ulticom reportable segment company prior sale result ulticom sale results operations ulticom including gain ulticom sale reflected discontinued operations less applicable income taxes separate component net loss companys consolidated statements operations fiscal years ended january 31 2011 2010 see note 19 discontinued operations principles consolidation consolidated financial statements accompanying notes prepared accordance accounting principles generally accepted united states america us gaap accompanying consolidated financial statements include cti whollyowned subsidiaries controlled majorityowned subsidiaries include verint systems cti owned 418 common stock held 527 voting power january 31 2012 starhome bv 665 owned january 31 2012 ulticom inc majorityowned publiclytraded subsidiary prior sale december 3 2010 included consolidated balance sheets consolidated statements operations consolidated statements cash flows date controlled subsidiaries whollyowned noncontrolling interest included separate component “net loss” consolidated statements operations “total equity” consolidated balance sheets verint systems holds 50 equity interest consolidated variable interest entity primary beneficiary therefore included within companys consolidated financial statements results operations variable interest entity fiscal years ended january 31 2012 2011 significant consolidated statements operations intercompany balances transactions eliminated company includes results operations acquired business date acquisition segment reporting changes reportable segments company determines reportable segments accordance financial accounting standards boards “fasb” guidance relating disclosures segments enterprise related information ctis chief executive officer companys chief operating decision maker “codm” codm uses segment performance primary basis assessing financial results operating segments allocation resources see note 23 business segment information additional discussion including definition segment performance fiscal year ended january 31 2012 company changed reportable segments companys reportable segments consist comverse bss comverse vas verint results operations comverse technology inc subsidiaries notes consolidated financial statements continued company included column captioned “all other” part companys business segment presentation operating segments included “all other” meet quantitative thresholds required separate presentation aggregation criteria segment reporting guidance specifically similar economic characteristics separately presented reportable segment changes reportable segments attributable implementation second phase restructuring measures “phase ii business transformation” comverse focuses process reengineering maximize business performance productivity operational efficiency see note 11 restructuring part phase ii business transformation comverse restructured operations new business units designed improve operational efficiency business performance comverses business units consist following • bss conducts comverses converged prepaid postpaid billing active management systems business includes groups engaged product management professional services research development product sales support • vas conducts comverses valueadded services business includes groups engaged vas delivery voice product research development messaging product research development product sales support • mobile internet “comverse mi” responsible comverses mobile internet products includes groups engaged product management solution engineering delivery research development product sales support addition comverse created global services “comverse gls” provides customer postdelivery services includes groups engaged support services bss vas mobile internet products services sales product management certain comverse business operations conducted following global corporate functions • customer facing group primarily engaged providing overall customer account management sales product lines • operations group provides centralized information technology procurement supply chain management global business operations services business units • strategy innovation finance legal human resources groups continue support business operations result phase ii business transformation comverse bss comverse vas comverse mi became operating segments company revenue comverse bss comverse vas comverse mi includes revenue generated comverse gls attributable operations operating segment costs expenses comverse bss comverse vas comverse mi comprised direct costs product materials personnelrelated costs expenses incurred comverse gls connection operations operating segment codm uses segment performance comverse bss comverse vas comverse mi including amounts attributable comverse gls assessing financial results segments allocation resources discrete financial information comverse gls used codm assessment financial results allocation resources company maintain balance sheets comverse bss comverse vas comverse mi operating segments companys reportable segments follows • comverse bss comprised comverses bss operating segment • comverse vas comprised comverses vas operating segment • verint comprised verint systems subsidiaries verint segment consists enterprise intelligence solutions “enterprise intelligence” previously referred workforce optimization video intelligence solutions video intelligence communications cyber intelligence solutions “communications intelligence” reporting units comprised companys operations including comverse mi operating segment comverses netcentrex operations comverses global corporate functions support business units starhome bv subsidiaries miscellaneous operations ctis holding company operations company recast presentation segment information fiscal years ended january 31 2011 2010 reflect reportable segments comverse technology inc subsidiaries notes consolidated financial statements continued use estimates preparation consolidated financial statements accompanying notes conformity us gaap requires company make estimates judgments affect reported amounts assets liabilities revenue expenses significant estimates include • estimates relating recognition revenue including determination vendor specific objective evidence “vsoe” fair value determination best estimate selling price multiple element arrangements • inventory reserves • allowance doubtful accounts • fair value stockbased compensation • valuation assets acquired liabilities assumed business combinations including contingent consideration • fair value reporting units purpose goodwill impairment test • valuation intangible assets • valuation investments financial instruments • realization deferred tax assets • identification measurement uncertain tax positions company’s actual results may differ estimates functional currency foreign currency translation transactions determination functional currency company’s foreign subsidiaries made based appropriate economic factors including currency subsidiary sells products sales market subsidiary operates currency subsidiary’s financing denominated foreign subsidiaries whose functional currency us dollar assets liabilities translated using current exchange rates balance sheet date income expense accounts using average exchange rates period except revenue previously deferred translated using historical rates resulting foreign currency translation adjustments reported separate component “total comprehensive loss” consolidated statements equity foreign subsidiaries whose functional currency local currency remeasurement gains losses recorded period “other income expense net” consolidated statements operations unrealized realized foreign currency transaction gains losses transactions denominated currencies functional currency entity included consolidated statements operations “other income expense net” period exchange rates changed business combinations company allocates fair value consideration transferred business combination estimated fair value acquisition date tangible intangible assets acquired liabilities assumed noncontrolling interest acquisition costs expensed incurred residual consideration recorded goodwill fair value consideration includes cash equity securities assets contingent consideration company estimates fair value contingent consideration using probabilityadjusted discounted cash flow method based significant inputs observable market company remeasures fair value contingent consideration reporting period change fair value either passage time events occurring acquisition date recorded earnings company’s determination fair values assets acquired liabilities assumed requires company make significant estimates primarily respect intangible assets estimates primarily derived historical experience information related acquired business estimates include limited cash flow projections acquired business appropriate weightedaverage cost capital results operations acquired business included company’s consolidated results operations date acquisition noncontrolling interest noncontrolling interest represents minority shareholders’ interest verint starhome bv company’s majorityowned subsidiaries ulticom inc prior sale third party december 3 2010 company recognizes noncontrolling interest separate component total equity consolidated balance sheets recognizes income comverse technology inc subsidiaries notes consolidated financial statements continued attributable noncontrolling interest separate component net loss consolidated statements operations january 31 2012 2011 respectively noncontrolling interest verint 582 561 respectively noncontrolling interest starhome 335 company’s majorityowned subsidiaries verint systems starhome bv sharebased payment award plans provide issuance company’s subsidiary common shares based service performance market conditions company accounts dilution may occur exercise awards granted sharebased payment award plans otherwise capital transactions discontinued operations december 3 2010 company sold shares common stock ulticom inc part initiatives improve cash position ulticom reportable segment company prior sale result ulticom sale results operations ulticom including gain ulticom sale reflected discontinued operations less applicable income taxes separate component net loss company’s consolidated statements operations fiscal years ended january 31 2011 2010 connection ulticom sale company received fiscal year ended january 31 2011 aggregate consideration 172 million recorded gain sale 29 million net tax addition promissory note amount 08 million paid ulticom february 2012 see note 19 discontinued operations cash equivalents cash primarily consists cash hand bank deposits cash equivalents primarily consist interestbearing money market accounts commercial paper agency notes highly liquid investments original maturity three months less purchased company maintains cash equivalents us dollars foreign currencies subject risks related foreign currency exchange rate fluctuations restricted cash bank time deposits restricted cash bank time deposits include compensating cash balances related existing lines credit deposits pledged collateral restricted use settle specified creditrelated bank instruments vendor payables general liability insurance workers’ compensation insurance pending tax judgments warranty programs obligations addition restricted cash january 31 2011 included proceeds sales redemptions auction rate securities “ars” including interest thereon restricted terms settlement agreement consolidated shareholder class action see note 3 investments note 26 commitments contingencies cash restricted one year balance sheet date classified within assets longterm restricted cash restricted bank time deposits generally consist certificates deposit original maturities twelve months less fourth quarter fiscal year ended january 31 2012 cti paid remaining amounts settlement agreement using restricted cash received sales redemptions ars shares common stock accordingly remaining cash proceeds received sales redemptions ars became unrestricted accounts receivable net application revenue recognition guidance often results circumstances company unable recognize revenue relating sales transactions billed circumstances company recognize deferred revenue related account receivable amounts recognized consolidated balance sheets transactions exception certain arrangements recognized accordance fasb’s guidance relating accounting performance constructiontype certain productiontype contracts extent company recognized revenue received cash transactions amounts included “accounts receivable net” also extent company received cash transactions amount included “deferred revenue” consolidated balance sheets allowance doubtful accounts company estimates collectability accounts receivable balances accounting period adjusts allowance doubtful accounts accordingly company exercises judgment assessing collectability accounts receivable including consideration current economic conditions creditworthiness customers collection history related aging past due receivables balances company evaluates specific accounts becomes aware comverse technology inc subsidiaries notes consolidated financial statements continued customer may experiencing deterioration financial condition due lower credit ratings bankruptcy factors may affect customer’s ability meet payment obligations company charges uncollectible trade receivables collection efforts exhausted company believes amount collected investments otherthantemporary impairments company accounts investments accordance fasb’s guidance relating accounting certain investments debt equity securities company’s investments reported fair value designates marketable securities availableforsale purchased purchases recorded settlement date interest shortterm investments recognized consolidated statements operations earned realized gains losses availableforsale securities recognized securities sold calculated using specific identification method recorded “other income expense net” consolidated statements operations unrealized gains losses net taxes recorded component “total comprehensive loss” consolidated statements equity generally investments original maturities greater three months remaining maturities less one year classified shortterm investments company reviews investments indications impairment value quarterly basis company considers investment impaired fair value less carrying value amortized cost company evaluated impaired investment individually determine whether investment otherthantemporarily impaired equity securities company considers among factors severity decline value financial condition issuer company’s ability hold security length time necessary allow recovery market value debt securities company considers whether company intent sell security ii likely company required sell security recovery fair value amortized cost iii credit loss exists measured difference amortized cost basis security present value projected future cash flows expected collected debt securities company intend sell security likely company required sell security recovery fair value amortized cost portion otherthantemporary impairment attributable credit loss recognized current earnings remaining portion recognized component comprehensive income inventories net inventories stated lower cost market cost determined firstin firstout weightedaverage methods company reduces carrying value inventory holds excess obsolete inventories determined evaluation historical usage expected future demand charges included component “product costs” consolidated statements operations property equipment property equipment carried cost less accumulated depreciation amortization company depreciates amortizes property equipment straightline basis leasehold improvements capitalized amortized shorter estimated useful lives related lease term cost maintenance repairs expensed incurred estimated useful lives property equipment follows goodwill represents excess fair value consideration transferred business combination fair value tangible intangible assets acquired net fair value liabilities assumed fair value noncontrolling comverse technology inc subsidiaries notes consolidated financial statements continued interest acquiree carrying amount goodwill reviewed annually impairment november 1 whenever events changes circumstances indicate carrying value may recoverable company applies fasbs guidance testing goodwill impairment permits company make qualitative assessment whether goodwill impaired opt bypass qualitative assessment proceed directly performing first step twostep impairment test company performs qualitative assessment concludes likely fair value reporting unit exceeds carrying value goodwill considered impaired twostep impairment test unnecessary however company concludes otherwise required perform first step twostep impairment test company unconditional option bypass qualitative assessment reporting unit proceed directly performing first step goodwill impairment test company may resume performing qualitative assessment subsequent period reporting units company decides perform qualitative assessment companys management assesses makes judgments regarding variety factors potentially impact fair value reporting unit including general economic conditions industry marketspecific conditions customer behavior cost factors financial performance trends strategies business plans capital requirements management personnel issues stock price among others management considers totality factors placing weight events circumstances judged affect reporting units fair value carrying amount net assets reach qualitative conclusion regarding whether likely fair value reporting unit exceeds carrying amount reporting units company performs twostep goodwill impairment test first step requires company compare fair value reporting unit carrying value net assets company considers incomebased approach using projected discounted cash flows marketbased approach using multiples comparable companies determine fair value reporting units companys estimate fair value reporting unit based number subjective factors including appropriate weighting valuation approaches incomebased approach marketbased approach ii estimates future revenue cash flows iii discount rate estimated cash flows iv selection peer group companies marketbased approach v required levels working capital vi assumed terminal value vii time horizon cash flow forecasts viii control premium fair value reporting unit exceeds carrying value goodwill considered impaired evaluation necessary carrying value reporting unit greater estimated fair value reporting unit indication impairment may exist second step required second step implied fair value goodwill calculated excess fair value reporting unit fair value assigned assets liabilities implied fair value goodwill less carrying value reporting units goodwill difference recognized impairment charge company record impairment goodwill fiscal years ended january 31 2012 2011 2010 companys forecasts estimates based assumptions consistent plans estimates used manage business changes estimates could change conclusion regarding impairment goodwill impairment longlived intangible assets company reviews recoverability longlived assets property equipment intangible assets finite lives whenever events changes circumstances occur indicate carrying value asset may recoverable impairment assets must considered prior companys impairment review goodwill assessment impairment based company’s ability recover carrying value asset analyzing expected future undiscounted pretax cash flows specific asset group circumstances could trigger review include limited significant decreases market price asset significant adverse changes business climate legal factors accumulation costs significantly excess amount expected acquisition longlived asset current period negative cash flow operating losses combined history losses forecast continuing losses associated use asset company assesses recoverability carrying value longlived assets lowest level identifiable cash flows largely independent cash flows assets liabilities undiscounted cash flows less carrying value asset group impairment loss measured based difference estimated fair value carrying value impairment loss intangible assets reported component “other operating income expense” consolidated statements operations assets disposed writtendown greater fair value salvage value estimated fair values based assumptions regarding amount timing estimated future cash flows appropriate discount rates reflect varying degrees perceived risk comverse technology inc subsidiaries notes consolidated financial statements continued acquired inprocess research development iprd projects reached technological feasibility date acquisition considered indefinitelived intangible assets subject amortization completion abandonment associated research development efforts upon completion development process iprd assets amortized estimated useful lives project abandoned rather completed iprd asset writtenoff iprd assets tested impairment annually frequently events changes circumstances indicate assets might impaired impairment test compares fair value iprd asset carrying amount carrying amount iprd asset exceeds fair value impairment loss recognized amount equal excess verint acquired iprd assets fourth quarter fiscal year ended january 31 2012 record impairment iprd assets fiscal year ended january 31 2012 fair value measurements fasb’s guidance fair value defined price would received sale asset paid transfer liability orderly transaction market participants measurement date ie “the exit price” determining fair value company uses various valuation approaches including quoted market prices discounted cash flows fasb’s guidance also establishes hierarchy inputs used measuring fair value maximizes use observable inputs minimizes use unobservable inputs requiring observable inputs used available observable inputs market participants would use pricing asset liability developed based market data obtained independent sources unobservable inputs reflect company’s judgment concerning assumptions market participants would use pricing asset liability developed based best information available circumstances fair value hierarchy broken three levels based reliability inputs follows • level 1valuations based quoted prices active markets identical instruments company able access since valuations based quoted prices readily regularly available active market valuation instruments entail significant degree judgment • level 2valuations based quoted prices active markets instruments similar quoted prices markets active identical similar instruments modelderived valuations significant inputs significant value drivers observable active markets • level 3valuations based inputs unobservable significant overall fair value measurement extent valuation based models inputs less observable unobservable market determination fair value requires judgment accordingly company’s degree judgment exercised determining fair value greatest instruments categorized level 3 certain cases inputs used measure fair value may fall different levels fair value hierarchy cases asset liability classified entirety based lowest level input significant measurement fair value fair value marketbased measure considered perspective market participant holds asset owes liability rather entityspecific measure therefore even market assumptions readily available company’s assumptions set reflect market participants would use pricing asset liability measurement date company uses prices inputs current measurement date including periods market dislocation recent illiquidity ars market periods market dislocation observability prices inputs may reduced many instruments condition caused future may cause financial instruments company reclassified level 1 level 2 level 2 level 3 fasb’s guidance requires valuation techniques used consistent least one three possible approaches market approach income approach andor cost approach level 1 valuations based market approach consist primarily quoted prices identical items active securities exchanges company’s level 2 valuations also use market approach based significant observable inputs quoted prices financial instruments traded daily basis company’s level 3 valuations based income approach specifically discounted cash flow analyses utilize significant inputs observable active markets fasb’s guidance relating fair value option financial assets financial liabilities permits instrumentbyinstrument irrevocable election account selected financial instruments fair value company elected apply fair value option eligible financial assets financial liabilities comverse technology inc subsidiaries notes consolidated financial statements continued company also elected apply fair value option nonfinancial assets nonfinancial liabilities derivative instruments hedge accounting part company’s risk management strategy uses derivative financial instruments including forward contracts interest rate swap agreements hedge certain foreign currency interest rate exposures respectively company recognizes derivatives either assets liabilities consolidated balance sheets fair value trade date basis derivatives gain position reported “prepaid expenses current assets” consolidated balance sheets derivatives loss position recorded “other current liabilities” “other longterm liabilities” applicable consolidated balance sheets order qualify hedge accounting company formally documents inception hedging relationship hedging instrument hedged item risk management objective strategy undertaking hedging relationship method used assess hedge effectiveness includes company’s assessment creditworthiness party ability comply contractual terms hedging derivative financial instruments qualify cash flow hedge accounting company records effective portion changes fair value part comprehensive income loss consolidated statements equity hedged item recognized consolidated statements operations related derivative gain loss reclassified “accumulated comprehensive income loss” consolidated statements equity consolidated statements operations within line item hedged item recorded cash flows derivative financial instrument qualifying cash flow hedge accounting classified consolidated statements cash flows category cash flows hedged item derivative financial instrument qualify hedge accounting company records changes fair value derivative instruments “other income expense net” consolidated statements operations company purchase hold sell derivative financial instruments trading speculative purposes treasury stock repurchased shares common stock recorded cost treasury stock time company repurchases shares common stock upon delivery shares settlement deferred stock unit vesting restricted stock unit awards employees directors order provide funds payment associated minimum statutory withholding taxes fiscal years ended january 31 2012 2011 2010 company repurchased 667971 248982 47901 shares common stock respectively recorded treasury stock concentration credit risk financial instruments potentially expose company credit risk consist primarily investments derivatives accounts receivable time company invests excess cash high creditquality financial institutions invests primarily money market funds placed major banks financial institutions ii corporate commercial paper iii corporate municipal short medium term notes iv mortgage asset backed securities v us government agency securities vi repurchase agreements vii mutual funds company believes significant concentration credit risk exists respect investments beginning third quarter fiscal year ended january 31 2008 auctions supporting liquidity company’s investment ars failed curtailing liquidity investments company consequently limited ability manage exposure ars counterparty risk result change liquidity decline credit quality fair value ars declined company recorded otherthantemporary impairment charges investments see note 3 investments significant portion company’s accounts receivable primarily related comverse communication service providers however concentration credit risk diversified due large number commercial government entities comprising company’s customer base dispersion across different industries geographic regions company manages concentration credit risk trade accounts receivable performing ongoing credit evaluations customers’ financial condition limiting extension credit deemed necessary customer accounted 10 total revenue fiscal years ended january 31 2012 2011 2010 customer accounted 10 consolidated accounts receivable january 31 2012 2011 company believes significant customer credit risk exists comverse technology inc subsidiaries notes consolidated financial statements continued revenue recognition company reports revenue two categories product revenue including hardware software products ii service revenue including revenue professional services training services postcontract customer support “pcs” professional services primarily include installation customization consulting services majority companys revenue accounted accordance fasbs guidance relating revenue recognition software arrangements software component companys multiple element arrangements incidental products sold however multiple element arrangements entered materially modified february 1 2011 include hardware functions together software provide essential functionality product accounted fasbs new guidance applicable multiple element arrangements applying fasbs guidance company exercises judgment uses estimates determining revenue recognized accounting period arrangements require significant customization underlying software company recognizes revenue persuasive evidence arrangement product shipped services provided customer sales price fixed determinable collectability probable pertinent criteria met required fasbs guidance certain instances payment terms extend beyond companys customary practices situations customer adequate history abiding contractual payment terms without concessions sales price considered fixed determinable revenue recognition commences upon collection provided revenue recognition criteria met certain contractual arrangements company required pay penalty liquidated damages delivery companys products installation services completed certain date arrangements company guaranteed product performance warranty service response rates met result penalties company accounts penalties liquidated damages accordance fasbs guidance relating contingencies shipping handling amounts billed companys customers included product revenue related shipping handling costs included product costs company reports revenue net revenuebased taxes assessed governmental authorities imposed concurrent specific revenue producing transactions following specific revenue recognition policies major category revenue multiple element arrangements revenue arrangements may incorporate one elements single transaction combination related transactions september 2009 fasb issued revenue recognition guidance applicable multiple element arrangements • applies multiple element revenue arrangements contain software hardware elements focusing determining revenue arrangements within scope software revenue guidance • addresses separate consideration related element multiple element arrangement excluding software arrangements establishes hierarchy determining selling price element also eliminates residual method allocation requiring arrangement consideration allocated inception arrangement elements using relative selling price method company adopted guidance prospective basis revenue arrangements entered materially modified february 1 2011 certain companys multiple element arrangements include hardware functions together software provide essential functionality product therefore arrangements entered materially modified february 1 2011 longer accounted accordance fasbs software accounting guidance accordingly selling price used deliverable based vendor specific objective evidence vsoe fair value available thirdparty evidence “tpe” fair value vsoe available companys best estimate selling price “besp” comverse technology inc subsidiaries notes consolidated financial statements continued neither vsoe tpe available determining units accounting arrangements company evaluates whether deliverable standalone value defined fasbs guidance companys comverse bss comverse vas segments professional services performed prior products acceptance standalone value therefore combined related hardware software one nonsoftware deliverable determining fair value deliverable arrangement consideration allocated using relative selling price method revenue recognized accordingly deliverable respective revenue recognition criteria met deliverable companys comverse bss comverse vas segments yet established vsoe fair value element pcs portion arrangements companys verint segment established vsoe fair value one elements installation services training consulting pcs majority arrangements generally company able determine tpe offerings contain significant level differentiation comparable pricing substantially similar products services cannot obtained company unable establish fair value nonsoftware deliverables using vsoe tpe uses besp allocation arrangement consideration objective besp determine price would transact sale product service sold standalone basis requires significant judgment company determines besp product service considering multiple factors including limited cost products gross margin objectives pricing practices geographies customer classes company exercises judgment uses estimates determining revenue recognized accounting period exception arrangements require significant customization product meet particular requirements customer accounted using percentageofcompletion method initial revenue recognition nonsoftware product deliverable generally upon completion related professional services impact implementing guidance significant fiscal year ended january 31 2012 fiscal year ended january 31 2012 additional 634 million revenue recognized result adoption new guidance additional revenue included 409 million additional revenue recognized new guidance compared revenue would recognized prior accounting guidance fiscal year ended january 31 2012 resulting material modifications certain existing contracts deferred revenue associated contracts modified fiscal year ended january 31 2012 193 million 82 million january 31 2012 2011 respectively transactions entered prior february 1 2011 subsequently materially modified well multiple element arrangements without hardware company allocates revenue delivered elements arrangement using residual method whereby revenue allocated undelivered elements based vsoe fair value undelivered elements remaining arrangement fee allocated delivered elements recognized revenue assuming revenue recognition criteria met company unable establish vsoe fair value undelivered elements arrangement revenue recognition deferred entire arrangement elements arrangement delivered however undelivered element pcs company recognizes arrangement fee ratably pcs period pcs revenue derived primarily providing technical software support services unspecified software updates upgrades customers available basis pcs revenue recognized ratably term pcs period pcs included within multiple element arrangement within scope software revenue guidance company primarily utilizes substantive renewal rate establish vsoe fair value pcs much lesser extent bellshaped curve approach used certain verint arrangements depending upon geographical region product line companys policy establishing vsoe fair value professional services training based upon analysis separate sales services compared fees charged elements included multiple element arrangement comverse yet established vsoe fair value element pcs using substantive renewal rate method company may unable establish vsoe fair value pcs renewal rate deemed nonsubstantive contractuallystated renewal rates stated renewal rate nonsubstantive entire arrangement fee recognized ratably estimated economic life product five eight years beginning upon delivery elements pcs company believes estimated economic life product best estimate long customer renew pcs contractually stated renewal rate entire arrangement fee recognized ratably relevant contractual pcs term beginning upon delivery elements pcs bellshaped curve approach establishing vsoe fair value verint performs vsoe fair value compliance test ensure substantial majority actual pcs renewals within narrow range pricing comverse technology inc subsidiaries notes consolidated financial statements continued certain verints arrangements explicit obligation provide pcs matter business practice provided pcs implied pcs implied pcs accounted separate element vsoe fair value exist arrangements contain implied pcs recognized period implied pcs provided exceed estimated economic life product certain multiple element arrangements company obligated provide training services customers related operation companys software products comverse training services either provided customer “defined” basis limited specified number days training classes “asrequested” basis unlimited training contractual period multiple element arrangements containing asrequested training obligations within scope software revenue guidance company recognizes total arrangement consideration ratably contractual period company required “stand ready” perform training provided criteria revenue recognition met multiple element arrangements containing defined training obligations training services typically provided customer prior completion installation services arrangements within scope software revenue guidance revenue recognition commence completion installation defined training obligations impact timing recognition revenue certain circumstances training provided end installation period company commences revenue recognition upon completion training provided criteria revenue recognition met multiple element arrangements company may offer discount future purchases products services discount considered additional element arrangement discount considered insignificant morethaninsignificant discount respect future purchases discount incremental range discounts reflected pricing elements arrangement ii incremental range discounts typically given comparable transactions iii significant insignificant discounts incremental affect revenue recognition discount considered insignificant portion fee received deferred recognized revenue future purchases made customer upon expiration period discount available companys arrangements require significant customization product meet particular requirements customer arrangements revenue typically recognized accordance fasbs guidance longterm construction type contracts using percentageofcompletion “poc” method determination whether services entail significant customization requires judgment primarily based alterations features functionality standard release complex unusual interfaces well amount hours necessary complete customization solution relative size contract revenue arrangements recognized poc method based ratio total hours incurred date compared estimated total hours complete contract management required make judgments estimate total estimated costs progress completion changes estimates impact timing revenue recognition period company uses historical experience project plans assessment risks uncertainties inherent arrangement establish estimates uncertainties arrangements include implementation delays performance issues may within companys control level profitability assured related revenue costs cannot reasonably estimated revenue recognized extent costs incurred time projects profitability estimated services completed vsoe fair value pcs exist revenues recognized extent costs incurred services completed provided company able make reliable cost estimates level profitability assured services completed remaining unrecognized portion arrangement fee recognized ratably remaining pcs period situations company able make reliable estimates level profitability assured revenue deferred completion professional services recognized ratably respective pcs period company determines based estimates costs exceed sales price entire amount estimated loss accrued period losses become known revenue comverse derives sales distributors resellers valueadded resellers recognized resellers turn sell software product customers installation software product occurred provided revenue recognition criteria met commonly referred sellthrough method contractual arrangements reseller end user reseller comverse generally obligate comverse provide services end user subject end user acceptance payment terms generally subject resellers receiving payment end user end users acceptance product therefore comverse defers recognition comverse technology inc subsidiaries notes consolidated financial statements continued “sellthrough” reseller actual end user customer acceptance end user product revenue verint derives shipments resellers original equipment manufacturers “oems” purchase products resale generally recognized products shipped “sellin” basis verint historically experienced insignificant product returns resellers oems payment terms customers similar granted end users reseller oem develops pattern payment delinquency seeks payment terms longer generally accepted verint defers recognition revenue receipt cash verints arrangements resellers oems periodically reviewed business products change instances verint derives revenue sale thirdparty vendor services verint principal transaction verint generally records revenue gross basis records costs related sale within cost revenue cases verint acting agent customer vendor revenue recorded net costs consolidated statements operations company classifies revenue product revenue service revenue multiple element arrangements include product service elements company unable determine vsoe fair value elements arrangement management evaluates various available indicators fair value applies judgment reasonably classify arrangement fee product revenue service revenue amount multiple element arrangement fees classified product service revenue based management estimates fair value vsoe fair value elements arrangement exist could differ amounts classified product service revenue vsoe fair value elements existed allocation multiple element arrangement fees product revenue service revenue vsoe fair value elements exist consolidated financial statement presentation purposes affect timing amount revenue recognized determining amount multiple element arrangement fee classified product revenue service revenue comverse first allocates arrangement fee product revenue pcs classified service revenue based managements estimate fair value elements remainder arrangement fee comprised service elements allocated service revenue estimate fair value product element based primarily managements evaluation direct costs reasonable profit margins products determined appropriate methodology comverse historically productoriented respect pricing policies facilitates evaluation product costs related margins arriving reasonable estimate product element fair value managements estimate reasonable profit margins requires significant judgment consideration various factors impact economic environment margins complexity projects stability product profit margins nature products estimate fair value pcs based managements evaluation weightedaverage pcs rates arrangements vsoe fair value pcs exists determining classification revenue products services verint reviews vsoe fair value training installation pcs services similar transactions stand alone services arrangements compares peers order determine reasonable consistent approximations fair values service revenue remaining amount allocated product revenue postcontract customer support renewals companys multiple element arrangements typically provide renewal pcs terms upon expiration original term amounts pcs renewals recognized revenue ratably specified pcs renewal period professional services arrangements based type nature professionalservicesonly arrangements company recognizes revenue using either proportional performance method completed performance method time materials basis fixedfee arrangements recognized based proportional performance method company typically measures progress completion based ratio hours incurred total estimated project hours input method fixedfee arrangements recognized based completed performance method company recognizes revenue services completed obligations company recognizes revenue time materials arrangements services performed based contractually stipulated billing rates product service costs company’s product service costs include costs materials compensation benefit costs operations service personnel contractor consulting costs royalties license fees depreciation equipment used operations service amortization capitalized software costs travel expenses certain purchased intangible assets related overhead comverse technology inc subsidiaries notes consolidated financial statements continued costs revenue recognized multiple periods accordance company’s revenue recognition policies material cost including hardware thirdparty software license fees deferred amortized period product revenue recognized costs recognized “deferred cost revenue” consolidated balance sheets however company made accounting policy election whereby cost installation service costs expensed incurred except arrangements recognized accordance fasb’s guidance longterm construction type contracts certain contracts revenue recognized accordance fasb’s guidance longterm construction type contracts revisions estimates costs reflected accounting period facts require revision become known costs include direct material labor costs overhead related contract performance research development net research development expense primarily consists personnel costs involved product development research development expense also includes thirdparty development programming costs amortization purchased software code services content used research development activities research development costs expensed incurred company receives nonrefundable grants fund portion research development expenditures grants recorded reduction “research development net” consolidated statements operations software costs software developed internal use capitalized accordance fasb’s guidance application development stage amortized estimated useful life software date four years less software ready intended use costs included “property equipment net” consolidated balance sheets costs software developed sale customers capitalized accordance fasb’s guidance relating costs computer software sold leased otherwise marketed customers software costs incurred capitalized subsequent establishing technological feasibility continue general release software products capitalized costs included “other assets” consolidated balance sheets amortization capitalized costs begins period related product available general release customers recorded straightline basis estimated economic life related software products approximates pattern economic benefits expected realized economic life related software products generally seven years less sales marketing sales marketing expenses include payroll employee benefits stockbased compensation headcountrelated expenses associated sales marketing personnel costs advertising promotions programs addition company records customer acquisition origination costs including sales commissions incurred exception certain sales referral fees capitalized amortized ratably revenue recognition period advertising costs expensed incurred stockbased compensation company estimates fair value sharebased payment awards date grant using optionpricing model fasb’s guidance stockbased compensation expense measured grant date based fair value award cost recognized expense ratably award’s vesting period company uses blackscholes optionpricing model measure fair value stock option awards blackscholes model requires company make judgments regarding assumptions used within model significant stock price volatility assumption term awards expected life option award based actual projected employee stock option behaviors assumptions include riskfree rate return dividends expected term company estimates expected forfeitures stockbased awards grant date recognize compensation cost awards expected vest forfeiture rates estimated based historical experience forfeiture assumption adjusted actual forfeitures occur therefore changes forfeiture assumptions may impact amount timing total amount expense recognized vesting period estimated forfeitures reassessed subsequent comverse technology inc subsidiaries notes consolidated financial statements continued periods may change based new facts circumstances fair value equity instruments issued nonemployee measured using stock price measurement assumptions date earlier either commitment performance nonemployee reached ii counterparty’s performance complete expenses related nonemployee awards generally recognized period manner company incurs related liability goods services received apic pool company uses long form method determine pool excess tax benefits available within additional paidin capital excess tax benefits resulting stock option exercises recognized additions apic period benefit realized event shortfall tax benefit realized less amount previously recognized periodic stockbased compensation expense recognition related deferred tax accounting shortfall charged apic extent previous excess benefits including hypothetical apic pool tax expense income taxes income taxes provided using asset liability method income taxes ie deferred tax assets deferred tax liabilities taxes currently payablerefunds receivable tax expensebenefit recorded based amounts refundable payable current year include results difference us gaap tax reporting deferred income taxes reflect tax effect net operating losses capital losses general business credit carryforwards net tax effects temporary differences carrying amount assets liabilities financial statement income tax purposes determined enacted tax laws rates valuation allowances established management determines morelikelythannot portion deferred tax asset realized financial effect changes tax laws rates accounted period enactment subsequent realization net operating loss general business credit carryforwards acquired acquisitions accounted using acquisition method accounting recognized consolidated statement operations research development credits recorded based amount benefit company believes morelikelythannot earned additionally company required recognize consolidated financial statements tax positions determined morelikelythannot sustained upon examination based technical merits positions time company engages transactions tax consequences may subject uncertainty examples transactions include business acquisitions dispositions certain financing transactions significant judgment required assessing estimating tax consequences transactions company prepares files tax returns based interpretation tax laws regulations normal course business company’s tax returns subject examination various taxing authorities examinations may result future tax interest assessments taxing authorities determining company’s tax provision financial reporting purposes company establishes liability uncertain tax positions unless positions determined morelikelythannot sustained upon examination based technical merits financial reporting purposes company recognizes tax benefits taken tax return believes morelikelythannot sustained considerable judgment involved determining whether positions taken tax return morelikelythannot sustained company adjusts estimated liability uncertain tax positions periodically ongoing examinations settlements various taxing authorities well changes tax laws regulations interpretations consolidated tax provision given year includes adjustments prior year income tax accruals considered appropriate related estimated interest company’s policy recognize applicable interest penalties uncertain tax positions part income tax expense see note 22 income taxes part accounting business combinations purchase price allocated goodwill intangible assets impairment charges associated goodwill generally tax deductible result increased effective income tax rate quarter impairment recorded amortization expenses associated acquired intangible assets generally tax deductible pursuant company’s existing tax structure however deferred taxes recorded nondeductible amortization expenses part purchase price allocation process company taken account allocation identified intangibles among different taxing jurisdictions including nominal zero percent tax rates establishing related deferred tax liabilities fasbs guidance income tax benefit future releases acquisition date valuation allowances income tax contingencies reflected income tax provision consolidated statements operations rather adjustment purchase price allocation comverse technology inc subsidiaries notes consolidated financial statements continued loss per share attributable comverse technology inc’s shareholders basic loss per share attributable comverse technology inc’s shareholders computed dividing net loss attributable comverse technology inc weightedaverage number cti’s shares common stock outstanding period diluted loss per share attributable comverse technology inc’s shareholders computed using weightedaverage number cti’s shares common stock dilutive common equivalent shares outstanding period common equivalent shares consist shares common stock issuable respect stock options restricted stock deferred stock units “dsus” restricted stock units “rsus” convertible debt obligations “convertible debt obligations” see note 12 debt treasury stock method used compute dilutive effect options dsus similar instruments ifconverted method used compute dilutive effect company’s convertible debt obligations additionally purposes calculating diluted loss per share attributable comverse technology inc’s shareholders net loss attributable comverse technology inc adjusted difference verint’s starhome’s reported diluted basic earnings per share multiplied number shares common stock common share equivalents cti holds verint starhome basic diluted loss per share continuing operations discontinued operations computed dividing net loss continuing operations loss discontinued operations net tax attributable comverse technology inc shareholders respectively basic diluted weightedaverage number cti’s shares common stock outstanding period contingencies nature relate uncertainties require management exercise judgment assessing likelihood liability incurred well estimating amount potential loss company accrues costs relating litigation claims contingent matters liabilities become probable reasonably estimable cash position management’s plans company incurred substantial losses experienced declines cash flows three fiscal years ended january 31 2012 significant accumulated deficit january 31 2012 company forecasts available cash equivalents sufficient meet liquidity needs including capital expenditures cti comverse least next 12 months company’s forecast based upon number assumptions company believes reasonable however one assumptions prove incorrect one risks uncertainties attendant company business materialize company’s business operations could materially adversely affected event company may need seek new borrowings asset sales issuance equity debt securities management believes sources liquidity could identified 2 recent accounting pronouncements standards implemented revenue recognition september 2009 fasb issued revenue recognition guidance applicable multiple element arrangements company adopted guidance prospective basis revenue arrangements entered materially modified february 1 2011 see note 1 organization business summary significant accounting policiesrevenue recognition goodwill impairment september 2011 fasb issued new accounting guidance testing goodwill impairment new guidance provides entity option first perform qualitative assessment determine whether reporting units fair value likely less carrying value including goodwill performing qualitative assessment entity considers extent adverse events circumstances factors identified changes economic conditions industry market conditions entity specific events could affect comparison reporting units fair value carrying amount entity concludes fair value reporting unit likely less carrying amount entity required perform currently prescribed twostep goodwill impairment test identify potential goodwill impairment accordingly measure amount goodwill impairment loss recognized reporting unit guidance effective company interim annual periods commencing february 1 2012 comverse technology inc subsidiaries notes consolidated financial statements continued fourth quarter fiscal year ended january 31 2012 conjunction managements annual testing goodwill company early adopted new accounting guidance qualitative assessment various factors would affect estimated fair value reporting unit identified factors classified type impact would estimated fair value using positive neutral adverse categories based current business conditions additionally assessment level impact particular factor would estimated fair value determined using high medium low weighting annual testing goodwill fiscal year ended january 31 2012 management performed qualitative assessment verint starhome reporting units qualitative assessment included review changes following recent financial performance financial forecasts discount rates carrying amount market values comparable companies industry conditions general economic conditions furthermore management considered results recent twostep quantitative impairment test completed reporting unit instance companys verint starhome reporting units november 1 2010 management concluded likely estimated fair value verint starhome reporting units equity less carrying value analysis verint starhome reporting units required standards implemented january 2010 fasb issued guidance amend disclosure requirements related recurring nonrecurring fair value measurements guidance requires new disclosures transfers assets liabilities level 1 quoted prices active market identical assets liabilities level 2 significant observable inputs fair value measurement hierarchy including reasons timing transfers additionally guidance requires gross presentation activity within level 3 significant unobservable inputs roll forward presenting information purchases sales issuance settlements separately guidance effective company interim annual periods commenced february 1 2010 except gross presentation level 3 roll forward became effective company interim annual periods commenced february 1 2011 adoption guidance resulted additional disclosures gross presentation level 3 roll forward see note 14 fair value measurements december 2010 fasb issued updated accounting guidance clarify pro forma disclosures presented business combination occurred beginning prior annual period purposes preparing current reporting period prior reporting period pro forma financial information disclosures accompanied narrative description nature amount material nonrecurring pro forma adjustments new accounting guidance effective business combinations consummated periods beginning december 15 2010 applied prospectively date adoption although early adoption permitted company adopted new guidance effective february 1 2011 adoption guidance material impact consolidated financial statements december 2010 fasb issued guidance perform step two goodwill impairment test reporting units zero negative carrying amounts upon adoption carrying amount reporting unit zero negative reporting entity must perform step two goodwill impairment test likely goodwill impaired date adoption determining likely goodwill impairment exists entity consider whether adverse qualitative factors indicating impairment may exist goodwill impairment recognized upon adoption guidance presented cumulativeeffect adjustment opening retained earnings adoption date reflecting change accounting principle guidance effective company interim annual periods commenced february 1 2011 carrying value companys previously defined comverse reporting unit negative february 1 2011 existence adverse qualitative factors indicated potential impairment step two goodwill impairment test performed date result impairment adoption guidance material impact consolidated financial statements fiscal year ended january 31 2012 standards implemented may 2011 fasb issued updated accounting guidance amend existing requirements fair value measurements disclosures guidance expands disclosure requirements around fair value measurements categorized level 3 fair value hierarchy requires disclosure level fair value hierarchy items measured fair value whose fair value must disclosed also clarifies expands upon existing requirements fair value measurements financial assets liabilities well instruments classified shareholders equity guidance effective beginning interim period ending april 30 2012 company assessing impact application guidance may consolidated financial statements comverse technology inc subsidiaries notes consolidated financial statements continued june 2011 fasb issued accounting guidance revises manner entities present comprehensive income financial statements new guidance eliminates option present components comprehensive income part statement equity new guidance entities required present net income comprehensive income either single continuous statement two separate consecutive statements net income comprehensive income december 2011 fasb amended updated guidance issued june 2011 defer certain presentation requirements amended updated guidance effective company interim annual periods commencing february 1 2012 company believes changes presentation adoption guidance material impact consolidated financial statements 3 investments company accounts investments accordance fasb’s guidance relating accounting certain investments debt equity securities related pronouncements classifies debt equity securities availableforsale january 31 2011 investments ars disclosed held cti date restricted pursuant settlement agreement consolidated shareholder class action cti entered december 16 2009 amended june 19 2010 january 31 2011 cash proceeds sales redemptions ars held account ubs including interest thereon restricted fourth quarter fiscal year ended january 31 2012 company paid remaining amounts settlement agreement accordingly ars cash proceeds received sales redemptions thereof became unrestricted see note 26 commitments contingencies auction rate securities company invested ars supported corporate issuers student loans ars portfolio supported corporate issuers consisted collateralized debt obligations regulation xxx securities insurance industryrelated ars company’s ars supported corporate issuers rated aaa aa standard poor’s “sp” aaa a3 moody’s investor service “moody’s” purchased corporate issued holdings downgraded since original purchase date two remaining securities rated sp c moody’s respectively january 31 2011 ars portfolio supported student loans substantially guaranteed federal government federal family education loan program company’s ars supported student loans rated aaa sp aaa moody’s purchased ars supported student loans rated aaa bb sp aaa ba1 moody’s january 31 2011 classification august 2010 company began forecast would sell remaining ars fourth quarter fiscal year ending january 31 2012 expiration restrictions sales ars use proceeds sales thereof following final payment settlement agreement consolidated shareholder class action due november 15 2011 accordingly ars classified current assets january 31 2011 january 31 2011 proceeds sales redemptions ars including interest received subsequent date settlement agreement consolidated shareholder class action 334 million classified within consolidated balance sheets “restricted cash bank time deposits” company sold 869 million 1122 million aggregate principal amount ars fiscal years ended january 31 2012 2011 resulting gains 244 million 238 million respectively recognized “other income expense net” gains represent recovery previously recognized otherthantemporary impairments fair market value ars recovered toward par value fourth quarter fiscal year ended january 31 2012 company paid remaining amounts settlement agreement accordingly cash proceeds received sales redemptions ars became unrestricted classified “cash equivalents comverse technology inc subsidiaries notes consolidated financial statements continued otherthantemporary impairment result historic auction failures declines credit quality subsequent purchase cti fair value ars significantly declined fair value ars determined quarterly basis company utilizing discounted cash flow model considered among factors assumptions underlying collateral ii credit risk associated issuer iii contractual maturity discounted cash flow model considered contractual future cash flows representing interest principal payments future interest payments projected using us treasury swap curves remaining term ars accordance terms specific security principal payments assumed made estimated contractual maturity date taking account applicable prepayments yields used discount payments determined based specific characteristics security key considerations determination appropriate discount rate included securities’ remaining term maturity capital structure subordination quality level collateralization complexity payout structure credit rating issuer presence absence additional insurance ars company determined could assert intended hold ars fair value recovered amortized cost company recorded otherthantemporary impairment charges 04 million 69 million pretax basis fiscal years ended january 31 2011 2010 respectively company record otherthantemporary impairment charges fiscal year ended january 31 2012 otherthantemporary impairment charges recorded component “other income expense net” consolidated statements operations see note 21 income expense net carrying amount company’s ars january 31 2012 2011 03 million 724 million corresponding principle amount 75 million 944 million respectively classified shortterm availableforsale investments “auction rate securities” ubs put november 2008 cti accepted offer ubs ag “ubs” providing rights related 516 million aggregate principal amount ars held account ubs “ubs put” terms ubs put cti right obligation sell eligible ars par value ubs time period june 30 2010 july 2 2012 additionally ubs right discretion time july 2 2012 purchase ars cti par value defined price equal principal amount ars plus accrued unpaid dividends interest terms settlement agreement consolidated shareholder class action cti required exercise ubs put june 30 2010 apply proceeds exercise toward amounts payable settlement effective june 30 2010 cti exercised ubs put balance ars subject ubs put ubs purchased cti pursuant purchase right upon exercise ubs put cti approximately 426 million 90 million aggregate principal amount ars fiscal years ended january 31 2011 2010 respectively fiscal year ended january 31 2009 company recorded ubs put fair value 136 million assets corresponding gain recorded income expense net consequently ubs put carried historical cost assessed impairment company evaluated ubs put impairment based redemptions changes fair value related ars subject ubs put fiscal years ended january 31 2011 2010 recorded 67 million 69 million respectively pretax impairment charges classified “other income expense net” due exercise june 30 2010 company recorded amounts connection ubs put january 31 2011 comverse technology inc subsidiaries notes consolidated financial statements continued following summary availableforsale securities january 31 2012 2011 ars stated maturities excess 5 years investments original maturities three months less purchased included cash equivalents “restricted cash bank time deposits” longterm restricted cash longterm restricted cash classified within “other assets” consolidated balance sheets investments reflected tables january 31 2012 2011 include commercial paper money market funds totaling 2173 million 1958 million january 31 2012 2011 respectively unrealized gains losses january 31 2012 2011 company received cash proceeds sales redemptions investments 755 million 573 million 1752 million fiscal years ended january 31 2012 2011 2010 respectively gross realized gains losses company’s investments follows fiscal years presented comverse technology inc subsidiaries notes consolidated financial statements continued components comprehensive income loss oci related availableforsale securities follows 4 inventories net inventories net reserves 239 million 264 million january 31 2012 2011 respectively consist 5 property equipment net property equipment net january 31 2012 2011 consist depreciation amortization expense property equipment 285 million 325 million 423 million fiscal years ended january 31 2012 2011 2010 respectively company also wrote disposed property equipment net 24 million 13 million 64 million fiscal years ended january 31 2012 2011 2010 respectively comverse technology inc subsidiaries notes consolidated financial statements continued september 16 2010 comverse ltd israeli company whollyowned subsidiary comverse inc entered agreement sale land ra’anana israel third party approximately 285 million approximately 271 million proceeds received fiscal year ended january 31 2011 balance originally held escrow cover extent necessary applicable taxes levies received fiscal year ended january 31 2012 company recorded net gain 24 million sale land fiscal year ended january 31 2011 6 business combinations results operations acquired entities included respective dates acquisition excess fair value consideration transferred sum fair value amounts assigned identifiable tangible intangible assets liabilities assumed noncontrolling interest recorded goodwill accordance fasb’s guidance verint segment vovici acquisition august 4 2011 verint acquired outstanding shares vovici corporation “vovici” usbased privatelyheld provider online survey management enterprise feedback solutions acquisition enhances verints enterprise intelligence product suite include comprehensive voice customer software services offerings designed help organizations implement singlevendor solution set collecting analyzing acting customer insights financial results vovici included companys consolidated financial statements since august 4 2011 verint acquired vovici approximately 561 million cash closing including 04 million repay vovicis bank debt consideration also included exchange certain unvested vovici stock options acquire approximately 42000 shares verint systems common stock fair values totaling 10 million 01 million represents compensation preacquisition services included consideration transferred 09 million recognized stockbased compensation expense remaining future vesting periods awards verint also agreed make potential additional cash payments approximately 191 million contingent upon achievement certain performance targets period ending january 31 2013 fair value contingent obligation estimated 99 million august 4 2011 99 million acquisition date fair value contingent consideration obligation estimated based probability adjusted present value consideration expected transferred using significant inputs observable market key assumptions used estimate include probability assessments respect likelihood achieving performance targets discount rates consistent level risk achievement reporting date contingent consideration obligation revalued fair value increases decreases fair value recorded within “selling general administrative” expenses companys consolidated statements operations increases decreases fair value contingent consideration obligation may result changes discount periods rates changes probability assumptions respect likelihood achieving performance targets company recorded benefit approximately 27 million fiscal year ended january 31 2012 change fair value contingent consideration obligation acquisition date january 31 2012 primarily reflected impact revised assessments probability payment january 31 2012 fair value contingent consideration obligation approximately 72 million 20 million 52 million recorded within “accounts payable accrued expenses” “other longterm liabilities” respectively purchase price allocated tangible assets intangible assets acquired liabilities assumed based estimated fair values acquisition date remaining unallocated purchase price recorded goodwill fair values assigned identifiable intangible assets acquired determined primarily using income approach discounts expected future cash flows present value using estimates assumptions determined management acquired identifiable intangible assets amortized straightline basis company believes approximates pattern assets utilized estimated useful lives among factors contributing recognition goodwill transaction synergies products technologies addition skilled assembled workforce goodwill deductible income tax purposes connection purchase price allocation estimated fair value support obligations assumed vovici determined utilizing cost buildup approach cost buildup approach calculates fair value estimating costs relating comverse technology inc subsidiaries notes consolidated financial statements continued fulfilling obligations plus normal profit margin approximates amount company believes would required pay third party assume support obligations estimated costs fulfill support obligation based historical direct costs related providing support services estimated costs include costs associated selling efforts research development related margins costs profit associated selling efforts excluded selling effort support contracts concluded prior august 4 2011 acquisition date estimated profit margin 15 company believes best approximates operating profit margin fulfill support obligations result allocating purchase price adjustment recorded reduce 53 million carrying value vovicis deferred revenue 23 million representing estimated fair value support obligations assumed former vovici customers renew support contracts revenue recognized full contract value remaining term contracts revenue attributable vovici august 4 2011 january 31 2012 50 million impact vovici net income fiscal period significant transaction related costs consisting primarily professional fees integration expenses directly related acquisition vovici totaled 34 million fiscal year ended january 31 2012 expensed incurred recorded within “selling general administrative” expenses global management technologies acquisition october 7 2011 verint acquired outstanding shares global management technologies corporation “gmt” usbased privatelyheld provider workforce management solutions whose software services widely used organizations particularly retail branch banking environments acquisition adds key functionality verints enterprise intelligence product suite financial results gmt included companys consolidated financial statements since october 7 2011 verint acquired gmt approximately 246 million cash closing verint also agreed make potential additional cash payments approximately 174 million contingent upon achievement certain performance targets period ending january 31 2014 fair value contingent obligation estimated 120 million october 7 2011 120 million acquisition date fair value contingent consideration obligation estimated based probability adjusted present value consideration expected transferred using significant inputs observable market key assumptions used estimate include probability assessments respect likelihood achieving performance targets discount rates consistent level risk achievement reporting date contingent consideration obligation revalued fair value increases decreases fair value recorded within “selling general administrative” expenses companys consolidated statements operations increases decreases fair value contingent consideration obligation may result changes discount periods rates changes probability assumptions respect likelihood achieving performance targets company recorded benefit approximately 24 million fiscal year ended january 31 2012 change fair value contingent consideration obligation acquisition date january 31 2012 primarily reflected impact revised assessments probability payment january 31 2012 fair value contingent consideration obligation approximately 96 million recorded within “other longterm liabilities” purchase price allocated tangible assets intangible assets acquired liabilities assumed based estimated fair values acquisition date remaining unallocated purchase price recorded goodwill fair values assigned identifiable intangible assets acquired determined primarily using income approach discounts expected future cash flows present value using estimates assumptions determined management acquired identifiable intangible assets amortized straightline basis company believes approximates pattern assets utilized estimated useful lives among factors contributing recognition goodwill transaction synergies products technologies addition skilled assembled workforce goodwill deductible income tax purposes connection purchase price allocation estimated fair value support obligations assumed gmt determined utilizing cost buildup approach cost buildup approach calculates fair value estimating costs relating fulfilling obligations plus normal profit margin approximates amount company believes would required pay third party assume support obligations estimated costs fulfill support obligation based comverse technology inc subsidiaries notes consolidated financial statements continued historical direct costs related providing support services estimated costs include costs associated selling efforts research development related margins costs profit associated selling efforts excluded selling effort support contracts concluded prior october 7 2011 acquisition date estimated profit margin 20 company believes best approximates operating profit margin fulfill support obligations result allocating purchase price adjustment recorded reduce 43 million carrying value gmts deferred revenue 12 million representing estimated fair value support obligations assumed former gmt customers renew support contracts revenue recognized full contract value remaining term contracts revenue impact net income attributable gmt october 7 2011 january 31 2012 significant transaction related costs consisting primarily professional fees integration expenses directly related acquisition gmt totaled 16 million fiscal year ended january 31 2012 expensed incurred recorded within “selling general administrative” expenses business combinations fiscal year ended january 31 2012 verint executed following additional business combinations • march 30 2011 verint acquired outstanding shares privately held company based israel acquisition broadens product portfolio verints video intelligence product line • august 2 2011 verint acquired outstanding shares privatelyheld provider communications intelligence solutions data retention services network performance management based americas region acquisition expands verints communications intelligence product portfolio increases presence region • november 1 2011 november 10 2011 verint acquired certain technology assets two separate transactions qualify business combinations • january 5 2012 verint acquired outstanding shares privatelyheld provider web intelligence technology based europe middle east africa region integrated verints communications intelligence product portfolio combined consideration five business combinations approximately 551 million including 338 million combined cash paid closings verint also agreed make potential additional cash payments aggregating approximately 410 million contingent upon achievement certain performance targets periods ending january 31 2015 combined fair values contingent consideration obligations estimated 205 million respective acquisition dates benefits 04 million recorded within selling general administrative expenses fiscal year ended january 31 2012 changes fair values contingent consideration obligations associated acquisitions reflecting impacts revised assessments probability payment well decreases discount periods since acquisition dates january 31 2012 combined fair values contingent consideration obligations 201 million 64 million 137 million recorded within “accounts payable accrued expenses” “other longterm liabilities respectively fair values assigned identifiable intangible assets acquired business combinations determined primarily using income approach discounts expected future cash flows present value using estimates assumptions determined management acquired identifiable finitelived intangible assets amortized straightline basis company believes approximates pattern assets utilized estimated useful lives intangible assets acquired business combinations included several iprd assets estimated fair values totaling 25 million iprd assets considered indefinitelived intangible assets completion abandonment associated research development efforts fair values iprd assets estimated projecting costs required develop iprd assets commercially viable products estimating resulting net cash flows projects completed discounting net cash flows present values verint amortize intangible assets projects complete currently verint expects complete projects within next two years iprd assets comverse technology inc subsidiaries notes consolidated financial statements continued subject impairment testing least annually frequently circumstances identified indicating potential impairment among factors contributing recognition goodwill transactions synergies products technologies additions skilled assembled workforces 335 million goodwill associated business combinations 121 million deductible income tax purposes 214 million still assessed tax deductibility connection foregoing august 2 2011 verint acquisition company evaluated continues evaluate impact certain liabilities associated preacquisition business activities acquired company based upon initial evaluation company originally recorded liabilities approximately 107 million 55 million classified current 52 million classified longterm along corresponding indemnification assets amounts classified manner components purchase price acquisition representing companys best estimates amounts acquisition date indemnification assets recognized selling shareholders contractual obligation indemnify verint preacquisition liabilities measured basis corresponding liabilities amounts adjusted currency exchange rate fluctuations reflected companys condensed consolidated balance sheet october 31 2011 subsequently based upon assessment additional information obtained three months ended january 31 2012 facts circumstances existed acquisition date regarding matters verint reduced estimated acquisitiondate liabilities 08 million recorded corresponding acquisitiondate reduction associated indemnification assets january 31 2012 current longterm liabilities matters 43 million 47 million respectively corresponding indemnification assets reflected within current longterm assets company continuing gather assess information regard changes amounts recorded remainder measurement period included purchase price allocation measurement period subsequently companys results operations revenue impact net income attributable acquisitions fiscal year ended january 31 2012 significant transaction related costs consisting primarily professional fees integration expenses directly related acquisitions totaled 50 million fiscal year ended january 31 2012 expensed incurred comverse technology inc subsidiaries notes consolidated financial statements continued components allocations purchase prices following table sets forth components allocations purchase prices preliminary business combinations completed fiscal year ended january 31 2012 2011 1 weightedaverage estimated useful life finitelived identifiable intangible assets 75 59 years fiscal year ended january 31 2012 2011 respectively purchase price allocations acquisitions completed year ended january 31 2012 provisional based information available acquisition dates estimate fair values assets acquired liabilities assumed purchase price allocations acquisitions reported january 31 2012 represent companys best estimates fair values based upon information available company gathering reviewing additional information necessary finalize values assigned acquired identified intangible assets goodwill income tax assets liabilities acquisitions therefore provisional measurements fair values reported january 31 2012 subject change company expects finalize purchase price allocations soon practicable later one year respective acquisition dates comverse technology inc subsidiaries notes consolidated financial statements continued based upon additional information obtained three months ended january 31 2012 facts circumstances existed respective acquisition dates verint adjusted purchase price allocations several acquisitions completed year ended january 31 2012 described • vovici purchase price allocation verint increased certain liabilities 11 million recorded associated 10 million asset reflecting selling shareholders indemnification obligations related liabilities increased goodwill 01 million verint also adjusted certain income tax assets liabilities vovici resulted 40 million increase goodwill adjustments materially impact companys consolidated statement operations • gmt purchase price allocation verint refined certain assumptions discounted cash flow models used estimate fair values certain identified intangible assets reduced estimated acquisitiondate fair values developed technology customer relationship intangible assets identified acquisition gmt 01 million 10 million respectively compared original estimated amounts resulted corresponding 11 million increase acquisitiondate goodwill verint also adjusted certain income tax assets liabilities gmt resulted 04 million increase goodwill adjustments materially impact companys consolidated statement operations • purchase price allocation associated verints august 2 2011 communications intelligence acquisition verint refined certain assumptions discounted cash flow models used estimate fair values certain identified intangible assets increased estimated acquisitiondate fair values developed technology customer relationship intangible assets identified acquisition 02 million compared original estimated amounts resulted corresponding 04 million decrease acquisitiondate goodwill verint also increased fair value contingent consideration obligation acquisition 05 million recorded corresponding 05 million increase acquisitiondate goodwill additionally verint adjusted acquisitiondate fair value performance obligations customer contracts assumed acquisition resulted 17 million decrease acquisitiondate goodwill addition verint adjusted certain acquisitiondate deferred income taxes unrecognized tax benefits resulted 31 million increase acquisitiondate goodwill adjustments combined increase acquisitiondate goodwill acquisition 15 million acquisition vovici acquired developed technology customer relationships trademarks trade names assigned estimated useful lives six years ten years five years respectively weighted average approximately 81 years acquisition gmt acquired developed technology customer relationships trademarks trade names assigned estimated useful lives five years ten years three years respectively weighted average approximately 72 years acquisitions acquired developed technology customer relationships trademarks trade names identifiable intangible assets assigned estimated useful lives six years seven years four years ten years four years five years three years four years respectively weighted average approximately 68 years year ended january 31 2011 iontas limited february 4 2010 verint acquired outstanding shares iontas limited “iontas” privately held provider desktop analytics solutions measure application usage analyze workflows help improve staff performance contact center branch backoffice operations environments verint acquired iontas among objectives expand desktop analytical capabilities enterprise intelligence solutions financial results iontas included consolidated financial statements since acquisition date verint acquired iontas total consideration valued 217 million including cash consideration 177 million additional milestonebased contingent payments 38 million tied certain performance targets achieved twoyear period following acquisition date acquisitiondate fair value contingent consideration estimated 32 million purchase price also included 15 million prepayments product licenses support services procured iontas prior acquisition date partially offset 07 million trade accounts payable iontas acquisition date comverse technology inc subsidiaries notes consolidated financial statements continued consideration paid acquire iontas allocated assets acquired liabilities assumed based estimated fair values acquisition date included 69 million developed technology 03 million noncompetition agreements 17 million tangible net assets 128 million goodwill developed technology noncompetition agreements assigned estimated useful lives six years three years respectively weighted average 59 years amortized straightline basis company believes approximates pattern assets utilized estimated useful lives among factors contributed recognition goodwill transaction expansion verints desktop analytical capabilities expansion suite products services addition assembled workforce goodwill deductible income tax purposes company recorded 32 million acquisitiondate estimated fair value contingent consideration component purchase price iontas fiscal year ended january 31 2012 20 million previously recorded contingent consideration paid former shareholders iontas estimated fair value remaining contingent consideration 17 million january 31 2012 recorded within “accounts payable accrued expenses” increases fair value contingent consideration 02 million 03 million fiscal years ended january 31 2012 2011 respectively recorded within “selling general administrative” expenses fiscal periods transaction costs consisting primarily professional fees directly related acquisition iontas totaled 13 million expensed incurred recorded within selling general administrative expenses integration iontas verints business subsequent acquisition made impractical quantify revenue impact net income iontas fiscal years ended january 31 2012 2011 business combination december 2010 verint acquired certain technology assets transaction qualified business combination total consideration acquisition less 150 million impact acquisition material companys consolidated financial statements fair value liability contingent consideration related acquisition increased 19 million fiscal year ended january 31 2012 resulting corresponding charge recorded within “selling general administrative” expenses fiscal period earned contingent consideration related acquisition paid sellers fiscal year ended january 31 2012 company contingent consideration obligations acquisition unaudited pro forma financial information following table provides unaudited pro forma total revenue net loss attributable comverse technology inc fiscal years ended january 31 2012 2011 vovici gmt acquired february 1 2010 unaudited pro forma results reflect certain adjustments related acquisitions amortization expense finitelived intangible assets acquired vovici gmt unaudited pro forma results include operating efficiencies potential cost savings may result business combinations accordingly unaudited pro forma amounts necessarily indicative results actually would occurred acquisitions completed february 1 2010 indicative future operating results pro forma impact business combinations discussed note material companys historical consolidated operating results therefore presented comverse technology inc subsidiaries notes consolidated financial statements continued 7 goodwill changes carrying amount goodwill companys reportable segments fiscal years ended january 31 2012 2011 2010 follows 1 amount goodwill “all other” attributable starhome comverse mi netcentrex goodwill associated netcentrex fully impaired fiscal year ended january 31 2009 prior fiscal years 2 fiscal years ended january 31 2012 2011 2010 goodwill related certain acquisitions adjusted due earnout payments recoveries tax adjustments lease abandonment settlement company tests goodwill impairment annually november 1 frequently events circumstances indicate potential impairment exists company performed goodwill impairment tests reporting units november 1 2011 2010 2009 fiscal year ended january 31 2012 company identified circumstances required goodwill tested comverse technology inc subsidiaries notes consolidated financial statements continued three times impairment carrying value companys previously defined comverse reporting unit negative february 1 2011 existence adverse qualitative factors indicated potential impairment step two goodwill impairment test performed date company determined fair value previously defined comverse reporting unit exceeded carrying value goodwill impairment test result impairment charge three months ended april 30 2011 addition described note 1 company changed reportable segments three months ended october 31 2011 accordingly allocated goodwill new reportable segments relative fair value basis due change reportable segments company performed interim goodwill impairment test october 31 2011 goodwill impairment test result impairment charge three months ended october 31 2011 company also identified circumstances required goodwill comverse bss comverse vas comverse mi reporting units tested impairment november 1 2011 annual impairment testing date result company performed impairment test goodwill january 31 2012 determined fair value comverse bss comverse vas comverse mi reporting units exceeded carrying value goodwill impaired date comverse technology inc subsidiaries notes consolidated financial statements continued 8 intangible assets net acquired intangible assets january 31 2012 2011 follows acquired intangible assets net reportable segment january 31 2012 2011 follows amortization intangible assets 526 million 491 million 523 million fiscal years ended january 31 2012 2011 2010 respectively connection testing goodwill company also tested longlived assets including finitelived intangible assets company record impairment charge related finitelived intangible assets fiscal years ended january 31 2012 2011 company recorded noncash pretax impairment charges finitelived intangible assets netcentrex reporting unit assets 34 million fiscal year ended january 31 2010 representing remainder netcentrex reporting unit’s intangible assets comverse technology inc subsidiaries notes consolidated financial statements continued estimated future amortization expense finitelived acquisitionrelated intangible assets five succeeding fiscal years thereafter follows 9 assets january 31 2012 2011 consist 1 represents deposits insurance policies fund severance liability see note 16 longterm liabilities capitalized software costs included assets capitalized software costs represent costs incurred primarily develop verint’s commercial software products roll forward net capitalized software costs follows 10 accounts payable accrued expenses accounts payable accrued expenses january 31 2012 2011 consist 1 includes liabilities related company’s 401k plans cti comverse verint maintains 401k plan fulltime employees plans allow eligible employees elect contribute 60 annual compensation subject prescribed maximum amount respective company matches employee contributions rate 50 limited maximum annual matched contribution 2000 per employee contributions always fully vested respective company’s matching contributions year vest last day calendar year providing employee remains employed respective company day company’s matching contributions 401k plan amounted 25 million fiscal years ended january 31 2012 2011 2010 11 restructuring company reviews business manages costs aligns resources market demand conjunction various acquisitions result company taken several actions improve cash position reduce fixed costs eliminate redundancies strengthen operational focus better position respond market pressures unfavorable economic conditions comverse initiatives first quarter 2010 restructuring initiative first quarter fiscal year ended january 31 2011 comverses management approved restructuring plan eliminate staff positions close certain facilities order streamline comverses activities aggregate cost plan 70 million recorded fiscal year ended january 31 2011 severancerelated facilitiesrelated costs 60 million 09 million respectively paid fiscal year ended january 31 2011 remaining costs 01 million paid fiscal year ended january 31 2012 third quarter 2010 restructuring initiatives business transformation second half fiscal year ended january 31 2011 company commenced certain initiatives improve cash position including plan restructure operations comverse view towards aligning operating costs expenses anticipated revenue comverse implemented first phase plan commencing third quarter fiscal year ended january 31 2011 reducing annualized operating costs fiscal year ended january 31 2012 comverse implemented second phase measures “phase ii business transformation” focuses process reengineering maximize business performance productivity operational efficiency part phase ii business transformation comverse restructured operations new business units designed improve operational efficiency business performance one primary purposes phase ii business transformation solidify comverses comverse technology inc subsidiaries notes consolidated financial statements continued leadership bss leverage growth mobile data usage maintaining leading market position vas implementing cost savings operational efficiencies strategic focus relation restructuring plans company recorded severancerelated costs 126 million 116 million fiscal years ended january 31 2012 2011 respectively facilitiesrelated costs 02 million fiscal year fiscal years ended january 31 2012 2011 company paid severancerelated costs 124 million 91 million respectively facilitiesrelated costs 03 million 01 million respectively remaining costs 25 million expected paid january 31 2013 company substantially completed implementation phase ii business transformation fiscal year ending january 31 2013 company expects continue evaluate implementation certain measures business transformation netcentrex 2010 initiative fiscal year ended january 31 2011 management part initiatives improve focus comverses core business maintain ability face intense competitive pressures markets approved first phase restructuring plan eliminate staff positions primarily located france fiscal year ended january 31 2012 comverse began second phase netcentrex restructuring plan relation initiatives company recorded severancerelated costs 76 million 109 million fiscal years ended january 31 2012 2011 respectively facilitiesrelated costs 01 million fiscal year ended january 31 2012 fiscal years ended january 31 2012 2011 company paid severancerelated costs 93 million 80 million respectively remaining costs 12 million relating netcentrex second phase expected substantially paid january 31 2013 part commitment customers netcentrex providing expected continue provide maintenance support certain services address ongoing needs existing customer base comverse pre 2010 initiatives prior fiscal years comverse implemented number restructuring programs various objectives including changes organizational structure product offerings better align cost structure business environment improve efficiency operations reductions workforce restructuring operations abandoning closing certain facilities innovations enhance quality product offerings better meet customers’ needs improve delivery service capabilities remaining costs related initiatives paid fiscal year ended january 31 2012 initiatives fiscal years ended january 31 2011 2010 various insignificant initiatives occurred verint starhome comverse technology inc subsidiaries notes consolidated financial statements continued following table represents roll forward workforce reduction restructuring activities noted 1 includes charges attributable phase ii business transformation 12 debt january 31 2012 2011 debt comprised following convertible debt obligations january 31 2012 2011 cti 22 million aggregate principal amount outstanding convertible debt obligations “convertible debt obligations” convertible debt obligations secured assets company guaranteed ctis subsidiaries 1000 principal amount convertible debt obligations convertible option holder upon certain circumstances shares ctis common stock conversion price 179744 per share equal conversion rate 556347 shares per 1000 principal amount existing convertible debt obligations subject adjustment certain events comverse technology inc subsidiaries notes consolidated financial statements continued convertible debt obligations convertible upon occurrence certain events including period following date credit rating assigned convertible debt obligations sp lower “b” upon withdrawal suspension convertible debt obligations rating ctis request august 19 2010 sp discontinued rating convertible debt obligations time became convertible accordingly convertible debt obligations classified current liabilities january 31 2012 2011 required redemption obligations succeeding five fiscal years significant company verint credit facilities may 25 2007 verint entered 6750 million secured credit agreement prior facility group banks fund portion acquisition witness systems inc witness prior facility comprised 6500 million sevenyear term loan facility 250 million sixyear revolving line credit borrowing capacity revolving line credit increased 750 million july 2010 april 29 2011 verint entered credit agreement “new credit agreement” group lenders “lenders” credit suisse ag administrative agent collateral agent lenders capacities “agent” concurrently terminated prior facility new credit agreement provides 7700 million secured senior credit facilities comprised 6000 million term loan maturing october 2017 “term loan facility” 1700 million revolving credit facility maturing april 2016 “revolving credit facility” subject increase maximum increase 3000 million reduction time according terms new credit agreement january 31 2012 verint outstanding borrowings revolving credit facility majority term loan facility proceeds used repay 5832 million outstanding term loan borrowings prior facility closing date new credit agreement outstanding borrowings prior revolving credit facility closing date new credit agreement included original issuance term loan facility discount 050 30 million resulting net term loan facility proceeds 5970 million discount amortized interest expense term loan facility using effective interest method loans new credit agreement bear interest payable quarterly case eurodollar loans interest period three months shorter end interest period per annum rate verints election • case eurodollar loans adjusted london interbank offered “libo” rate plus 325 verints corporate ratings least bb ba3 better 300 “adjusted libo rate” greater 125 per annum ii product libo rate statutory reserves defined new credit agreement • case base rate loans base rate plus 225 verints corporate ratings least bb ba3 better 200 “base rate” greatest agents prime rate ii federal funds effective rate defined new credit agreement plus 050 iii adjusted libo rate onemonth interest period plus 100 verint incurred debt issuance costs 148 million associated new credit agreement deferred classified within “other assets” deferred costs amortized interest expense term new credit agreement deferred costs associated term loan facility 102 million amortized using effective interest rate method deferred costs associated revolving credit facility 46 million amortized straightline basis closing date new credit agreement 90 million unamortized deferred costs associated prior facility upon termination prior facility repayment prior term loan 81 million fees expensed loss extinguishment debt remaining 09 million fees associated lenders provided commitments new prior revolving credit facilities remained deferred amortized term new credit agreement fiscal year ended january 31 2012 verint incurred 05 million fees secure waivers certain provisions new credit agreement allowed structure financing one business combinations favorable manner 02 million deferred amortized remaining term new credit agreement 03 million expensed incurred comverse technology inc subsidiaries notes consolidated financial statements continued january 31 2012 interest rate term loan facility 450 including impact 050 original issuance term loan facility discount deferred debt issuance costs effective interest rate verints term loan facility approximately 491 january 31 2012 verint incurred interest expense borrowings credit facilities 281 million 262 million 226 million fiscal years ended january 31 2012 2011 2010 respectively verint also recorded 28 million 28 million 19 million fiscal years ended january 31 2012 2011 2010 respectively amortization deferred debt issuance costs reported within interest expense included deferred debtrelated cost amortization fiscal years ended january 31 2011 2010 03 million 01 million respectively additional amortization associated unscheduled principal repayments fiscal years fiscal year ended january 31 2012 verint also recorded 03 million amortization original issuance term loan discount reported within “interest expense” verint required pay commitment fee respect undrawn availability revolving credit facility payable quarterly rate 050 per annum customary administrative agent letter credit fees new credit agreement requires verint make term loan principal payments 15 million per quarter august 2017 beginning august 2011 remaining balance due october 2017 optional prepayments loans permitted without premium penalty customary breakage costs associated prepayment loans bearing interest based libo rates 10 premium applicable event repricing transaction defined new credit agreement prior april 30 2012 loans also subject mandatory prepayment requirements respect certain asset sales excess cash flow defined new credit agreement certain events prepayments applied first eight immediately following scheduled term loan principal payments pro rata remaining scheduled term loan principal payments thereafter otherwise provided new credit agreement verint systems obligations new credit agreement guaranteed substantially verints domestic subsidiaries certain foreign subsidiaries elected disregarded us tax purposes secured security interests substantially assets verint guarantor subsidiaries subject certain exceptions verints obligations new credit agreement guaranteed cti secured ctis assets new credit agreement contains customary negative covenants credit facilities type including limitations verint subsidiaries respect indebtedness liens nature business investments loans distributions acquisitions dispositions assets saleleaseback transactions affiliates accordingly new credit agreement precludes verint systems paying cash dividends limits ability make asset distributions stockholders including cti new credit agreement also contains financial covenant requires verint maintain consolidated total debt consolidated earnings interest taxes depreciation amortization “ebitda” defined new credit agreement leverage ratio july 31 2013 greater 500 1 thereafter greater 450 1 limitations imposed covenants subject certain exceptions january 31 2012 verint compliance requirements new credit agreement also contains number affirmative covenants including requirement verint submit consolidated financial statements lenders within certain periods end fiscal year quarter new credit agreement provides customary events default corresponding grace periods including failure pay principal interest new credit agreement due failure comply covenants representation warranty made verint proving inaccurate material respect defaults certain indebtedness verint subsidiaries change control defined new credit agreement verint certain insolvency receivership events affecting verint significant subsidiaries upon event default verints indebtedness new credit agreement may declared immediately due payable lenders commitments provide loans new credit agreement may terminated verint indebtedness connection verints august 2 2011 business combination verint assumed approximately 33 million development bank government debt americas region debt payableinperiods february 2017 bears interest varying rates january 31 2012 majority debt bears interest annual rate 700 carrying value debt approximately 31 million january 31 2012 comverse ltd lines credit january 31 2011 comverse ltd whollyowned israeli subsidiary comverse inc 100 million line comverse technology inc subsidiaries notes consolidated financial statements continued credit bank used various performance guarantees customers vendors letters credit foreign currency transactions ordinary course business line credit available borrowings line credit bears interest subject renewal annual basis comverse ltd required maintain cash balances bank less capacity line credit times regardless amounts utilized line credit june 2011 line credit increased 200 million corresponding increase cash balances comverse ltd required maintain bank 200 million january 31 2012 2011 comverse ltd utilized 178 million 40 million respectively capacity line credit guarantees foreign currency transactions january 31 2011 comverse ltd additional line credit bank 150 million used borrowings various performance guarantees customers vendors letters credit foreign currency transactions ordinary course business line credit bears interest borrowings thereunder subject renewal annual basis borrowings line credit bear interest annual rate libor plus variable margin determined based bank’s underlying cost capital comverse ltd required maintain cash balances bank less capacity line credit times regardless amounts borrowed utilized line credit january 31 2011 comverse ltd outstanding borrowings 60 million line credit repaid full first quarter fiscal year ended january 31 2012 december 2011 line credit decreased 80 million corresponding decrease cash balances comverse ltd required maintain bank 80 million january 31 2012 2011 comverse ltd utilized 33 million 73 million respectively capacity line credit guarantees foreign currency transactions comverse ltds requirement maintain cash balances banks discussed lines credit financial covenants cash balances required maintained banks classified “restricted cash bank time deposits” within consolidated balance sheets january 31 2012 2011 debt maturities company’s debt maturities follows 13 derivatives financial instruments company entered derivative arrangements manage variety risk exposures fiscal years ended january 31 2012 2011 2010 including interest rate risk associated verint’s prior facility foreign currency risk related forecasted foreign currency denominated payroll costs company’s comverse verint starhome subsidiaries company assessed counterparty credit risk party related derivative financial instruments periods presented forward contracts fiscal years ended january 31 2012 2011 2010 comverse entered series shortterm foreign currency forward contracts shortterm participating foreign currency forward contracts limit variability exchange rates us dollar “usd” new israeli shekels “nis” hedge probable cash flow exposure expected future payroll expense transactions qualified cash flow hedge accounting fasb’s guidance hedge ineffectiveness accordingly company recorded changes fair value forward contracts part comprehensive income loss consolidated statements equity amounts reclassified consolidated statements operations effects item hedged recognized consolidated statements operations comverse derivatives outstanding january 31 2012 shortterm nature due comverse technology inc subsidiaries notes consolidated financial statements continued contractually settle within next twelve months fiscal years ended january 31 2012 2011 2010 verint entered shortterm foreign currency forward contracts mitigate risk fluctuations foreign currency exchange rates primarily relating compensation related expenses denominated currencies usd primarily nis canadian dollar verint also periodically utilizes foreign currency forward contracts manage exposure resulting forecasted customer collections remitted currencies applicable functional currency verint’s joint venture singapore dollar functional currency also utilizes foreign exchange forward contracts manage exposure exchange rate fluctuations related settlement liabilities denominated usd certain foreign currency forward contracts designated hedging instruments fasb’s guidance therefore gains losses changes fair values reported “other income expense net” consolidated statements operations changes fair value effective forward contracts qualifying cash flow hedge accounting fasb’s guidance recorded part comprehensive income loss consolidated statements equity amounts reclassified consolidated statements operations effects item hedged recognized consolidated statements operations verint derivatives outstanding january 31 2012 shortterm nature generally maturities longer twelve months although occasionally verint execute contract extends beyond twelve months depending upon nature underlying risk fiscal years ended january 31 2012 2011 2010 starhome entered shortterm foreign currency forward contracts mitigate risk fluctuations foreign currency exchange rates mainly relating payroll costs denominated nis certain foreign currency forward contracts designated hedging instruments therefore gains losses changes fair values reported “other income expense net” consolidated statements operations changes fair value effective forward contracts qualifying cash flow hedge accounting recorded comprehensive income loss consolidated statements equity amounts reclassified consolidated statements operations effects item hedged recognized consolidated statements operations starhome derivatives outstanding january 31 2012 shortterm nature due contractually settle within next twelve months interest rate swap agreement may 25 2007 concurrently entry prior facility verint executed payfixedreceivevariable interest rate swap agreement multinational financial institution mitigate portion risk associated variable interest rates term loan prior facility original term interest rate swap agreement extended may 2011 july 30 2010 verint terminated interest rate swap agreement exchange payment 217 million counterparty verint recorded 31 million loss interest rate swap fiscal year ended january 31 2011 interest rate swap agreement designated hedging instrument derivative accounting guidance gains losses changes fair value therefore reported “other expense income net” consolidated statements operations comverse technology inc subsidiaries notes consolidated financial statements continued following tables fiscal years ended january 31 2012 2011 summarize company’s derivative positions respective fair value comverse technology inc subsidiaries notes consolidated financial statements continued following tables summarize company’s classification gains losses derivative instruments fiscal years ended january 31 2012 2011 2010 1 amounts reclassified accumulated comprehensive income loss statement operations classified operating expenses comverse technology inc subsidiaries notes consolidated financial statements continued components comprehensive income loss related cash flow hedges follows 14 fair value measurements assets liabilities measured fair value recurring basis fair value financial instruments estimated company using available market information appropriate valuation methodologies however considerable judgment required interpreting market data develop estimates fair value accordingly estimates presented herein necessarily indicative amounts company could realize market exchange use different market assumptions andor estimation methodologies may material effect estimated fair value amounts commercial paper company uses quoted prices similar assets liabilities money market funds company values assets using quoted market prices funds ars company determines fair value ars quarterly basis utilizing discounted cash flow model considers among factors assumptions underlying collateral ii credit risk associated issuer iii contractual maturity discounted cash flow model considers contractual future cash flows representing interest principal payments future interest payments projected using us treasury swap curves remaining term ars accordance terms specific security principal payments assumed made estimated contractual maturity date taking account applicable prepayments yields used discount payments determined based specific characteristics security key considerations determination appropriate discount rate include securities’ remaining term maturity capital structure subordination quality level collateralization complexity payout structure credit rating issuer presence absence additional insurance contingent consideration company values contingent consideration using estimated probabilityadjusted discounted cash flow model fair value measurements based significant inputs observable market key assumptions used models discount rates probabilities assigned milestones achieved fair value contingent consideration remeasured reporting period changes fair value resulting either passage time events occurring acquisition date changes probability achieving performance target recorded earnings derivative assets liabilities fair value derivative instruments based quotes data received counterparties third party financial institutions quotes reviewed reasonableness discounting future estimated cash flows contracts considering terms maturities contracts markets rates similar contracts using readily observable market prices thereof comverse technology inc subsidiaries notes consolidated financial statements continued following tables present financial instruments according fair value hierarchy defined fasb’s guidance january 31 2012 2011 financial assets liabilities measured fair value recurring basis january 31 2012 financial assets liabilities measured fair value recurring basis january 31 2011 1 january 31 2012 2152 million commercial paper money market funds classified “cash equivalents” 21 million money market funds classified “restricted cash bank time deposits” within consolidated balance sheets january 31 2011 1624 million commercial paper money market funds classified “cash equivalents” 334 million money market funds classified “restricted cash bank time deposits” within consolidated balance sheets comverse technology inc subsidiaries notes consolidated financial statements continued following table summary changes fair value level 3 financial assets liabilities fiscal years ended january 31 2012 2011 company recognize transfers levels fair value measurement hierarchy fiscal years ended january 31 2012 2011 assets liabilities measured fair value recurring basis addition assets liabilities measured fair value recurring basis company also measures certain assets liabilities fair value nonrecurring basis company measures nonfinancial assets including goodwill intangible assets property equipment fair value indication impairment assets recorded fair value impairment charge recognized company also elected apply fair value option nonfinancial assets nonfinancial liabilities details regarding impairment reviews see note 1 organization business summary significant accounting policies following table presents fair value financial instruments carried cost consolidated balance sheets january 31 2012 2011 carrying amounts cash equivalents restricted cash bank time deposits accounts receivable accounts payable reasonable estimates fair value january 31 2012 carrying amount term loan verints new credit agreement 5943 million estimated fair value 5970 million january 31 2011 carrying amount term loan prior comverse technology inc subsidiaries notes consolidated financial statements continued facility 5832 million estimated fair value 5862 million estimated fair values based upon estimated bid ask prices determined agent responsible syndication verints term loan connection verints august 2 2011 business combination company assumed approximately 33 million development bank government debt americas region carrying value debt approximately 31 million january 31 2012 approximates fair value january 31 2011 fair value comverse ltd’s borrowings line credit estimated equal principal amount outstanding carrying amount convertible debt obligations reported consolidated balance sheet january 31 2012 2011 22 million company determined fair value january 31 2012 2011 08 million 15 leases company leases office warehouse space well certain equipment vehicles noncancelable operating leases gross rent expense 397 million 447 million 495 million fiscal years ended january 31 2012 2011 2010 respectively sublease income 27 million 46 million 44 million fiscal years ended january 31 2012 2011 2010 respectively majority company’s leases include options allow renew extend lease term beyond initial lease period subject terms conditions agreed upon inception lease terms conditions include rental rates agreed upon inception lease could represent belowor abovemarket rental rates later life lease depending upon market conditions time renewal extension november 2011 verint executed lease agreement new facility alpharetta georgia new facility occupied connection expiration verints existing facility lease roswell georgia end november 2012 also include consolidation atlanta georgia office gmt verint acquired october 2011 lease term extends september 2026 aggregate minimum lease commitment term new lease excluding operating expenses approximately 361 million company entered various sublease agreements lease excess space january 31 2012 minimum annual rent obligations excluding taxes maintenance passthroughs sublease income received noncancelable subleases minimum net rentals company follows fiscal years ending january 31 comverse technology inc subsidiaries notes consolidated financial statements continued 16 longterm liabilities longterm liabilities january 31 2012 2011 consist following severance israeli law company obligated make severance payments employees israeli subsidiaries basis individual’s current salary length employment company’s liability severance pay calculated pursuant israel’s severance pay law based recent monthly salary employee multiplied number years employment balance sheet date employees entitled one month’s salary year employment portion thereof gross severance liability january 31 2012 2011 512 million 619 million respectively portion liability funded monthly deposits insurance policies restricted used satisfy severance payments amount deposits classified “other assets” severance pay fund amounts 355 million 447 million january 31 2012 2011 respectively see note 9 assets 17 research development arrangements portion company’s research development operations located israel certain company’s subsidiaries derive benefits participation programs sponsored government israel support research development activities israel certain company’s research development activities include projects partially funded office chief scientist ministry industry trade state israel “ocs” funding organization reimburses portion company’s research development expenditures approved project budgets although government israel proprietary rights ocsfunded products specific restriction ocs regard export ocsfunded products certain circumstances may limitations ability transfer technology knowhow manufacture ocsfunded products outside israel limitations could result requirement pay increased royalties redemption fee calculated according applicable regulations company’s gross research development expenses fiscal years ended january 31 2012 2011 2010 2199 million 2601 million 2734 million respectively amounts reimbursable ocs others fiscal years ended january 31 2012 2011 2010 62 million 70 million 62 million respectively recorded reduction gross research development expenses within “research development net” comverse technology inc subsidiaries notes consolidated financial statements continued 18 stockbased compensation stockbased compensation expense associated awards made cti subsidiaries included company’s consolidated statements operations follows consolidated stockbased compensation expense consists expense recognized awards related separate cti verint starhome stock incentive plans following table presents company’s stockbased compensation expense included consolidated statements operations based underlying subsidiary plans fiscal years ended january 31 2012 2011 2010 1 stock options purchase cti’s common stock deferred stock unit awards restricted stock unit awards awarded employees directors cti’s subsidiaries including employees verint starhome accordingly related stockbased compensation expense recognized respective subsidiary statements operations 2 verint’s stockbased compensation expense consists stock options purchase verint common stock verint phantom stock units verint stock bonus program verint restricted stock awards restricted stock units net excess tax benefits resulting verints stock incentive plans 07 million fiscal year ended january 31 2012 excess tax benefits recognized verint fiscal years ended january 31 2011 2010 comverse technology inc subsidiaries notes consolidated financial statements continued following discussion material stockbased compensation plans company cti plans overview cti’s stock incentive plans cti granted stock options deferred stock unit “dsus” awards restricted stock unit rsus awards various stock incentive plans fiscal years ended january 31 2012 2011 2010 plans generally permit issuance incentive nonqualified stock options dsu awards rsu awards restricted stock appreciation rights “sars” employees officers directors cti subsidiaries terminate ten years termination plan affect awards outstanding plan plans generally provide unexercised options expire within 90 days termination service company ctis 2011 stock incentive compensation plan 2011 plan stock options may granted exercise price less fair market value underlying shares ctis plans stock options designated “incentive stock options” may granted exercise price less fair market value underlying shares date grant subject certain limitations specified section 422 internal revenue code ii stock options intended qualify incentive stock options may granted price fair market value stock options underlying shares subject adjustment accordance terms plans event stock dividends recapitalizations similar transactions stock options dsus rsus generally vest three fouryear period date grant right exercise maximum term ten years stock options granted stockbased compensation expense recognized straightline basis life vesting period reduced estimated forfeitures upon exercise stock options issuance restricted stock issuance settlement dsu rsu awards issuance shares stock incentive plans cti issues authorized unissued common stock 1996 stock option plan cti’s 1996 stock option plan provided stock options qualify incentive stock options section 422a internal revenue code may granted key employees nonqualifying options may granted employees independent contractors directors company plan authorized 3 million shares cti’s common stock granted plan provided qualified awards exercise price based fair value cti’s common stock date grant except individuals hold 10 interest cti exercise price less 110 share price plan also provided nonqualified awards exercise price lower 010 per share due lapse ten years date approval awards may granted cti plan boston technology inc 1996 stock option plan authorized granting awards form stock options qualified nonqualified cti’s common stock form dsus restricted unrestricted stock awards sars plan authorized 585 million shares options purchase shares cti’s common stock granted plan provided qualified stock option awards exercise price based fair value cti’s common stock date grant except individuals hold 10 interest cti exercise price less 110 share price due lapse ten years date approval awards may granted cti plan 1997 1999 stock incentive compensation plans cti’s 1997 1999 stock incentive compensation plans authorized granting awards form stock options qualified nonqualified well cti’s common stock form dsu restricted stock awards additionally plan provided sars may issued officer key employee company plans authorized 75 million 70 million shares options respectively purchase shares cti’s common stock granted plans provided qualified awards exercise price based fair value cti’s common stock date grant except individuals hold 10 interest cti exercise price less 110 share price plans also provided exercise price nonqualified awards form stock options may less fair market value cti’s common stock date grant determined compensation committee due lapse ten years dates approval awards may granted cti plans comverse technology inc subsidiaries notes consolidated financial statements continued 2000 2001 2004 2005 stock incentive compensation plans cti’s 2000 2001 stock incentive compensation plan authorized 2004 2005 stock incentive compensation plans authorize granting awards form stock options qualified nonqualified well cti’s common stock form dsus restricted stock awards additionally plans sars may issued officer key employee company 2000 2001 plans authorized 90 million 97 million 2004 2005 plans authorize 25 million 60 million shares options purchase shares cti’s common stock granted respectively plans maximum term ten years 2000 2001 plans terminated september 2010 june 2011 respectively additional awards may granted cti plans 2004 2005 plans scheduled terminate june 2014 2015 respectively plans provide qualified awards exercise price based fair value cti’s common stock date grant except individuals hold 10 interest cti exercise price less 110 share price plans also provide exercise price nonqualified awards form stock options may less fair market value cti’s common stock date grant determined compensation committee cti’s board directors provided discount expressly granted lieu reasonable amount salary bonus discount shall exceed 15 fair market value cti’s common stock date grant 2011 stock inventive compensation plan september 2011 ctis board approved 2011 plan approved ctis shareholders annual shareholder meeting held november 16 2011 plan provides issuance nonqualified stock options incentive stock options stock appreciation rights restricted stock stockbased awards performancebased compensation awards total 22000000 shares ctis common stock reserved issuance 2011 plan scheduled terminate september 2021 options designated either nonqualified stock options incentive stock options option granted incentive stock option extent fails qualify incentive stock option treated nonqualified option exercise price option either incentive stock option nonqualified stock options may less fair market value underlying shares date grant except individuals hold 10 interest cti exercise price may less 110 share price term option may exceed ten years case incentive stock option granted 10 shareholder five years maximum number shares respect options may granted grantee consecutive twelve 12 month period shall 3000000 shares addition maximum number shares respect stock appreciation rights may granted grantee consecutive twelve 12 month period shall 3000000 shares maximum amount compensation award intended constitute “qualified performancebased compensation” within meaning section 162m internal revenue code “performancebased compensation awards” options stock appreciation rights granted grantee consecutive twelve 12 month period shall 1500000 shares maximum amount performancebased compensation awards granted grantee consecutive twelve 12 month period shall 10000000 performancebased compensation awards denominated cash rather shares cti intends grant future equity awards solely 2011 plan january 31 2012 21909870 shares cti common stock available issuance plan ctis restricted period result delinquency filing periodic reports exchange act since april 2006 cti ineligible use registration statements form s8 offer sale equity securities including equity securities issuable upon exercise stock options employees consequently ensure violate federal securities laws cti prohibited exercise vested stock options april 2006 time determined cti filed periodic reports required 12month period effective registration statement form s8 file sec period referred “restricted period” october 2011 cti resumed option exercises april 2006 modification restricted period certain employees left company whose vested stock options lapsed result prohibition exercise stock options planmandated postemployment exercise period order accommodate former employees company extended exercise rights respect vested stock options later 90 days date termination employment ii 30 days restricted period expired however accommodation extend stock option’s term beyond contractual termination date typically ten years date grant company accounted additional time exercise afforded employees comverse technology inc subsidiaries notes consolidated financial statements continued modifications original awards date restricted period commenced certain individuals received additional time exercise terminated employees time modification modifications accounted using liability method accounting referred “april 2006 modification” july 2006 modification consistent commitment employees upon approval board directors cti voluntarily compensated cash current employees holding inthemoney options whose original 10year terms expired restricted period resulting modification charge fiscal years ended january 31 2012 2011 2010 changes fair value awards increased decreased company’s liability compensation expense 10 thousand 05 million 02 million respectively cti made de minimus cash payments expired stock options fiscal years ended january 31 2012 2011 2010 respectively referred “july 2006 modification” liability awards primarily result aforementioned decision made restricted period cash settle expired cti options held current employees modification certain cti awards held employees terminated april 2006 modification could still exercise awards april 2006 modification awards accounted liability method accounting liability method cti measures award balance sheet date based estimated fair value compensation expense period thereafter based change fair value award january 31 2012 company liability related awards remaining obligations expired fourth quarter fiscal year ended january 31 2012 january 31 2011 company liability related awards 03 million related stockbased compensation expense fiscal years ended january 31 2012 2011 2010 includes credits expense 10 thousand 05 million 02 million respectively restricted awards stock options cti grants restricted stock dsu awards rsu awards subject vesting provisions collectively “restricted awards” certain key employees directors fiscal years ended january 31 2012 2011 2010 cti granted restricted awards valued 106 million 144 million 78 million respectively based fair market value cti’s common stock date grant cti’s stockbased compensation associated restricted awards net credits forfeitures fiscal years ended january 31 2012 2011 2010 84 million 94 million 93 million respectively primarily included “selling general administrative” expenses consolidated statements operations addition restricted awards cti granted dsu awards covering aggregate 246200 shares common stock vesting delivery conditioned upon achievement certain performance criteria “performance awards” fiscal year ended january 31 2010 performance awards valued 17 million based fair market value cti’s common stock date grant however cti later determined performance criteria unlikely achieved stockbased compensation expense recorded awards fiscal quarter ended april 30 2010 determined performance criteria achieved accordingly performance awards forfeited january 31 2012 2705842 stock options purchase cti’s common stock 1917010 restricted awards outstanding 24207542 shares available future grant cti’s stock incentive compensation plans following table summarizes exercisable options vested restricted awards comverse technology inc subsidiaries notes consolidated financial statements continued following table presents combined activity cti stock incentive plans fiscal years ended january 31 2012 2011 2010 1 fair value vested stock options 04 million 06 million 23 million fiscal years ended january 31 2012 2011 2010 respectively 2 total fair value vested restricted awards fiscal years ended january 31 2012 2011 2010 100 million 88 million 88 million respectively 3 part settlement agreements consolidated shareholder derivative action another separate litigation matter 143500 vested stock options held former directors former employee canceled june 2010 4 outstanding stock options january 31 2012 include 135334 nonvested stock options weightedaverage grant date fair value 234 expected term 4 years total fair value 03 million unrecognized compensation expense related remaining nonvested stock options 01 million expected recognized weightedaverage period 033 years cash received exercise cti stock options 21 million fiscal year ended january 31 2012 5 january 31 2012 unrecognized compensation expense related nonvested restricted awards 96 million expected recognized weightedaverage period 175 years comverse technology inc subsidiaries notes consolidated financial statements continued following table summarizes information cti’s stock options fiscal year ended january 31 2012 january 31 2012 aggregate intrinsic value 01 million outstanding exercisable stock options fair value assumptions cti estimated fair value stock options date grant modification utilizing blackscholes option valuation model assumptions grants significant modifications detailed fair value assumptions july 2006 modification period july 2006 january 31 2012 follows fair value assumptions stock options granted fiscal year ended january 31 2010 weightedaverage grant date fair value 234 follows fiscal year ended january 31 2012 cti granted dsu rsu awards covering aggregate 1450246 shares ctis common stock directors certain executive officers key employees cti based riskfree interest rate implied yields us treasury zerocoupon issues equivalent remaining term time grant expected term years represents period time awards granted expected outstanding based historical exercise patterns assumption dividend yield zero cti historically paid dividends expect foreseeable future verint plans overview verint’s stock incentive plans verint consolidated subsidiary cti whose common stock publiclytraded granted stock options restricted stock various stock incentive plans august 4 2011 verint assumed stock plan connection acquisition comverse technology inc subsidiaries notes consolidated financial statements continued vovici plan continue effect july 2020 plans generally permit issuance awards deferred stock restricted stock awards “rsas” restricted stock units “rsus” incentive nonqualified stock options performance awards performance compensation awards sars employees directors verint subsidiaries affiliates awards granted plans generally subject multiyear vesting periods generally expire 10 years less date grant verint recognizes compensation expense awards straightline basis life vesting period reduced estimated forfeitures upon exercise stock options issuance restricted stock issuance shares plans verint generally issue new shares verint systems’ common stock occasionally may issue treasury shares january 31 2012 2564312 stock options purchase shares verint systems’ common stock outstanding 2110090 shares available future grants verint’s stock incentive plans restricted awards verint grants stock awards plans form rsas rsus fair value awards equivalent market values verint systems’ common stock grant date principal difference instruments rsus shares verint systems’ common stock rights privileges thereof including voting dividend rights applicable vesting date holder rsu becomes entitled share verint systems’ common stock rsas rsus subject certain restrictions forfeiture provisions prior vesting unrecognized compensation expense related unvested rsus expected vest january 31 2012 approximately 202 million remaining weighted average vesting periods approximately 13 years expense expected recognized total fair value restricted stock awards units vested fiscal years ended january 31 2012 2011 2010 210 million 435 million 35 million respectively following table summarizes verint’s exercisable options vested restricted awards comverse technology inc subsidiaries notes consolidated financial statements continued following table presents combined activity certain verint stock incentive plans fiscal years ended january 31 2012 2011 2010 1 total fair value restricted shares vested fiscal years ended january 31 2012 2011 2010 210 million 435 million 35 million respectively 2 consists options acquire shares verint systems common stock issued exchange certain unvested vovici stock options connection vovici acquisition 3 outstanding stock options purchase verint systems’ common stock january 31 2012 include 31683 nonvested stock options weightedaverage grant date fair value 2305 expected term 543 years total fair value 07 million total unrecognized compensation cost related nonvested options 06 million expected recognized weightedaverage period 28 years 4 january 31 2012 unrecognized compensation expense related nonvested rsus 202 million expected recognized weightedaverage period 13 years 5 total fair value vested stock options purchase verint systems’ common stock 204 million 302 million 696 million fiscal years ended january 31 2012 2011 2010 respectively intrinsic value verint stock options exercised 80 million cash received exercise verint stock options 125 million fiscal year ended january 31 2012 comverse technology inc subsidiaries notes consolidated financial statements continued following table summarizes information verint’s stock options january 31 2012 january 31 2012 aggregate intrinsic value 22 million outstanding exercisable stock options verint generally grant stock options fiscal years ended january 31 2012 2011 2010 however connection verints acquisition vovici august 4 2011 stock options purchase vovici common stock converted stock options purchase approximately 42000 shares verint systems common stock verint phantom stock units fiscal year ended january 31 2007 verint began awarding phantom stock units nonofficer employees settle expected settle cash payments upon vesting pursuant terms form phantom stock award agreement approved verint board directors verints 2010 plan phantom stock units provide payment cash bonus equivalent value verint common stock vesting date award phantom stock units generally multiyear vesting generally subject vesting conditions verint equity awards granted date verint recognizes compensation expense phantom stock units straightline basis reduced estimated forfeitures phantom stock units accounted liabilities value tracks verint’s stock price subject market volatility total accrued liability verint phantom stock units 19 million 98 million january 31 2012 2011 respectively total cash payments made upon vesting verint phantom stock units 103 million 229 million 25 million fiscal years ended january 31 2012 2011 2010 respectively following table summarizes verint phantom stock unit activity fiscal years ended january 31 2012 2011 2010 comverse technology inc subsidiaries notes consolidated financial statements continued phantom stock units granted fiscal years ended january 31 2012 2011 2010 primarily vest twoyear threeyear periods subject applicable performance conditions unrecognized compensation expense related 90000 unvested phantom stock units expected vest january 31 2012 approximately 05 million based verint’s stock price 2828 january 31 2012 remaining weightedaverage vesting period approximately 07 years expense expected recognized stock bonus program september 2011 verint systems board directors approved december 2011 revised stock bonus program eligible verint employees may receive portion bonus year fourth quarter depending employees bonus plan form fully vested shares verint systems common stock date hereof executive officers verint eligible participate program subject annual funding approval verint systems board directors annual cap number shares issued subject limitations number shares issued program given year determined using fiveday trailing average price verint systems common stock awards calculated reduced discount determined verint systems board directors year extent program funded given year number shares common stock needed fully satisfy employee enrollment exceeds annual cap applicable portion employee bonuses generally revert paid cash shares verint systems common stock awarded pursuant program issued one verints stockholderapproved equity incentive plans fiscal year ended january 31 2012 verint systems board directors approved 150000 shares verint systems common stock awards program discount 20 shares verint systems common stock earned program fiscal year ended january 31 2012 expected issued first half fiscal year ending january 31 2013 verint recognized 32 million compensation expense stock bonus program fiscal year ended january 31 2012 19 discontinued operations december 3 2010 “effective date” ulticom inc completed merger “merger” affiliate platinum equity advisors llc “platinum equity” pursuant terms conditions merger agreement dated october 12 2010 “merger agreement” utah intermediate holding corporation “uihc” delaware corporation utah merger corporation “merger sub” new jersey corporation whollyowned subsidiary uihc result merger ulticom inc became whollyowned subsidiary uihc immediately prior effective time merger ulticom inc paid special cash dividend aggregate amount 641 million “dividend” amounting 574 per share shareholders record november 24 2010 cti received 424 million respect dividend pursuant terms merger ulticom inc’s shareholders cti received 233 cash without interest per share common stock ulticom inc payment dividend shares ulticom inc common stock held cti purchased affiliate platinum equity pursuant terms conditions share purchase agreement dated october 12 2010 following payment dividend immediately prior consummation merger consideration thereof cti received aggregate consideration 172 million amounting 233 per share consisting approximately 132 million cash ii issuance merger sub cti two noninterest bearing promissory notes originally aggregate principal amount 40 million first promissory note originally amount 14 million subsequently reduced 08 million connection purchase certain products ulticom paid ulticom february 2012 second promissory note amount 26 million payable cti following determination ulticom’s revenue 24month period beginning january 1 2011 subject reduction 40 difference 75 million revenue generated ulticom period note carrying amount january 31 2012 2011 prior sale ulticom inc majorityowned subsidiary cti ulticom constituted one company’s reportable segments ulticom inc previously classified heldforsale sale probable december 2 2010 date noncontrolling shareholders approved sale results operations ulticom including gain sale ulticom 29 million net tax reflected discontinued operations less applicable income taxes separate component net loss company’s consolidated comverse technology inc subsidiaries notes consolidated financial statements continued statements operations fiscal years ended january 31 2011 2010 results ulticom’s operations included discontinued operations follows company previously entered transactions ulticom supply circuit boards expected transactions continue purchases made company ulticom prior ulticom sale fiscal years ended january 31 2011 2010 11 million 30 million respectively amounts eliminated consolidated financial statements purchases made company ulticom subsequent ulticom sale fiscal years ended january 31 2012 2011 12 million 03 million respectively 20 loss per share attributable comverse technology inc’s shareholders basic loss per share attributable comverse technology inc’s shareholders computed using weighted average number shares common stock outstanding purposes computing diluted loss per share attributable comverse technology inc’s shareholders shares issuable upon exercise stock options deliverable settlement unvested dsu rsu awards included weighted average number shares common stock outstanding except effect would antidilutive dilutive impact subsidiary stockbased awards comverse technology inc’s reported net loss recorded adjustment net loss fiscal years ended january 31 2012 2011 2010 respectively purposes calculating loss per share comverse technology inc subsidiaries notes consolidated financial statements continued calculation loss per share attributable comverse technology inc’s shareholders fiscal years ended january 31 2012 2011 2010 follows result company’s net loss attributable comverse technology inc fiscal years ended january 31 2012 2011 2010 diluted loss per share attributable comverse technology inc’s shareholders computation excludes 08 million 09 million 07 million contingently issuable shares respectively effect would antidilutive fasb’s guidance requires contingently convertible instruments included diluted earnings per share dilutive regardless whether market price trigger met convertible debt obligations meet definition contingently convertible instrument convertible debt obligations excluded computation diluted earnings per share attributable comverse technology inc’s shareholders effect would antidilutive fiscal years ended january 31 2012 2011 2010 comverse technology inc subsidiaries notes consolidated financial statements continued 21 income expense net income expense net fiscal years ended january 31 2012 2011 2010 comprised following 22 income taxes components united states foreign income loss continuing operations income taxes follows provision benefit income taxes consists following comverse technology inc subsidiaries notes consolidated financial statements continued reconciliation us federal statutory income tax rate effective tax rate loss income tax provision equity losses earnings consolidated affiliate follows significant differences impact effective tax rate relate changes valuation allowance tax contingencies dividend received deduction difference us federal statutory rate rates foreign jurisdictions ulticom sale fiscal years ended january 31 2011 2010 income tax provision income tax return opening adjustments us tax effect foreign earnings remeasurement certain foreign assets addition significant changes include investments affiliates certain nondeductible executive compensation expenses comverse technology inc subsidiaries notes consolidated financial statements continued deferred income taxes provided effects temporary differences amounts assets liabilities recognized financial reporting purposes amounts recognized income tax purposes significant components company’s deferred tax assets deferred tax liabilities follows company’s operations israel granted “approved enterprise” status investment center israeli ministry industry trade labor makes company eligible tax benefits israeli law encouragement capital investments 1959 terms program income attributable approved enterprise exempt income tax period two years subject reduced income tax rate subsequent five fifteen years generally 1015 depending percentage foreign investment company us income foreign withholding taxes recorded permanently reinvested earnings certain subsidiaries aggregating 2559 million 1547 million 2074 million january 31 2012 2011 2010 respectively time determination amounts deferred us federal state income taxes foreign withholding taxes related foreign subsidiaries practicable january 31 2012 1703 million earnings certain subsidiaries considered permanently reinvested therefore related deferred us income taxes foreign withholding taxes provided portion earnings subsidiaries following countries considered permanently reinvested australia israel brazil canada hong kong new zealand mexico portugal netherlands united kingdom company net operating loss carryforwards tax purposes “nols” deferred tax benefits available offset future taxable income comverse technology inc subsidiaries notes consolidated financial statements continued company’s gross nols tax return purposes follows us federal net operating loss carry forwards expire various years ending january 31 2016 january 31 2032 us state net operating loss carry forwards expire various years ending january 31 2013 january 31 2032 january 31 2012 93 million foreign nols indefinite carryforward periods certain federal state foreign loss carryforwards credits subject internal revenue code section 382 similar provisions impose limitations utilization following certain changes ownership entity generating loss carryforward table reflects gross nols tax return purposes different nols financial statement purposes primarily due reduction nols financial statement purposes fasb’s guidance accounting uncertainty income taxes company us federal state foreign tax credit carryforwards approximately 751 million 422 million january 31 2012 2011 respectively utilization carryforwards subject limitations federal amt credit expiration date foreign tax credit carryforwards generally expire various years ending january 31 2012 2017 accordance fasb’s guidance relating accounting uncertainty income taxes company recognizes unrecognized tax benefits noncurrent tax liabilities following table reconciles amounts recorded unrecognized tax benefits fiscal years ended january 31 2012 2011 balances unrecognized tax benefits january 31 2012 2011 4039 million 3898 million 1329 million 1099 million represent amounts recognized may impact effective income tax rate future periods company recognized interest penalties related unrecognized tax benefits income tax provision company accrued 548 million 549 million interest penalties january 31 2012 2011 respectively company estimates reasonably possible balance unrecognized tax benefits january 31 2012 may decrease approximately 85 million next twelve months result lapse statutes limitation settlements tax authorities unrecognized tax benefits relate permanent establishment events related majorityowned subsidiaries tax positions amounts 22 million 40 million 23 million respectively significant tax jurisdictions company currently examination tax authorities include brazil canada france hong kong india israel united kingdom new york state new york city california company comverse technology inc subsidiaries notes consolidated financial statements continued currently discussions israeli tax authorities regarding tax adjustments fiscal years ended january 31 2006 january 31 2010 company anticipates reasonably possible new tax matters could raised tax authorities may require increases decreases balance unrecognized tax benefits however estimate increases decreases cannot made company files income tax returns us federal various state local foreign jurisdictions varying statute limitations january 31 2012 company remains subject assessment event examination major tax jurisdictions periods outlined company regularly assesses adequacy provisions income tax contingencies accordance fasb’s guidance result company may adjust liabilities unrecognized tax benefits impact new facts developments changes interpretations relevant tax law assessments taxing authorities settlements taxing authorities lapses statutes limitations company maintains valuation allowances morelikelythannot portion deferred tax asset may realized changes valuation allowances included company’s tax provision period change except items related additional paidin capital determining whether valuation allowance warranted company evaluates factors prior earnings history expected future earnings reversal existing taxable temporary differences carryback carryforward periods tax strategies could potentially enhance likelihood realization deferred tax asset company’s activity valuation allowance follows comverse technology inc subsidiaries notes consolidated financial statements continued 23 business segment information fiscal year ended january 31 2012 company changed reportable segments companys reportable segments consist comverse bss comverse vas verint results operations company included column captioned “all other” part companys business segment presentation operating segments included “all other” meet quantitative thresholds required separate presentation aggregation criteria segment reporting guidance specifically similar economic characteristics separately presented reportable segment changes reportable segments attributable implementation phase ii business transformation comverse focuses process reengineering maximize business performance productivity operational efficiency comprehensive discussion relating phase ii business transformation see note 11 restructuring part phase ii business transformation comverse restructured operations new business units designed improve operational efficiency business performance company recast presentation segment information fiscal years ended january 31 2011 2010 reflect reportable segments comprehensive discussion relating changes companys reportable segments see note 1 organization business summary significant accounting policies segment performance company evaluates business assessing performance operating segments ctis chief executive officer chief operating decision maker “codm” codm uses segment performance defined primary basis assessing financial results operating segments allocation resources segment performance company defines accordance fasbs guidance relating segment reporting necessarily comparable similarly titled captions companies segment performance defined management represents operating results segment without impact significant expenditures incurred segment connection efforts become remain current periodic reporting obligations federal securities laws expected eliminated time certain noncash charges certain gains charges segment performance computed management income loss operations adjusted following stockbased compensation expense ii amortization acquisitionrelated intangibles iii compliancerelated professional fees iv compliancerelated compensation expenses v strategic evaluation related costs vi impairment property equipment vii impairment charges viii litigation settlements related costs ix acquisitionrelated charges x restructuring integration charges xi certain gains charges compliancerelated professional fees compliancerelated compensation expenses relate fees expenses incurred connection companys efforts complete current previously issued financial statements audits financial statements b become current periodic reporting obligations federal securities laws c remediate material weaknesses internal control financial reporting compliancerelated professional fees compliancerelated compensation expenses recorded fiscal year ended january 31 2012 also relate fees expenses incurred connection timely filing certain periodic reports fees expenses expected eliminated time company enhances internal finance accounting personnel replace external consultants currently assisting preparation periodic reports strategic evaluation related costs include financial advisory accounting tax consulting legal fees incurred connection evaluation strategic alternatives including proposed comverse share distribution evaluating segments performance management uses segment revenue consists revenue generated segment including intercompany revenue certain segment performance adjustments relate expenses included calculation income loss operations time certain segment performance adjustments may presented adjustments revenue calculating verints segment performance fiscal year ended january 31 2012 presentation segment revenue gives effect segment revenue adjustments represent impact fair value adjustments required fasbs guidance relating acquired customer support contracts would otherwise recognized revenue standalone basis respect acquisitions consummated verint periods presented verint segment revenue adjustments fiscal years ended january 31 2011 2010 comverse technology inc subsidiaries notes consolidated financial statements continued tables present information total revenue total costs expenses income loss operations interest expense depreciation amortization noncash items segment performance fiscal years ended january 31 2012 2011 2010 1 noncash items consist writedowns property equipment capitalized software comverse technology inc subsidiaries notes consolidated financial statements continued 1 noncash items consist writedowns property equipment comverse technology inc subsidiaries notes consolidated financial statements continued 1 noncash items consist writedowns impairments intangible assets property equipment comverse technology inc subsidiaries notes consolidated financial statements continued company maintain balance sheets comverse bss comverse vas comverse mi operating segments therefore unable present total assets comverse bss comverse vas january 31 2012 2011 2010 total assets cti comverse verint starhome subsidiaries follows amounts reflect intercompany eliminations supplemental financial information discussed company revised reportable segments result implementation phase ii business transformation comverse manner codm reviews financial results comverse allocates resources companys operating segments company providing following additional information presenting results operations previous comverse reportable segment company believes presentation provides useful information investors regarding performance companys comverse subsidiary including comparability previously reported financial information additional information provided replacement subset business segment information presented results operations presented column “comverse other” relate operations companys comverse subsidiary companys comverse bss comverse vas reportable segments include comverse mi operating segment comverses netcentrex operations comverses global corporate functions support business units information presented “comverse other” includes unallocated global corporate function costs consistent prior internal allocation practices results operations “comverse other” included companys “all other” column comverse performance represents operating results companys comverse subsidiary without impact significant expenditures incurred comverse connection efforts become remain current periodic reporting obligations federal securities laws expected eliminated time company enhances internal finance accounting personnel replace external consultants currently assisting preparation periodic reports certain noncash charges certain gains charges comverse technology inc subsidiaries notes consolidated financial statements continued 1 noncash items consist writedowns property equipment comverse technology inc subsidiaries notes consolidated financial statements continued 1 noncash items consist writedowns property equipment comverse technology inc subsidiaries notes consolidated financial statements continued 1 noncash items consist writedowns impairments intangible assets property equipment revenue major geographical region based upon geographic location customers purchase company’s products services geographical locations distributors resellers systems integrators purchase products utilize company’s services may different geographical locations end customers revenue geographic region revenue geographic region percentage total revenue fiscal years ended january 31 2012 2011 2010 follows 1 foreign consists numerous countries none represents 5 total revenue fiscal year presented longlived assets primarily consist property equipment net capitalized software development costs net deferred costs revenue company believes property equipment net exposed geographic area risks uncertainties longlived assets tangible assets difficult move relatively illiquid comverse technology inc subsidiaries notes consolidated financial statements continued property equipment net country domicile consists following january 31 2012 2011 24 supplemental cash flow information following represents noncash activities supplemental information consolidated statements cash flows 25 related party transactions verint’s series convertible perpetual preferred stock may 25 2007 connection verint’s acquisition witness cti entered securities purchase agreement verint “securities purchase agreement” whereby cti purchased cash aggregate 293000 shares verint’s series convertible perpetual preferred stock “preferred stock” represents verint’s outstanding preferred stock aggregate purchase price 2930 million proceeds issuance preferred stock used partially finance acquisition preferred stock eliminated consolidation preferred stock issued purchase price 1000 per share ranks senior verint systems’ common stock preferred stock initial liquidation preference equal purchase price preferred stock 1000 per share event voluntary involuntary liquidation dissolution windingup verint cti entitled receive comverse technology inc subsidiaries notes consolidated financial statements continued assets available distribution verint’s stockholders distribution assets holders verint systems’ common stock amount equal thencurrent liquidation preference includes accrued unpaid dividends january 31 2012 liquidation preference preferred stock 3520 million terms preferred stock provide upon fundamental change defined certificate designation preferred stock cti would right require verint repurchase preferred stock 100 liquidation preference effect fundamental change events include sale substantially verint’s assets certain changes beneficial ownership board directors’ representation business reorganizations verint fails repurchase preferred stock required upon fundamental change number directors constituting board directors increased two cti right elect two directors fill vacancies upon repurchase preferred stock subject fundamental change repurchase right cti longer right elect additional directors term office additional director terminate immediately upon repurchase number directors without action reduced two addition event fundamental change conversion rate described section entitled voting conversion increased provide additional shares common stock issuable cti upon conversion based sliding scale depending acquisition price defined certificate designation preferred stock ranging zero 37 additional shares common stock every share preferred stock converted shares common stock cti holder preferred stock various rights preferences follows dividends cash dividends preferred stock cumulative calculated quarterly specified dividend rate liquidation preference effect time dividends paid declared verint’s board directors initially specified annual dividend rate 425 per share quarter ended january 31 2008 interest rate verint’s term loan prior facility reduced 50 basis points initial interest rate accordingly dividend rate preferred stock reset 3875 effective february 1 2008 rate subject future change event verint unable obtain approval issuance common shares underlying preferred stock’s conversion feature october 5 2010 verint systems’ stockholders approved issuance verint systems’ common stock underlying preferred stock accordingly dividend rate longer subject change verint prohibited paying cash dividends preferred stock terms prior facility continues prohibited paying cash dividends terms new credit agreement verint may elect make dividend payments shares common stock common stock used dividends declared would valued 95 volume weightedaverage price verint systems’ common stock five consecutive trading days ending second trading day immediately prior record date dividend preferred stock participate verint’s earnings described january 31 2012 dividends declared paid preferred stock date cumulative undeclared dividends preferred stock 590 million voting conversion preferred stock voting conversion rights underlying shares common stock approved issuance vote holders majority verint systems’ common stock october 5 2010 verint systems’ stockholders approved issuance verint systems’ common stock underlying preferred stock following receipt stockholder approval share preferred stock became entitled number votes equal number shares common stock preferred stock would convertible using conversion rate effect upon issuance preferred stock may 2007 matters voted upon verint systems’ common stockholders initial conversion rate set 306185 shares common stock share preferred stock addition following receipt stockholder approval issuance underlying common shares share preferred stock became convertible option cti number shares verint systems’ common stock equal liquidation preference effect divided conversion price effect initially set 3266 remained unchanged january 31 2012 conversion price subject periodic adjustment upon occurrence certain dilutive events january 31 2012 2011 preferred stock could converted approximately 108 million 104 million shares verint systems’ common stock respectively comverse technology inc subsidiaries notes consolidated financial statements continued since second anniversary preferred stocks issue date verint right cause preferred stock whole part automatically converted common stock conversion price effect however verint may exercise right closing sale price common stock immediately prior conversion equals exceeds conversion price effect specified percentage fixed 135 registration rights cti right sell preferred stock since november 25 2007 either private public transactions pursuant registration rights agreement cti verint entered concurrently securities purchase agreement “new registration rights agreement” subject certain conditions satisfied cti entitled two demands require verint register preferred stock andor shares common stock underlying preferred stock resale securities act 1933 amended “securities act” resales may made underwritten offerings upon cti’s request new registration rights agreement also provides cti unlimited piggyback registration rights certain securities act registrations filed verint behalf verint stockholders cti’s rights new registration rights agreement addition rights previous registration rights agreement cti entered verint shortly verint’s initial public offering 2002 registration rights agreement “original registration rights agreement” covers shares common stock held cti additional shares common stock acquired cti later dates original registration rights agreement cti entitled unlimited demand registrations shares registration statements form s3 long verint eligible use registration statement form s3 cti also entitled one demand registration statement form s1 cti used complete sale 23 million shares verint systems’ common stock secondary public offering january 14 2011 addition similar new registration rights agreement original registration rights agreement also provides cti unlimited piggyback registration rights sale shares verint systems’ common stock effective july 15 2010 cti made demand pursuant original registration rights agreement 28 million shares verint systems’ common stock registered registration statement form s1 january 14 2011 cti completed sale 23 million shares verint systems’ common stock secondary public offering aggregate proceeds net underwriting discounts commissions 765 million offering completed part initiatives undertaken management improve company’s cash position following completion offering cti maintained controlling financial interest verint systems’ common stock accordance fasb’s guidance accounted sale shares verint systems’ common stock equity transaction result fiscal year ended january 31 2011 company increased “additional paidin capital” 522 million b “noncontrolling interest” 45 million representing change ownership interest noncontrolling shareholders c “accumulated comprehensive income” 26 million gain recognized result transaction determined using company’s inside basis cost basis shares held value contributed ulticom’s 2010 special cash dividend december 2010 ulticom inc paid special cash dividend aggregate amount 641 million shareholders including cti ulticom inc’s minority shareholders paid 217 million special cash dividend paid immediately prior ulticom sale see note 19 discontinued operations ulticom’s 2009 special cash dividend stock option modification april 2009 ulticom inc paid special cash dividend 1996 million shareholders including cti ulticom inc’s minority shareholders paid 643 million additional 02 million payable holders deferred stock units awarded ulticom inc’s equity incentive plan upon issuance common stock subject awards effective april 21 2009 exercise prices outstanding options purchase 2982104 shares ulticom inc’s common stock reduced connection payment special cash dividend 458 per share reductions option exercise prices resulted change ulticom’s sharebased payment expense comverse technology inc subsidiaries notes consolidated financial statements continued 26 commitments contingencies guarantees company provides certain customers ordinary course business financial performance guarantees certain cases backed standby letters credit surety bonds majority cash collateralized accounted restricted cash bank time deposits company liable amounts guarantees event nonperformance would permit customer exercise guarantee january 31 2012 2011 company believes compliance performance obligations contracts financial performance guarantee liabilities arising connection guarantees material adverse effect company’s consolidated results operations financial position cash flows company also obtained bank guarantees primarily provide customer assurance relating performance certain obligations required customer agreements guarantee certain payment obligations guarantees aggregated 688 million january 31 2012 generally scheduled released upon company’s performance specified contract milestones majority scheduled completed various dates january 31 2013 unconditional purchase obligations ordinary course business company enters certain unconditional purchase obligations agreements purchase goods services enforceable legally binding specify significant terms including fixed minimum quantities purchased fixed minimum variable price provisions approximate timing transaction purchase obligations exclude agreements cancelable without penalty company unconditional purchase obligations approximately 767 million january 31 2012 obligations approximately 677 million due next twelve months 90 million due one three years warranty liabilities warranty liabilities significant company january 31 2012 2011 litigation overview except disclosed company believe currently party claims assessments pending legal action could reasonably expected material adverse effect business financial condition results operations proceedings related cti’s special committee investigations overview march 14 2006 cti announced creation special committee board directors “special committee” composed outside directors review cti’s historic stock option grant practices related accounting matters including limited accuracy stated dates option grants whether proper corporate procedures followed november 2006 special committee’s investigation expanded financial accounting matters including recognition revenue related certain contracts errors recording certain deferred tax accounts misclassification certain expenses misuse accounting reserves misstatement backlog special committee issued report january 28 2008 following commencement special committee’s investigation cti certain subsidiaries cti’s former directors officers named defendants several class derivative actions cti commenced direct actions certain former officers directors petition remission civil forfeiture july 2006 us attorney filed forfeiture action certain accounts jacob “kobi” alexander cti’s former chairman chief executive officer resulted united states district court eastern district entering order freezing approximately 500 million mr alexander’s assets order ensure cti receives assets mr alexander’s frozen accounts july 2007 cti filed us attorney petition remission civil forfeiture requesting remission funds forfeited mr alexander united states district court entered order november 30 2010 directing assets accounts liquidated remitted cti process liquidating assets completed proceeds assets accounts transferred class action settlement fund conjunction settlements direct actions defined consolidated shareholder class action shareholder derivative actions agreement settle shareholder class action approved court action pending june 23 2010 agreement settle federal state derivative actions approved comverse technology inc subsidiaries notes consolidated financial statements continued courts actions pending july 1 2010 september 23 2010 respectively see settlement agreements direct actions based special committee’s findings cti commenced litigations three former executive officers result misconduct relating historical stock option grants january 16 2008 cti commenced action mr alexander former chairman chief executive officer william f sorin former senior general counsel director supreme court state new york captioned comverse technology inc v alexander et al 08600142 january 17 2008 cti commenced action david kreinberg former executive vice president chief financial officer superior court new jersey captioned comverse technology inc v kreinberg nj super ct action discontinued january 8 2009 separate action commenced mr kreinberg supreme court state new york captioned comverse technology inc v kreinberg 09600052 actions captioned comverse technology inc v alexander et al comverse technology inc v kreinberg referred collectively “direct actions” direct actions asserted claims fraud breach fiduciary duty unjust enrichment connection defendants’ conduct related historical stock option grants part agreement settle federal state derivative actions approved courts actions pending july 1 2010 september 23 2010 respectively cti dismissed direct actions september 29 2010 see settlement agreements shareholder derivative actions beginning april 11 2006 several purported shareholder derivative lawsuits filed new york supreme court new york county united states district court eastern district new york defendants actions included certain cti’s former directors officers current director state court action cti’s independent registered public accounting firm cti named nominal defendant consolidated complaints state federal actions alleged defendants breached certain duties cti certain former officers directors unjustly enriched federal action violated federal securities laws specifically sections 10b 14a exchange act rules 10b5 14a9 promulgated thereunder among things allowing participating alleged scheme backdate grant dates employee stock options provide improper benefits recipients ii allowing insiders including certain defendants profit trading ctis stock allegedly possession material inside information iii failing oversee properly implement procedures detect prevent alleged improper practices iv causing cti issue allegedly materially false misleading proxy statements file allegedly false misleading documents sec v exposing cti civil liability complaints sought unspecified damages various forms equitable relief state court derivative actions consolidated one action captioned comverse technology inc derivative litigation 6012722006 august 7 2007 new york supreme court dismissed consolidated state court derivative action granting cti’s motion dismiss decision successfully appealed plaintiffs appellate division new york state supreme court decision issued october 7 2008 reinstated action federal court derivative actions consolidated one action captioned comverse technology inc derivative litigation 06cv1849 cti filed motion stay action deference state court proceeding motion denied court october 16 2007 cti filed motion dismiss federal court action based plaintiffs’ failure make demand board state court’s ruling demand required date various individual defendants also filed motions dismiss complaint april 22 2008 court ordered dismissal motions would held abeyance pending resolution appeal new york state supreme court’s decision state court derivative action december 17 2009 parties shareholder derivative actions entered agreement settle actions settlement approved courts federal state derivative actions pending july 1 2010 september 23 2010 respectively see settlement agreements company recorded charge associated settlement fiscal year ended january 31 2007 shareholder class action beginning april 19 2006 class action lawsuits filed persons identifying cti shareholders purportedly behalf class cti’s shareholders purchased publicly traded securities two actions comverse technology inc subsidiaries notes consolidated financial statements continued filed united states district court eastern district new york three actions filed united states district court southern district new york august 28 2006 actions pending united states district court southern district new york transferred united states district court eastern district new york consolidated amended complaint caption comverse technology inc sec litig 06cv 1825 filed courtappointed lead plaintiff menorah group march 23 2007 consolidated amended complaint brought behalf purported class cti shareholders purchased cti’s publicly traded securities april 30 2001 november 14 2006 complaint named cti certain former officers directors defendants alleged among things violations sections 10b 14a exchange act rule 10b5 promulgated thereunder section 20a exchange act connection prior statements made cti respect among things accounting treatment stock options action sought compensatory damages unspecified amount parties action entered settlement agreement december 16 2009 amended june 19 2010 approved court action pending june 23 2010 see settlement agreements company recorded charge associated settlement fiscal year ended january 31 2007 settlement agreements december 16 2009 december 17 2009 cti entered agreements settle consolidated shareholder class action consolidated shareholder derivative actions described respectively agreement settle consolidated shareholder class action amended june 19 2010 pursuant amendment cti agreed waive certain rights terminate settlement exchange deferral timing scheduled payments settlement consideration right credit “optout credit” respect portion settlement funds would payable class member elected participate bound settlement connection settlements cti dismissed direct actions messrs alexander kreinberg sorin turn dismissed counterclaims filed cti part settlement consolidated shareholder class action amended cti agreed make payments class action settlement fund aggregate amount 1650 million paid follows • 10 million paid following signing settlement agreement december 2009 • 179 million paid july 2010 representing agreed 215 million payment less holdback 36 million respect anticipated optout credit • 300 million paid may 2011 • 200 million paid october 2011 • 913 million representing remaining 925 million less amount optout credit exceeded holdback described paid fourth quarter fiscal year ended january 31 2012 825 million paid issuance 12462236 shares ctis common stock remainder paid cash terms settlement agreement cti received net cash proceeds sale certain ars held aggregate amount excess 500 million cti required use 500 million proceeds prepay settlement amounts referred cti received net cash proceeds sale ars aggregate amount excess 1000 million cti required use additional 500 million proceeds prepay settlement amounts referred addition cti granted security interest benefit plaintiff class account cti held ars held account ubs proceeds sales thereof restricting cti’s ability use proceeds sales ars amounts payable settlement agreement paid full january 31 2011 company 334 million cash received sales redemptions ars including interest thereon provisions settlement agreement applied classified “restricted cash bank time deposits” within consolidated balance sheet following payment cti remaining amounts payable settlement agreement security interest benefit plaintiff class ctis account terminated addition part settlements direct actions consolidated shareholder class action shareholder derivative actions mr alexander agreed pay 600 million cti deposited derivative settlement fund transferred class action settlement fund amounts payable mr alexander paid also part settlement shareholder derivative actions mr alexander transferred cti shares starhome bv representing 25 outstanding share capital comverse technology inc subsidiaries notes consolidated financial statements continued pursuant amendment mr alexander agreed waive certain rights terminate settlement received right credit respect portion settlement funds would payable class member elected participate bound settlement cti’s settlement claims class action contingent upon mr alexander satisfying payment obligations certain defendants direct actions shareholder derivative actions agreed pay cti aggregate 14 million 09 million received certain former directors relinquished certain outstanding unexercised stock options part settlement shareholder derivative actions cti paid october 2010 94 million cover legal fees expenses plaintiffs september 2010 cti received insurance proceeds 165 million directors’ officers’ insurance policies connection settlements shareholder derivative actions consolidated shareholder class action terms settlements mr alexander wife relinquished claims assets mr alexander’s frozen accounts subject forfeiture action united states district court entered order november 30 2010 directing assets accounts liquidated remitted cti process liquidating assets completed proceeds assets accounts transferred class action settlement fund agreement settle consolidated shareholder class action amended approved court action pending june 23 2010 agreement settle federal state derivative actions approved courts actions pending july 1 2010 september 23 2010 respectively january 31 2011 company accrued liabilities matter 1462 million amounts due settlement consolidated shareholder class action paid fiscal year ended january 31 2012 liabilities accrued respect matter january 31 2012 optout plaintiffs’ action september 28 2010 action filed united states district court eastern district new york caption maverick fund ldc et al v comverse technology inc et al 10cv4436 plaintiffs alleged cti shareholders purchased ctis publicly traded securities 2005 2006 2007 plaintiffs maverick fund ldc certain affiliated investment funds opted participate settlement consolidated shareholder class action described complaint named cti former chief executive officer certain former officers directors defendants alleged among things violations sections 10b 18 20a exchange act rule 10b5 promulgated thereunder negligent misrepresentation connection prior statements made cti respect among things accounting treatment stock options accounting practices cti timeline cti become current periodic reporting obligations action sought compensatory damages unspecified amount company filed motion dismiss complaint december 2010 hearing motion conducted march 4 2011 july 12 2011 court dismissed plaintiffs claims related purchase ctis securities 2007 claims andre dahan ctis former president chief executive officer avi aronovitz ctis former interim chief financial officer otherwise denied ctis motion dismiss december 19 2011 parties executed settlement agreement pursuant cti paid plaintiffs approximately 95 million december 28 2011 january 3 2012 parties filed notice dismissal january 4 2012 court dismissed action connection matter company recorded pretax charge 49 million fiscal year ended january 31 2012 representing amount settlement amount exceeded optout credit certain credits settlement agreement consolidated shareholder class action israeli optionholder class actions cti certain subsidiaries named defendants four potential class action litigations state israel involving claims recover damages incurred result purported negligence breach contract allegedly prevented certain current former employees exercising certain stock options company intends vigorously defend actions two cases filed tel aviv district court cti march 26 2009 plaintiffs katriel former comverse ltd employee deutsch former verint systems ltd employee katriel case number 133409 deutsch case number 133509 seek approve class actions recover damages claimed incurred result cti’s negligence reporting filing financial statements allegedly prevented exercise certain stock options certain employees former employees stipulation parties september 30 2009 court ordered cases including claims cti israel motion approve class action stayed resolution actions pending united states regarding stock option accounting without prejudice parties’ comverse technology inc subsidiaries notes consolidated financial statements continued ability investigate assert unique facts claims defenses cases date stay yet lifted two cases also filed tel aviv labor court plaintiffs katriel deutsch seek approve class actions recover damages claimed incurred result breached employment contracts allegedly prevented exercise certain employees former employees certain cti verint systems stock options respectively katriel litigation case number 344409 filed march 16 2009 comverse ltd deutsch litigation case number 418609 filed march 26 2009 verint systems ltd tel aviv labor court ruled lacks jurisdiction cases transferred tel aviv district court katriel case consolidated katriel case filed tel aviv district court case number 133409 subject stay discussed preliminary hearing tel aviv district court october 2011 deutsch case also made subject stay discussed company accrue matters potential loss currently probable reasonably estimable sec civil actions promptly following discovery errors improprieties related ctis historic stock option grant practices creation special committee cti special committee representatives met informed staff sec underlying facts initiation special committee investigation march 2008 cti received “wells notice” staff sec arising secs investigation ctis historical stock option grant practices certain unrelated accounting matters “wells notice” provided notification staff sec intended recommend sec bring civil actions cti alleging violations certain provisions federal securities laws june 18 2009 settlement cti sec respect matters announced date sec filed civil action cti united states district court eastern district new york alleging violations certain provisions federal securities laws regarding cti’s improper backdating stock options accounting practices including improper establishment maintenance release reserves reclassification certain expenses improper calculation backlog sales orders simultaneous filing complaint without admitting denying allegations therein cti consented issuance final judgment “final judgment” approved united states district court eastern district new york june 25 2009 pursuant final judgment cti permanently restrained enjoined future violations federal securities laws addressed complaint ordered become current periodic reporting obligations section 13a exchange act later february 8 2010 monetary penalties assessed cti conjunction settlement matters result actions principally taken senior executives cti terminated 2006 cti however unable file requisite periodic reports february 8 2010 result ctis inability become current periodic reporting obligations federal securities laws accordance final judgment court order february 8 2010 cti received additional “wells notice” staff sec february 4 2010 “wells notice” provided notification staff sec intended recommend sec institute administrative proceeding determine whether pursuant section 12j exchange act sec suspend revoke registration class ctis securities registered section 12 exchange act process established sec recipients “wells notice” opportunity make wells submission staff sec makes formal recommendation sec regarding action brought sec february 25 2010 cti submitted wells submission sec response wells notice march 23 2010 sec issued order instituting administrative proceedings “oip” pursuant section 12j exchange act suspend revoke registration ctis common stock prior filing annual report form 10k fiscal years ended january 31 2009 2008 2007 2006 sec october 4 2010 cti filed annual report form 10k since april 20 2005 quarterly report form 10q since december 12 2005 july 22 2010 administrative law judge issued initial decision revoke registration ctis common stock initial decision become effective sec issued final order would indicate date sanctions would take effect august 17 2010 sec issued order granting petition cti review administrative law judges initial decision revoke registration ctis common stock setting forth briefing schedule final brief filed november 1 2010 february 17 2011 sec issued order directing parties file additional briefs matter briefs filed march 7 2011 may 2011 sec granted ctis motion oral argument scheduled july 14 2011 july 13 2011 cti entered agreement principle secs division enforcement regarding terms settlement section 12j administrative proceeding terms subsequently reflected offer settlement made july 26 2011 sec accepted september 8 2011 terms settlement secs division enforcement agreed recommend sec resolve section 12j administrative proceeding comverse technology inc subsidiaries notes consolidated financial statements continued cti filed quarterly reports form 10q fiscal quarters ended april 30 2010 july 31 2010 october 31 2010 530 pm edt september 9 2011 reports filed july 28 2011 quarterly report fiscal quarter ended july 31 2011 timely basis report filed timely september 8 2011 september 16 2011 sec ordered termination section 12j administrative proceeding entry final judgment without imposition remedy section entry final judgment section 12j administrative proceeding resolved investigation alleged unlawful payments march 16 2009 cti disclosed audit committee board directors conducting internal investigation alleged improper payments made certain comverse employees external sales agents foreign jurisdictions connection sale certain products audit committee found conduct issue involve cti’s current executive officers audit committee also reviewed comverse’s existing prior arrangements agents audit committee commenced investigation cti voluntarily disclosed sec department justice doj facts advised audit committee initiated internal investigation audit committee would provide results investigation agencies april 27 2009 sec advised cti investigating matter issued subpoena cti connection investigation audit committee provided information cooperated fully doj sec respect findings internal investigation resulting remedial action april 7 2011 cti entered nonprosecution agreement doj sec submitted settlement agreement cti united states district court eastern district new york approval obtained april 12 2011 agreements resolved allegations cti certain foreign subsidiaries violated books records internal controls provisions us foreign corrupt practices act fcpa inaccurately recording certain improper payments made 2003 2006 certain former employees external sales agent comverse ltd subsidiaries connection sale certain products foreign jurisdictions nonprosecution agreement doj cti paid fine 12 million doj agreed continue implement improvements internal controls anticorruption practices policies settlement agreement sec cti paid approximately 16 million disgorgement prejudgment interest required conductbased injunction comply books records internal controls provisions fcpa company recorded charges associated matter fiscal year ended january 31 2009 legal proceedings addition litigation discussed company future may involved various lawsuits claims proceedings incident ordinary course business results litigation inherently unpredictable claims company whether meritorious could time consuming result costly litigation require significant amounts management time result diversion significant resources results lawsuits claims proceedings cannot predicted certainty however company believes ultimate resolution current matters material adverse effect consolidated financial statements taken whole indemnifications normal course business company provides indemnifications varying scopes customers claims intellectual property infringement made third parties arising use company’s products company evaluates indemnifications potential losses evaluation considers factors degree probability unfavorable outcome ability make reasonable estimate amount loss generally company encountered significant charges result indemnification provisions extent permitted state laws applicable laws company agreements agreed indemnify directors officers certain events occurrences director officer serving company’s request capacity indemnification period covers pertinent events occurrences company’s director’s officer’s lifetime maximum potential amount future payments company could required make indemnification agreements unlimited however company certain director officer insurance coverage limits company’s exposure enables company recover portion future amounts paid company able estimate fair value indemnification agreements excess applicable insurance coverage comverse technology inc subsidiaries notes consolidated financial statements continued 27 quarterly information unaudited following table shows selected results operations quarters fiscal years ended january 31 2012 2011 comverse technology inc subsidiaries notes consolidated financial statements continued unaudited quarterly information shown reflects presentation discontinued operations quarters fiscal year ended january 31 2011 result ulticom sale december 3 2010 see note 19 discontinued operations schedule condensed financial information registrant comverse technology inc parent company condensed balance sheets thousands except share per share data see notes condensed financial statements s1 comverse technology inc parent company condensed statements operations thousands except share per share data see notes condensed financial statements s2 comverse technology inc parent company condensed statements cash flows thousands see notes condensed financial statements s3 notes condensed financial information registrant 1 basis presentation comverse technology inc “parent company” holding company conducts substantially business operations subsidiaries parentonly presentation parent company’s investments consolidated subsidiaries presented equity method accounting losses subsidiary applied investment subsidiary balance advances subsidiary investment subsidiary balance reduced zero accordingly nontrade advances subsidiaries investments subsidiaries presented together “advances investments subsidiaries” condensed balance sheets parentonly condensed financial statements read conjunction comverse technology inc’s audited consolidated financial statements included item 15 annual report comverse share distribution parent company intends distribute 100 shares comverse inc parent companys shareholders pro rata basis comverse share distribution parent company currently exploring expects finalize announce structure result efficient method distribution comverse share distribution expected occur second half fiscal year ending january 31 2013 addition parent company exploring alternatives eliminate holding company structure either simultaneous shortly distribution comverse inc shares comverse share distribution subject number conditions including final approval transaction parent companys board filings completion review process securities exchange commission sec approval parent company shareholders final approval certain material agreements boards parent company comverse share distribution may also conditioned upon receipt favorable ruling internal revenue service regarding certain tax aspects distribution upon completion proposed comverse share distribution prior effect transaction would eliminate parent companys holding company structure parent company shareholders time distribution would continue hold equity parent company well 100 equity comverse inc verint strategic alternative exploration parent company exploring options maximize value equity interests verint benefit shareholders parent company verint ultimate execution alternative take account number considerations including without limitation tax efficiency depending upon circumstances separate recommendation verints directors officers parent company sale ulticom december 3 2010 parent company sold subsidiary ulticom inc third party “ulticom sale” aggregate consideration 172 million result ulticom sale results operations ulticom including gain ulticom sale 29 million reflected discontinued operations less applicable income taxes separate component net loss parent company’s statements operations fiscal years ended january 31 2011 2010 respectively restrictions access subsidiary cash parent company’s verint subsidiary longterm debt outstanding january 31 2012 2011 credit agreement contains certain restrictive covenants among things preclude verint systems paying cash dividends limit ability make asset distributions stockholders including parent company january 31 2012 2011 parent company’s comverse ltd subsidiary required maintain aggregate 280 million 250 million respectively compensating cash balances terms lines credit comverse ltd two banks restricting comverse ltd’s ability use funds addition pursuant investment agreements parent company’s starhome subsidiary precluded paying cash dividends shareholders without approval certain minority shareholders restricted net assets represent significant portion company’s consolidated net assets condensed financial statements presented “parentonly” basis 2 restricted cash auction rate securities january 31 2011 restricted cash includes proceeds received sales redemptions auction rate securities “ars” including interest thereon restricted terms consolidated shareholder class action settlement agreement addition january 31 2011 ars restricted pursuant settlement agreement see note 3 investments note 26 commitments contingencies consolidated financial statements disclosures relating s4 restrictions ars cash proceeds sale redemption ars january 31 2011 334 million sales proceeds including interest thereon classified “restricted cash” fourth quarter fiscal year ended january 31 2012 parent company paid remaining amounts settlement agreement using restricted cash received sales redemptions ars shares common stock accordingly ars remaining cash proceeds received sales redemptions ars became unrestricted accordingly january 31 2012 restricted cash balance parent companys condensed balance sheet 3 debt january 31 2012 2011 parent company 22 million aggregate principal amount outstanding convertible debt obligations “convertible debt obligations” fiscal year ended january 31 2010 parent company commenced tender offer accordance terms indenture pursuant parent company purchased 4173 million aggregate principal amount convertible debt obligations refer note 12 debt consolidated financial statements description significant provisions convertible debt obligations 4 commitments contingencies parent company party various actions comprehensive discussion see note 26 commitments contingencies consolidated financial statements shareholder class derivative actions december 2009 parent company entered agreements settle shareholder class action consolidated shareholder derivative actions aggregate amount 1744 million including legal fees expenses plaintiffs 94 million accrued fiscal year ended january 31 2007 agreement settle consolidated shareholder class action amended june 19 2010 pursuant amendment cti agreed waive certain rights terminate settlement exchange deferral timing scheduled payments settlement consideration right credit “optout credit” respect portion settlement funds would payable class member elected participate bound settlement agreement consolidated shareholder class action parent company paid plaintiff class 1602 million 825 million paid issuance 12462236 shares parent company common stock optout plaintiffs action december 19 2011 parent company optout plaintiff executed settlement agreement pursuant parent company paid plaintiffs approximately 95 million december 28 2011 january 3 2012 parties filed notice dismissal january 4 2012 court dismissed action connection matter parent company recorded pretax charge 49 million fiscal year ended january 31 2012 representing amount settlement amount exceeded optout credit certain credits settlement agreement consolidated shareholder class action sec civil actions july 13 2011 parent company entered agreement principle secs division enforcement regarding terms settlement section 12j administrative proceeding terms subsequently reflected offer settlement made july 26 2011 sec accepted september 8 2011 terms settlement secs division enforcement agreed recommend sec resolve section 12j administrative proceeding parent company parent company filed quarterly reports form 10q fiscal quarters ended april 30 2010 july 31 2010 october 31 2010 530 pm edt september 9 2011 reports filed july 28 2011 quarterly report fiscal quarter ended july 31 2011 timely basis report filed timely september 8 2011 september 16 2011 sec ordered termination section 12j administrative proceeding entry final judgment without imposition remedy section entry final judgment section 12j administrative proceeding resolved investigation alleged unlawful payments april 7 2011 parent company entered nonprosecution agreement doj sec submitted settlement agreement parent company united states district court eastern district new york approval obtained april 12 2011 agreements resolved allegations parent company certain foreign subsidiaries violated books records internal controls provisions us foreign corrupt practices act fcpa s5 nonprosecution agreement doj parent company paid fine 12 million doj agreed continue implement improvements internal controls anticorruption practices policies settlement agreement sec parent company paid approximately 16 million disgorgement prejudgment interest required conductbased injunction comply books records internal controls provisions fcpa parent company recorded charges associated matter fiscal year ended january 31 2009 5 sale shares verint systems’ common stock effective july 15 2010 parent company made demand pursuant original registration rights agreement 28 million shares verint systems’ common stock registered registration statement form s1 january 14 2011 cti completed sale 23 million shares verint systems’ common stock secondary public offering aggregate proceeds net underwriting discounts commissions 765 million sale shares verint systems’ common stock accounted equity transaction result fiscal year ended january 31 2011 parent company increased “additional paidin capital” 522 million increased “accumulated comprehensive income” 26 million reduced investments subsidiaries 45 million see note 25 related party transactions sale shares verint systems’ common stock consolidated financial statements detailed discussion 6 perpetual preferred stock subsidiary may 25 2007 parent company entered agreement subsidiary verint systems purchase aggregate 293000 shares verint systems’ series convertible perpetual preferred stock “preferred stock” aggregate purchase price 2930 million see note 25 related party transactions verint’s series convertible perpetual preferred stock consolidated financial statements comprehensive discussion including terms preferred stock 7 ulticom’s special cash dividends december 2010 ulticom inc paid special cash dividend aggregate amount 641 million shareholders parent company received 424 million remaining amount paid ulticom inc’s minority shareholders special cash dividend paid immediately prior ulticom sale april 2009 ulticom inc paid special cash dividend 1996 million shareholders parent company received 1353 million remaining amount paid ulticom inc’s minority shareholders see note 25 related party transactions ulticom’s 2010 special cash dividend ulticom’s 2009 special cash dividend stock option modification consolidated financial statements disclosure relating ulticom’s special cash dividends 8 discontinued operations ulticom inc majorityowned publiclytraded subsidiary parent company prior sale december 3 2010 comprehensive discussion ulticom sale see note 19 discontinued operations consolidated financial statements equity losses ulticom net tax gain sale ulticom net tax 29 million reflected discontinued operations less applicable income taxes separate component net loss parent company’s statements operations fiscal years ended january 31 2011 2010 respectively amounts included discontinued operations follows s6 schedule ii valuation qualifying accounts reserves 1 primarily consists allocation tax continuing operations discontinued operations additional paidin capital comprehensive income ii translation adjustments 2 included “accounts payable accrued expenses” consolidated balance sheets s7